How the economy is squeezing sports
The San Diego Padres owner wants out of baseball, while his counterpart at the New York Mets reportedly lost a fortune with Bernie Madoff. Neither the Dallas Cowboys nor the New York Giants can find a company willing to put its name on the door of their new stadiums. NBA season-ticket renewal rates are down. The Arena Football League is closing its doors — at least for now — while the Houston Comets basketball team, the original powerhouse of the WNBA, is folding the tent for good.
NBA Commissioner David Stern says the league says he's concerned about the economy's effect on the league, but he doesn't plan to scale back aggressive plans to grow the business in China and other overseas locations. "We're moving along prudently," he says, "We fully expect to have to work doubly hard when the economy is difficult."
For the first time anyone can remember, the usually bulletproof sports industry is feeling an economic pinch along with the rest of the world.
Make no mistake, pro sports should weather the economic storm better than most industries. People are passionate about sports and are willing to shell out cash for the diversion a game can provide. Still, teams and players will be making do with less for a while. As with any other business, sometimes it takes an economic slump to shake management into paying closer attention to costs.
"No one is immune," says NFL spokesman Brian McCarthy, whose league has seen a 1 per cent dip in attendance this year, even though most of those tickets were purchased well in advance of the financial crisis. Think of how many empty seats that could mean by the fall of 2009.
"We're concerned about next year's attendance," McCarthy says.
As a media-driven league, the NFL is less susceptible to a slump at the gate than most other sports. But other concerns include the drawn-out naming-rights sagas in New York and Dallas and the ability to charge premium prices for the post season games. The NFL is lowering prices 10 per cent across the board for January 2009 playoff games and scaling back some Super Bowl tickets to $500 US a pop from $800.
At the top of the endangered sponsor list is General Motors, traditionally a huge sports marketer that spends about $500 million annually to reach fans. Currently on its knees in front of lawmakers and begging for a bailout, GM is more concerned with hording cash and moving cars than with burnishing its image. So the company has made big cuts: Scaling back its college sports presence from official sponsorships to in-game advertising only, passing on any ads during this year's Super Bowl (last year it ran 11), while contemplating whether to renew its Buick/Tiger Woods partnership after 2009.
Extreme sports draw a young, desirable audience that is generally cheap for marketers to reach through sponsorships for events like the X Games. —Jed Pearsal, president of performancesearch.com
GM is also a longtime sponsor of the Daytona 500, Nascar's biggest race, a relationship the carmaker has yet to renew for 2009. Led by problems at all of Detroit's Big Three, Nascar is looking at a tough year.
President Brian France recently told an industry gathering that sponsorship revenue (which Nascar depends on more than most sports) will be slow in 2009 and that efforts to expand into untraditional markets like New York and Seattle will be put on hold for now.
It's not just Detroit. Mercedes Benz declined to renew its official sponsorship for the ATP tennis tour, though it will continue to sponsor some individual tournaments. The ATP is still looking for sponsors for six of its 63 tournaments scheduled for 2009.
Ironically, the tumultuous economy could play into the hands of niche sports leagues, already run on low-cost models and marketing affordability to fans. Extreme sports draw a young, desirable audience that is generally cheap for marketers to reach through sponsorships for events like the X Games, points out Jed Pearsal, president of performancesearch.com, which analyzes sponsorship benefits of sports and special events.
"With the lack of cost-effective alternatives, extreme-sport sponsorships can become an even more attractive medium for marketers in a down economy," he says.
Women's Professional Soccer, a start-up league set to kick off this spring, suffered a setback when a sponsorship deal with Whirlpool — an economic casualty that announced 5,000 layoffs for this year — fell through at the last minute. The league's seven inaugural franchises (due to expand to 10 by 2010) also figure to lose local sponsorship dollars in the weak economy. But the WPS still managed to snag Puma as an official sponsor. And with low overhead and tickets going for as low as $10 per game in some markets, the league is poised to offer itself up as a solid value proposition.
"We are fairly bare bones in our approach," says WPS commissioner Tonya Antonucci, who is targeting an average of 5,000 fans per game as the league-wide break-even mark. Sponsorship interest remains strong in sectors like personal care and insurance, she says, even as the financial and auto sectors are hibernating.
When will they wake? Good question.