With their multi-million dollar corporate sponsorships, state-of-the-art stadiums, and record-breaking contracts, its easy to understand why theres the misconception that the major sports leagues of America namely Major League Baseball, the National Basketball Association, and the National Football Association have built up a sort of immunity towards the
recession thats affecting so many other industries.
It may not be as apparent on the surface, since the business side of major sports gets masked by its mass appeal on an entertainment level, but the sporting industry has been forced to make some very drastic changes on account of the struggling economy.
Mitchell Zeits, a sports finance consultant in Mount Laurel, NJ, suggests that the reason why sports financial struggles arent obvious to the typical American is because sports have a defined set of revenue sources that show themselves on the surface. Sports are not recession proof, says Zeits. Its just that they may not feel it the same way other business feel it.
Since sports are an entertainment source, its leagues can profit in a variety of ways. Between sponsorship deals, television contracts and ticket sales, major league sports is a multi-billion dollar industry that publicizes its ability to spend and make money much more so than when they have to make cut-backs during tough times.
National Football League Commissioner Roger Goodell recently announced that the NFL predicts it will miss its $7 billion gross income projection for 2008 by $50 million. The current situation is forcing Goodell and his advisors to go back to the drawing board and make some budgeting cutbacks. One such cutback is the pending layoff of 150 jobs in the NFLs front-office.
Goodell addressed the matter by saying I would like to be able to report that we are immune to the troubles around us, but we are not. He also stated that the NFL will try to cut as many jobs as possible (out of the planned 150) through a
voluntary buyout program, but layoffs may be necessary. In all, the NFL plans to lose 15% of its staff and reduce expenses by $50 million annually. The news comes on the heels of similar announcements by Major League Baseball and the NBA, who have already had to let go of numerous employees throughout their front offices this year.
The NFLs financial woes are in large part due to cutbacks in advertising from U.S. automakers. Automakers are the largest single category of advertisers for the sporting industry and their second quarter ad spending was down 18% this year compared to last. General Motors recently made the decision to cut their entire Superbowl advertising budget this year, and Buick, whos owned by GM,
cut its $7 million a year endorsement deal with golfer Tiger Woods just last month.
The domino effect seen in advertising cuts applies to ticket sales, as well. In an effort to ensure that attendance remains steady so that brand companies will continue to throw their advertising budgets towards sports, the NFL, which shares 40% of each teams admission revenue, has lowered the price of playoff tickets by 10%.
The NBAs New Jersey Nets are offering a
Buy Now, Pay Later deal on season tickets in attempt to get people to the games. Additionally, nearly half of the teams in Major League Baseball have had to either freeze or decrease the cost of regular season tickets, a decision that goes against baseballs notorious trend of constantly increasing ticket prices. The Cleveland Indians have gone so far as to cut ticket prices for weeknight games in the colder months of April and May by as much as 50%.
According to Larry Baer, President of the San Francisco Giants, trends like the aforementioned should continue as the economy remains in recession: Youre going to see a lot of teams tailoring products to defy the economy.
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