The spread of COVID-19 has forced major sports leagues around the world and college athletics to shut down for the foreseeable future. This obviously has a significant cultural impact on us all, but what about the economic impact on sports teams themselves? And is there anything they can do to fix it?
Sports leagues typically generate revenue in three main ways: the sale of media rights, sponsorships, and gameday sales. As of now, that third income stream has been completely wiped out. No one knows when this will end – and at what point the sports we know and love will resume. There has been discussion about resuming play without fans in the arena. While I’m sure players and owners want to resume their seasons and compete, playing without fans would have little immediate economic benefit to them.
The teams have already sold their media rights; they are not sold on a game by game basis, so right now broadcasters are eating that cost. It is estimated that broadcasts for the NBA, NHL, and MLB generated roughly $1.3 billion in advertising revenues from March to June 2019. Because no games are being played, no companies are purchasing airtime for their ads right now. The profits that broadcasters make from selling ads are what allows them to pay teams and leagues so much for the broadcasting rights. So, theoretically, resuming play without fans will have a positive economic impact by enabling broadcasters to sell ads and thus have the liquidity to pay for future contracts with leagues.
I expect if sports do resume, even without fans, the demand to consume the media streams will be through the roof. Sports fans have been deprived of March Madness, the NBA playoffs, the NHL playoffs, and the start of the MLB season so far. Fans will be eager to catch any live sports game on television to make up for all they’ve missed. As a result, broadcasters could likely raise the pricing of their airtime for ad placement. It’s a simple supply/demand equation. If I were in the position of a major sports league, I would consider finding creative ways of going after some of that extra ad revenue. While broadcasters are technically entitled to it all, they are fully dependent on the leagues to restart play, so broadcasters may be willing to strike a revenue sharing deal with the leagues (especially since teams and leagues will lose money playing games without gameday sales). This would make economic sense to both the broadcasters and sports leagues as each would be earning more revenue than they have for the past month.
While we often forget, sports are a business. And like any other business, they operate with the goal of generating profit. So while we fans hope that teams would just start playing to bring us joy and excitement, they’ll need economic incentive to push through these challenging and risky times to resume play. By negotiating a short-term deal with the broadcasters for payment for extraordinary media rights, teams would have more incentive to play without fans and the push they need to resume play despite the risks.