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Cash bang wallop

28 May 2020 By Christopher Thompson, Anna Szymanski

Empty sports stadiums could turn into Covid-19’s most abiding cultural legacy. Since the World Health Organization declared a global pandemic in March, virtually all sporting events have been cancelled, including this summer’s Olympic Games in Tokyo and Europe’s flagship soccer tournament, Euro 2020. Even those which have tentatively restarted, like South Korea’s KBO baseball league and Germany’s Bundesliga soccer division, have plied their trade in eerily vacant arenas. America’s National Hockey League on Tuesday said it would complete the season, but probably without fans.

The immediate financial damage is considerable. Tickets and sponsorship account for over half of the $71 billion annual revenue earned by North American sports, according to PwC, and around two-fifths of sales among Europe’s richest soccer leagues. But the fact that bars across the United States are televising Seoul’s Doosan Bears baseball team while Premier League soccer fans are watching Bayern Munich suggests broadcasters could win even as stadiums lose. If fans needing their fix of, say, basketball superstar LeBron James or Barcelona forward Lionel Messi have no option but to tune in then more valuable media rights could cushion lower sales elsewhere.

Competitions that already have an established TV following will benefit most. If England’s Premier League could increase its 2018 broadcasting revenue by 24%, or 757 million pounds, it would offset ticket sales entirely.

The timing of the pandemic could benefit major North American sports that have rights deals expiring in the next five years, like the National Football League. In an April report, researchers at MoffettNathanson estimated that when the NFL renegotiates its broadcasting deals, the total annual cash costs could increase to almost $9 billion – with the average price for Sunday games spiking by a whopping 75%. This would make regular season ticket sales – which made up around 15.5% of the NFL’s $14.5 billion in total revenue in 2018, according to Statista – even less meaningful.

For less popular leagues, the opposite is true. Lower European soccer teams often rely on gate receipts for over half of their income, raising the prospect of hefty wage cuts for players. One way to bridge that gap would be for wealthier clubs to establish a “solidarity fund”. Novak Djokovic, the 17 times tennis Grand Slam champion who has earned some $144 million in career prize money, has called on the sport’s governing bodies to establish a hardship fund for lower-ranked players.

Extra TV cash isn’t a slam dunk though. Contact sports such as ice hockey, basketball and soccer all rely on live crowds to generate the excitement vicariously enjoyed by fans at home. Even assuming higher ratings, broadcasters may be reluctant to stump up more money for matches played in front of empty bleachers.

That could allow sports which rely less on crowd-generated frisson – like auto racing or golf – to lure new viewers. Still, the excitement can be hard to maintain. Over 33 million Americans, on average, tuned in to NBC to watch U.S. gymnast Simone Biles win a gold medal with her team in 2016. But a U.S. Gymnastics Championships event featuring her in a non-Olympic year brought in less than one tenth of that audience.

More couchbound viewing will also blur the line between real and virtual games. Formula 1 passed a historic milestone in March when Guanyu Zhou became the first Chinese driver to win a Grand Prix race. That was because Bahrain had turned its annual contest into a virtual contest, attracting an estimated 3.2 million viewers.

Watching others play video games may seem bizarre for older sports fans. But e-sports events, which Deloitte reckons generated an estimated $1 billion in sponsorship and advertising globally in 2019, already attract vast audiences. The 2019 World Championship Finals for League of Legends – a wildly popular multiplayer game – hit a peak of 44 million concurrent views. For comparison, an average of around 16.5 million people watch a regular season NFL game.

Even when stadiums reopen, it may be difficult to lure fans back. Social distancing rules will mean fewer seats and, eventually, higher prices – not to mention longer queues. That would turn watching live sports into a niche pursuit, dominated by corporate hospitality and a hardcore group of well-heeled season ticket holders. Such staid crowds would hardly make games more compelling to watch at home. But giving fans better access to team sidelines or enhanced in-game statistics could compensate for the lack of pitchside enthusiasm.

Covid-19 might have hammered live sports and increased broadcasters’ financial grip. The challenge will be persuading viewers at home to pay up for the privilege of tuning in.

(This is part of a series of insights from Breakingviews columnists examining how the Great Lockdown to halt Covid-19’s spread will affect business, finance, economies and markets.)


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