SATURDAy, MARCH 21 , 2020. THE WASHINGTON POST EZ RE A
the coronavirus outbreak
BY STEVEN ZEITCHIKfor years, U.S. television net-
works have spent increasing
amounts of money on “sports
packages,” paying billions of dol-
lars for the rights to show base-
ball, basketball and other games
exclusively. The high fees were
justified because live contests of-
fered a unique asset — unskippa-
ble, real-time drama in the age of
DVr.
But that immediacy is now
proving to be a great weakness.
As the United States shuts down
events and entire cities, the
sports-entertainment hierarchy
is toppling at a scale experts say
they have never seen before. Ex-
perts say the depth of the destruc-
tion is so vast and so uncertain
that in many ways it is incalcula-
ble, even as many are trying to
calculate it.
“This is unprecedented,” said
Neal Pilson, the longtime head of
CBS Sports who now works as a
consultant. “Sept. 11 comes clos-
est, but I'm not sure how close it
really comes. There's going to
have to be an adjustment to the
very economic base of sports.”
Part of the reason for that is
that broadcasters have become
part of a highly interdependent
ecosystem. The fees that net-
works pay strengthen leagues,
which health then attracts view-
ers and advertisers, which in turn
bolsters the networks, which can
then turn around and pay even
higher fees. Disruptions at any
point affect the whole chain. only
the NfL, televised sports’ biggest
cash cow, has been spared — for
now.
“Sports broadcasting rights are
the mother’s milk of sports in the
United States,” said marc Ganis, a
longtime sports consultant and
adviser to numerous teams. “A nd
a lot people need to drink from it.”
Perhaps nowhere is that more
evident, Ganis and other experts
say, than march madness, the
men’s and women’s Division I
basketball tournaments that
were supposed to start Thursday.
CBS and Turner together pay
the NCAA $785 million a year to
broadcast the men’s tournament,
a stunning $330,000 per minute
of game action, not including
overtime. (Turner includes TNT,
TBS and TruTV.)
Now that the tournament is
canceled, the networks won’t get
a cash refund, however. It’s more
likely that they’ll negotiate an
extension of the deal at no addi-
tional cost. But that means the
networks will see an interruption
in cash flow, paying hundreds of
millions of dollars without the
corresponding ad revenue to
show for it.
“It may not hit them later. But
it will hit them now,” said Neil
Begley, a senior vice president at
moody’s who this week released a
report headlined, “Sports Cancel-
lations, Delays over Coronavirus
Are Credit Negative for media
Companies.”
And that ad revenue is signifi-
cant — the take for the men’s
tournament topped $1 billion forthe first time two years ago. A
30-second spot in last year’s
men’s final between Virginia and
Te xas Te ch — watched by an
average of nearly 20 million view-
ers — cost about $1.5 million.
While some of that inventory is
sold (itself to be refunded in the
form of free-commercial “make
goods”), not all of it is. CBS and
Turner did not comment for this
story.
meanwhile, the NCAA and the
schools that the tournament rev-
enue support could be in dire
straits. Some 72 percent of the
NCAA’s annual revenue comes
from the CBS-Turner deal.
Patrick rishe, director of the
sports business program at Wash-
ington University’s olin Business
School in St. Louis, said that one
of the greatest impacts will be on
smaller schools that typically geta major income boost from the
tournament — like the University
of Dayton, a small roman Catho-
lic school of 8,700 undergradu-
ates that was heading to a No. 1
seed this year.
“march madness benefits a lot
of parties,” r ishe said. “So when it
doesn’t happen it costs a lot of
parties.”
Also lost: the opportunity for
advertisers to promote their
brands. A slew of companies —
they include Capital one, Coke
and Turner parent AT&T — sell
products during the tournament.
That lost promotional impact
would be felt no place more than
at NBC if the Summer olympic
Games fall victim to the pandem-
ic. So far, the olympics remain
on, despite widespread calls for
their postponement. A cancella-
tion could be disastrous for NBC.NBC is already taking a hit
with the postponement or cancel-
lation of many of its spring
events, including the Kentucky
Derby, Stanley Cup finals and
french open.
Ye t it is the olympics that are
massively essential to NBC,
which paid about $1.1 billion for
the U.S. broadcast rights to this
summer’s Tokyo Games. That’s in
part because the high viewership
means high ad rates — a n average
of well over 25 million people
were watching many nights four
years ago, plus many more on
streaming, pushing ad rates up.
But it’s NBC’s ability to pro-
mote off the Games that truly
makes them so valuable. The
company not only plans to publi-
cize its upcoming shows there, as
it does off every Summer and
Winter Games, but it is launching
a new business off them: The
olympics are the kickoff event for
Peacock, the new streaming ser-
vice executives hope can compete
with Netflix, Disney Plus and
HBo max.
Asked to discuss the impact, an
NBC Sports spokesperson said
only: “The safety of our employ-
ees is always our top priority.”
ABC/ESPN and Turner also are
likely to suffer if the NBA’s cur-
rent suspension of its season
becomes a cancellation. While
much of the season had been
played before NBA players were
discovered infected with the cor-
onavirus, it’s the postseason
when the networks recoup their
$300 million annual payment.
Last year’s finals between the
raptors and Warriors saw aver-
age viewership top 18 million for
the last two games. Not havingthose games this year would
heavily damage ad revenue for
parent companies Disney and
AT&T.
The NHL’s suspension of its
season just weeks before postsea-
son play was to begin on April 6
will impact an unlikely player:
the regional sports networks that
are the sports’ primary broadcast
vehicles. NBC pays just $
million per year for broadcast
rights. But ratings in many local
markets are strong, and the sus-
pension of the stretch run as
teams jostle for playoffs and posi-
tioning would impact the compa-
nies that handle those.
That includes Sinclair’s Dia-
mond Sports Group, which com-
prises the nearly two dozen
sports networks that Disney sold
to Sinclair because regulators
didn’t allow the company to keep
them when Disney acquired fox.
Diamond has networks with
rights in several key NHL cities,
including defending Stanley Cup
champion St. Louis, currently
vying for a top seed in the West-
ern Conference.
The company also has local
baseball rights for the coming
season in the majority of major
League Baseball — a season now
very much in jeopardy. mLB has
delayed opening Day indefinite-
ly, and it could lose months of its
2020 season, according to Com-
missioner rob manfred.
“Diamond is exposed because
there are no games, and they’re
exposed because they need the
cash flow to pay down their debt,”
Ganis said. The company bought
the regional sports networks for
$10.6 billion.
[email protected]For the sports-entertainment business, a collapse of epic proportions
Broadcasters that r ely
on live events are f acing
near-incalculable lossesAARON DOSTER/ASSOCIATED PRESS
The University of Dayton men’s basketball team was 29-2, and
will miss out on a major income boost from the ncAA tournament.ing to a halt and the stock market
is in free fall. on Thursday, the
Big Three automakers said they
would close their factories
through march 30. real estate
agents have canceled open hous-
es. marriott, the largest hotel
company in the world, is closing
its hotels and furloughing thou-
sands of workers.
In a video message to employ-
ees, CEo Arne Sorenson said he
would not take any salary for the
rest of the year. The pandemic “is
like nothing we’ve never seen
before,” he said.
The sudden loss of hotel busi-
ness exceeded the combined ef-
fects of the Great recession and
the aftermath of the 9/11 terrorist
attacks. on average, hotel reve-
nue is down 75 percent, which
requires draconian retrench-
ment.
“I can tell you that I have never
had a more difficult moment than
this one,” said an emotional So-
renson. “There is simply nothing
worse than telling highly valued
associates, people who are the
very heart of this company, that
their roles are being impacted by
events completely out of their
control.”
on Wall Street, the bloodlet-
ting has continued almost with-
out interruption. After a brief
respite Thursday, stocks sank
again on friday. The Dow Jones
industrial average closed at
19,173.98, down more than
913 points, or 4.6 percent. Since
reaching an all-time high on
feb. 12, the Dow has lost 35 per-
cent of its value.
“Get out, get out while you can
before they shutter the whole
darn United States,” said Chris
rupkey, chief financial economist
for mUfG, wrote in a note to
clients. “A stunning reversal of
fortune for the best economy in
history to the worst economy in
history in not even two months.
The fastest recession in history.
With no one spending a dime, it
will stay that way a long, long
time.”
for small-business owners,
there is palpable fear of bank-
ruptcy.
Bryan DeHenau already has
filed for bankruptcy once before,
when the construction industry
crashed amid the Great reces-
sion. In the years since then, he’s
built up a roofing business in
hopes of developing a more reces-
sion-proof income stream.
Six weeks ago, he said, he had
work “coming out the ying-yang.”
Now business is down 50 percent
and he worries about obtaining
enough roof shingles for his re-
maining customers or dealing
with a potential lockdown if
michigan follows the lead of oth-
er states.
“We’re just trying to manage
day to day. It’s all you can do,”
DeHenau said. “But if everybody
is laid off, they aren’t going to be
buying a roof.”
[email protected]
[email protected]Last weekend, Walker had
$500 worth of babysitting and DJ
gigs lined up, but all her custom-
ers canceled, along with her en-
tire lineup of Airbnb guests this
spring. Her landlord is letting her
delay her rent payment, but she
knows it will eventually come
due.
“Those bills still have to be
paid. my debts keep accruing,”
said Walker, who hopes to estab-
lish a virtual after-school pro-
gram to keep some money com-
ing in. “What will send this coun-
try into a depression is all the bills
people will have to pay in two
months.”
Dean Baker, senior economist
at the Center for Economic and
Policy research, said a depres-
sion would involve a more pro-
tracted period of unusually low
activity than what seems likely.
“Everything depends on how
long we are effectively locked
down,” he said. “If it’s just two to
three weeks, then it need not be
this bad. But if we locked down
for most of the quarter, then we
are looking at a really bad story.”
The sudden turnaround in U.S.
economic fortunes is without his-
toric parallel. As 2020 began, the
U.S. economy had been expand-
ing without interruption since
the middle of 2009. The jobless
rate was near a half-century low,
and the stock market was headed
toward a record high.
Now, the economy is screech-to reduce our payroll in line with
the 60% schedule reduction we
announced for April. may’s
schedule is likely to be cut even
further.”
Lawmakers’ willingness to
countenance massive spending
and corporate bailouts in re-
sponse was one sign that Ameri-
cans increasingly recognize the
battle against the coronavirus in-
volves a stark choice between
health and wealth.
U.S. officials are deliberately
engineering a sharp recession to
blunt the spread of a fatal disease
for which there is no cure, defini-
tive treatment or vaccine. Gover-
nors in florida, New Jersey and
Nevada on friday all took or
indicated they would take signifi-
cant action to limit activity out-
side the home.
The only way to interrupt the
viral blitzkrieg is to implement
“social distancing.” But keeping
friends and co-workers apart is a
recipe for crippling the consumer
spending that drives 70 percent of
the $21 trillion economy.
Alexis J. Walker, 40, earned
about $60,000 last year with a
patchwork series of jobs — work-
ing a part-time job at an after-
school program in Philadelphia,
which ended a week ago; substi-
tute teaching; working as a nan-
ny; DJ-ing at parties; and selling
homemade shea butter — and
occasionally renting her apart-
ment on Airbnb.he might not even have a restau-
rant to return to if the pandemic
endures.
“I keep looking out my w indow
and everything looks normal, but
it doesn’t feel normal,” he said. “I
live downtown with bars and
restaurants, and nobody is here.”
Even Yellen, 73, has not es-
caped the anxiety. She is hun-
kered down in her Washington
home running economic fore-
casts that all look grim. Her son,
who flew home from London on
Saturday and was caught in the
mass of people at passport con-
trol at Dulles International Air-
port, is self-quarantining in the
family’s basement to avoid en-
dangering his mother. Yellen, one
of the world’s top economists,
leaves plates of food for him at t he
top of the basement stairs.
Senate consideration of a fi-
nancial rescue of more than
$1 trillion came amid mounting
signs of economic distress. In a
joint letter, United Airlines chief
executive oscar munoz and
union officials warned of immi-
nent layoffs and urged the air-
line’s nearly 100,000 employees
to lobby Congress for help.
“While many in Washington,
D.C. now realize the gravity of this
situation, time is running out,”
the letter said. “... To be specific,
if Congress doesn’t act on suffi-
cient government support by the
end of march, our company will
begin to take the necessary stepsmann, 34, normally handles 150
calls a day from people interested
in booking spa treatments and
massages. But on Saturday and
Sunday, s he received a total of six.
Her boss laid off most of the
staff monday morning. Tuesday,
it was Hartmann’s turn.
Her husband, who works as a
personal chef, also has lost his
job. He had a side gig driving for
Uber, but the college students
who were his main customers
disappeared earlier this month
when the virus forced the Univer-
sity of Virginia to close. Now, the
couple is worried about paying
their $1,300 apartment rent.
“I don’t h ave savings. my r ent is
so high that I live paycheck to
paycheck,” Hartmann said. “Ev-
eryone is talking about how the
coronavirus is affecting restau-
rants, but it’s affecting hotels,
spas and hospitality in general. I
don’t know how I’m going to pay
rent and pay my bills.”
The situation is much the same
in mount Clemens, a suburb of
Detroit. Steve manzo is a cook
and bartender at an Irish pub
who began the week anticipating
double pay for St. Patrick’s Day.
Instead, he lost his job monday
and spent hours on the state’s
unemployment website trying to
apply for government aid that
will make up less than half of his
typical $60,000 annual salary.
Like many, manzo lives pay-
check to paycheck and is worriedduring the 2008 financial crisis.
Next week, the Labor Depart-
ment is likely to report that
roughly 3 million Americans have
filed first-time claims for unem-
ployment assistance, more than
four times the record high set in
the depths of the 1982 recession,
according to Bank of America
merrill Lynch. That is just the
start of a surge that could send
the jobless rate spiking to 20 per-
cent from today’s 3.5 percent, a
JPmorgan Chase economist told
clients on a conference call fri-
day.
Estimates of the pandemic’s
overall cost are staggering.
Bridgewater Associates, a hedge
fund manager, says the economy
will shrink over the next three
months at an annual rate of
30 percent. Goldman Sachs pegs
the drop at 24 percent. JPmorgan
Chase says 14 percent.
“We are looking at something
quite grave,” s aid economist Janet
L. Yellen, the former federal re-
serve chair. “If businesses suffer
such serious losses and are forced
to fire workers and have their
firms go into bankruptcy, it may
not be easy to pull out of that.”
Little more than seven months
before the presidential election,
President Trump already is look-
ing past the crisis and promising
a swift recovery. “We’re going to
be a rocket ship as soon as this
thing gets solved,” he said Thurs-
day. “... We think it’s going to
come back really fast.”
most economists expect the
economy to begin climbing out of
its deep hole in the second half of
this year. But those forecasts de-
pend upon the pandemic being
brought under control and the
United States and other govern-
ments enacting policies that pre-
vent lasting harm to factories and
financial arteries. Even if all that
happens, the economy will be
smaller at the end of this year
than it was at the beginning,
according to Bridgewater, Gold-
man and JPmorgan.
The truth is no one knows what
will happen months from now.
No one on Wall Street or in
Washington has any experience
dealing with the kind of complex
threat that has suddenly materi-
alized to upend American life — a
global health scare that is stran-
gling the economy and disrupting
financial markets.
Individual workers and their
families — many only recently
recovered from the economic cat-
aclysm of 2008 and 2009 — are
already feeling the effects. The
unexpected economic shock has
put millions of Americans living
on the precipice of ruin. In a fed
survey last year, 39 percent of
Americans said they would be
unable to handle an unexpected
$400 expense.
Lyndsy Hartmann knew some-
thing was wrong last weekend
when she went to her job at a spa
company in Charlottesville. Hart-
economy from A
Once-rolling U.S. economy deteriorates at chillingly fast clip
JOHN MINCHILLO/ASSOCIATED PRESS
Visitors to the new york State Department of Labor were turned away at the door Wednesday because of coronavirus concerns.