Monday 6 April 2020 ★ FINANCIAL TIMES 15(^45)
FT BIG READ. SPORT
With coronavirus forcing events to be cancelled or postponed, the sport industry’s revenues are drying up.
Many executives believe the short-term disruption will fuel demands for wider change from broadcasters.
By Murad Ahmed, Mark Di Stefano and Anna Nicolaou
some Premier League football fixtures
as well as ATP Tour tennis, have
emerged as threats and are offering fans
cheaper, more tailored packages.
Realising broadcasters will have less
cash to spend on sports rights, some
such as Germany’s Bundesliga football
league have paused upcoming media
rights auctions. Industry executives say
privately they are braced for the value of
sports rights to fall, as TV companies
count the cost of the shutdown.
In the UK, Sky has allowed house-
holds and pubs to pause their expensive
sports subscriptions “until normality
returned”. Allowing customers to halt
subscriptions will cost Sky £700m if
accounts are paused for a period of four
months, according to Enders Analysis.
These pauses are leading to concern
about the longevity of expensive sub-
scription bundles that marry sport with
other entertainment channels, at a time
when viewers are slowly moving to a
pay-per-event model.
“Broadcasters and sports like the Pre-
mier League have been locked into the
hamster wheel of the big, fat bundle for
a long time now,” says one European
football broadcasting executive. “[Cus-
tomers are] going to get more and more
impatient with being locked in.”
In February, eMarketer predicted
28m American households will cancel
their cable TV subscriptions by the end
of this year. The research company now
suggests the current crisis will trigger
further falls. “All we can tell you is: the
forecasts are outdated,” says eMarketer
analyst Ross Benes.
Belt tightening
With finances under considerable strain
from coronavirus, many organisations
want to adapt in order to withstand the
next financial shock. World Rugby’s Mr
Gosper says governing bodies may need
to morph into regulators, closely moni-
tor accounts of their members and
enforce strict limits on spending.
Many competitions already have
these measures, but there are calls to
tighten existing regimes. Last year, F
introduced a “cost cap”, with no team
allowed to spend more than $175m,
although this does not include items
such as driver salaries and marketing
budgets. While most racing teams never
reach such a figure, the constructors
that do — Mercedes, Red Bull and Fer-
rari — dominate the sport.
Zak Brown, chief executive of
McLaren Racing, the F1 team, says the
current crisis means it will be “irrespon-
sible” not to reduce the cap further to
$100m, a move to ensure smaller teams
survive the shutdown. That will be
fought by the richest teams.
But Mr Brown reckons all sports
groups must face the reality of a poorer
future. “I think the damage caused is
going to [go] far beyond what has hap-
pened for four months,” he says.
“This is going to change the world.
When we get back to racing, I don’t
think everything simply picks up where
we left off.”
A contest for survival
have slashed salaries in recent days. In
England, leagues and clubs want players
to accept temporary salary cuts. But the
Professional Footballers’ Association,
the players’ trade body, has so far
rejected that call and instead sought a
deferral of wages.
Bailouts are planned. Fifa, interna-
tional football’s governing body, wants
to draw on its cash reserves of $2.7bn to
create an emergency fund for clubs,
national federations and governing bod-
ies. Enders Analysis, the research group,
says Europe’s football teams, considered
institutions in many cities and towns,
are also likely to receive government
assistance rather than be allowed to fail.
Brett Gosper, chief executive of World
Rugby, the international governing
body of rugby union, says it is working
on a “Marshall Plan approach”, wanting
to borrow against its capital reserves
worth between $150-$200m to back-
stop cash-strapped members.
“Obviously we don’t have enough
money to fund [rugby groups] to the
level they are used to,” he says. “But we
certainly can relieve some unions in
some cases which have high pressure
points.”
These efforts will not help emerging
competitions, such as women’s football
in the US and UK, which have sought
new investment to fund growth. And a
generation of young athletes, unable to
play and receive their first pay cheques,
may be forced out of the game alto-
gether.
Content problem
Broadcasters find themselves with
empty airtime to fill. Rather than NBA
basketball playoffs in April and May, US
sports network ESPN has been offering
viewers cherry pit spitting, hamburger
eating contests and a “national puppy
day” marathon. In the week up to March
2 2, ESPN’s primetime ratings were
down 29 per cent compared to the previ-
ous week, according to Bernstein.
The current lack of live sport is expos-
ing the business model of traditional TV
companies such as Disney and Warner-
Media in the US; Sky and Discovery in
Europe; beIN in the Middle East. Each
has invested billions in sports media
rights in the search for a rare asset in the
age of Netflix: a show that is best
watched live.
These companies recoup investment
— and seek to turn a profit — by selling
advertising alongside matches, asking
consumers to pay for expensive sub-
scriptions, or charging hefty fees to the
cable companies that run their chan-
nels. This model has inflated the value
of premium sports rights, and the indus-
try’s value as a whole.
In the US, the NBA in 2014 struck a
nine-year TV contract with Disney and
Time Warner totalling $24bn — more
than three times the value of its previ-
ous deal. Last year, the English Premier
League, the world’s most watched
domestic football competition, revealed
its domestic and international contracts
will be worth £9.2bn between 2019 and
2022, an increase of around £1bn from
the previous three years. Sports broad-
casting rights contracts worldwide
totalled $49.5bn in 2018, according to
SportsBusiness Consulting.
As coronavirus has become a world-
wide problem, defending the value of
broadcasting contracts has become crit-
ical. The Euro 2020 championships and
Copa América, flagship national team
tournaments in Europe and South
America, due to be played in June have
been postponed until next year. That is
designed to allow domestic leagues to
resume this summer to complete their
seasons. Some leagues are contemplat-
ing quarantining some players to allow
the resumption of matches as early as
May but without spectators, sacrificing
ticketing income to protect more valua-
ble broadcast revenues.
Formula One, the global motor racing
series, has called off Grands Prix in Aus-
tralia, Bahrain, Vietnam, China, the
Netherlands, Spain, Monaco and
Azerbaijan so far. Even so, it is drawing
up plans for a curtailed calendar of
between 14 to 16 races to begin later this
year, down from the scheduled 22. F
executives believe this is enough to sat-
isfy the broadcasting contracts worth
around $565m in 2019, around 40 per
cent of F1’s overall revenues.
One former F1 adviser recommends
caution, however, saying: “[There’s] no
way they will get that many races in.”
Tricky negotiations have begun
between sports leagues, broadcasters
and advertisers on who foots the bill for
lost coverage during the shutdown.
Some discussions are friendly, as many
TV companies do not want to jeopardise
relationships and future deals.
US broadcaster Turner has offered its
advertisers a full refund on inventory
they bought for the cancelled NCAA col-
lege basketball tournament, according
to Michael Neuman, partner for Scout
Sports & Entertainment, which man-
ages $900m in sports assets for TV and
digital advertising clients. The Interna-
tional Olympic Committee expects to
roll over its broadcast deals for the rear-
ranged Tokyo games in July 2021.
But DAZN, which has paid hundreds
of millions of dollars to stream football
and boxing worldwide, has told some
leagues it will not pay for games left
unplayed, while deferring payments for
future seasons. In France, beIN and
Canal+ have paused payments due to
organisers of Ligue 1 football because of
the lack of games.
The absence of live sport is also accel-
erating a debate within media circles
about the long-term future of funding
models for big broadcasters. Digital
groups like Amazon, which has
acquired the UK rights to broadcast
‘Imagine it
for them,
the players,
coaches.
They see
the finish
line, and
this
pandemic
is stopping
everything.
We’re all
living and
working on
the edge’
faced,” Simon Denyer, chief executive of
the television and internet sports
streaming group DAZN, wrote in an
internal email to staff.
Greater changes await. Broadcasters
are re-evaluating both the value of cur-
rent deals and business models that are
reliant on live sport to hold on to sub-
scribers. Sponsors are slashing spending
in response to an impending global
recession. The pay packets of leading
athletes will be depressed for months, if
not years, to come.
Even those imagining a glorious
future have had ambitions overturned.
Leeds United is top of the Champion-
ship, the second tier of English football,
and well placed for promotion to the
Premier League, the sport’s most valua-
ble domestic competition, where the
club would earn an additional £150m in
revenues. Instead, postponed fixtures
have led the players to agree to pay cuts
as they await games to restart.
“Imagine it for them, the players,
coaches... they see the finish line, and
this pandemic is stopping everything,”
says Leeds United owner Andrea
Radrizzani. “We’re all living and work-
ing on the edge.”
A ‘Marshall Plan’ approach
Analysts caution that it is too early to
calculate the damage to sport busi-
nesses. Consultancy KPMG predicts the
“Big Five” football leagues and their
member clubs in England, Spain, Ger-
many, France and Italy face a collective
hit of almost €4bn in lost broadcasting,
sponsorship and match day revenue if
the remaining games in their seasons
are not completed.
Some are expected to cope with the
cash crunch better than others. The
organisers behind the Wimbledon ten-
nis championships, cancelled this year,
and the Tokyo Olympics, postponed
until next summer, believe their insur-
ance policies will recoup the vast major-
ity of costs. But many football, rugby
union and cricket clubs are among those
to find their insurance arrangements do
not cover pandemics.
The shutdown has already brought
casualties: MSK Zilina, seven-time foot-
ball champions of Slovakia, and USA
Rugby, the sport’s national governing
body, are among those to declare bank-
ruptcy in recent days. Industry execu-
tives say if social-distancing measures
enforced in many countries continue for
many more months, bigger
franchises also face collapse.
Many are responding by
cutting costs. Even the
world’s two highest paid ath-
letes, footballers Lionel
Messi and Cristiano Ron-
aldo, have accepted pay
cuts or wage deferrals
alongside teammates at
Spain’s Barcelona and
Italy’s Juventus. English
Premiership rugby clubs,
Australian Rugby League
teams and top NBA execu-
tives are among those to
$2.7bn
Fifa’scashreserves,
whichitmaydraw
ontoaidstruggling
footballclubs
$49.5bn
Valueofsports
broadcasting
rightsworldwide
in
1 2 3
M
artin Slumbers usually
works from a wood-pan-
elled room overlooking
the 18th green of the Old
Course at St Andrews in
Scotland. The chief executive of the R &
A, golf’s governing body outside the US
and Mexico, says his office was closed
two weeks ago. The same goes for the
ancient links, the first time this has hap-
pened since the second world war.
The coronavirus pandemic has shut-
tered global sport, with North America’s
National Basketball Association and
Europe’s football leagues suspended
and the Tokyo 2020 Olympic Games
postponed. Others are at risk, including
Indian Premier League cricket due to
begin this month and the start of Ameri-
can football’s NFL season in September.
Yet to fall off the calendar is The Open
on July 16-19, one of the four annual golf
“majors”, which makes up the vast
majority of the R & A’s annual revenues
of around £90m. Mr Slumbers says all
options are on the table for this year’s
tournament in Kent, England and the
organisation has “rainy day reserves” to
withstand the financial hit should it be
forced to postpone or cancel the event.
But Mr Slumbers — in common with
sports administrators around the world
— is also thinking further ahead. He is
contemplating how to reduce expenses
for future tournaments, such as install-
ing a reduced number of grandstands
for spectators or having fewer golfers
compete. “The impact of this black
swan event will make us think of how we
manage the financial risk of The Open
Championship,” says Mr Slumbers.
Sporting groups across the world are
facing up to the same problems. With
the help of big money television and
branding deals, they have transformed
games played recreationally for decades
into multibillion-dollar enterprises.
Leading athletes are protagonists in
unscripted, unmissable dramas for
thousands in stadiums or billions
watching on screens. Sport is a uniting
passion. Until the coronavirus shut-
down, it was also a growing global mar-
ket, with sales in sport services and
related goods worth $489bn in 2018.
Now the business model of many
sports is under threat. While each one
has different characteristics, most of
their money is made in three ways:
broadcasting deals, sponsorship con-
tracts and “match day” income from
tickets, hospitality and spending during
events. These revenue streams are dry-
ing up.
There is optimism in some quarters
that the lockdown measures will be a
short-term blip to business. But many
sports executives believe there will be
lasting disruption. The willingness of
spectators to rush back to crowded sta-
diums will be tested. Many governing
bodies are scrambling to reorganise cal-
endars to ensure delayed tournaments
take place later this year.
“[This] is the biggest disaster to hit
the sports world in 75 years and the big-
gest challenge our business has ever
Sporting
cancellations
3 Indian Premier
League cricket
Season due to
begin on April 15
With India in
lockdown, there
are doubts if the
league will be
played this season
Pictured above,
MS Dhoni, who
plays for Chennai
Super Kings (2)
3 NBA Basketball
playoffs
From April 18
Matches in US and
Canada remain
suspended; NBA is
considering
curtailed playoff
schedule.
Above, a game
between the LA
Lakers and the
Golden State
Warriors (1)
3 Uefa Champions
League final
May 30
Postponed. No
new date for
Istanbul final
scheduled with
tournament
postponed
indefinitely.
Above, Manchester
City, which holds
the advantage
against Real
Madrid in the
Round of 16 tie (5)
3 Euro 2020
football
championships
From June 12
The tournament of
national sides, to
be held in 12
European cities,
has been delayed
until 2021.
Above, Portugal
must wait to
defend their 2016
title (4)
3 Tokyo Olympic
Games
From July 24
The IOC has
postponed the
games until next
July.
Above, Simone
Biles, who was due
to compete in
Tokyo (3)
Cristiano
Ronaldo and
Lionel Messi
have taken pay
cuts alongside
their Juventus
and Barcelona
counterparts
Getty Images
APRIL 6 2020 Section:Features Time: 5/4/2020 - 16: 51 User: nicola.davison Page Name: BIGPAGE, Part,Page,Edition: USA, 15, 1