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Blood sport: The boom turns into a glut
Published December 24, 2001
The headlines do not bode well for sports these days. And I am not talking about athletes being charged with criminal misconduct or the impending labor strife in Major League Baseball.
I am talking about the economic downturn affecting the entire sport sector.
Business Week last summer highlighted the overexpansion of golf courses in the Sunbelt, which has led to a glut of courses and lower property values. The golf sector is not unique. The 1990s were a decade fueled by Michael Jordan and the marketing hype surrounding sports as a medium to sell everything from beer to financial services.
The question that has to be raised is whether the current hard economic times, compounded by the attacks of Sept. 11 and their aftermath, will deflate sports marketing and the entire sport business sector. If the answer is yes, then we have to ask how much bloodletting will occur. Will the bloodletting be massive, will everyone go down, or will only the weakest entities be harmed?
Established major professional sport leagues and events might suffer minor effects with lower per caps from concession sales or with some casual fans attending fewer games. Speedway Motorsports Inc. announced it would trim its work force 18 percent by January. Smaller sports leagues and events that sprouted like wildflowers a decade ago are now folding, and even established leagues and events cannot make their rent payments.
A few months ago another league, the National Professional Soccer League, called it quits, though the league is reorganizing under a different name. The NPSL has joined other recently defunct smaller leagues in such sports as basketball, hockey and football.
Established companies such as Converse have been selling assets and trying to survive bankruptcy proceedings. Famous bike manufacturer Schwinn, which filed for bankruptcy protection in July even though it had a 25 percent share of the domestic bike market, had to sell off its cycling and fitness divisions. The number of bowling alleys in the United States declined almost 50 percent over the past decade and numerous facilities were bought by industry giant AMF. Now AMF has filed for bankruptcy protection for its 518 bowling centers in 11 countries. AMF reported a net loss of $200.6 million last year and has $1.45 billion in liabilities and $1.64 billion in assets.
The slump is not affecting just the sport sector of the entertainment industry. Based on first-half numbers, attendance at concerts in 2001 was down 12 percent.
The TV ratings for some leagues and events are down, attendance numbers have been flat or declining in many markets, and teams have been forced to resort to more gimmickry to get warm bodies into the seats. The XFL highlighted viewers' need for a quick jolt of something different before their return to apathy. The WNBA has been averaging a measly 0.4 rating this year on ESPN.
While these leagues do not truly represent the entire sports industry, they represent sunk financial investments from sponsors and advertisers who might decide to pursue their marketing goals through other mediums. Sponsors might have to decide with greater vigilance which sport marketing opportunities make the most sense or even if they still want to utilize sports or possibly switch to community-based events.
Are there just too many events, teams and facilities? Have we overhyped the industry so much that we are seeing a drop to a reasonably sustainable level?
The industry, minus the major leagues, might have had too much of a good thing a little too quickly. Similar to the dot.com craze, cities were willing to plow money into facilities in order to keep professional teams without sound economic analysis. Numerous economic impact studies espoused the value such facilities can bring to a community.
After the honeymoon period is over for a new facility and there's time to really examine the data, the results are discouraging. The reality of true public benefit, especially in austere economic times, will make new construction projects more difficult — as seen in Charlotte, where voters turned down an arena referendum last summer.
While there exist some troubles associated with any potential industry glut, admittedly deals are still being made. The international sport facility building boom is still strong as evidenced by the multiple venues being built in Japan, Greece and, soon, China. New projects are being discussed or launched in the United States. Companies such as H.J. Heinz are still willing to enter into naming-rights contracts for facilities, even though several facilities named after Internet companies have not guaranteed business success for the sponsors.
These successes are reserved mostly to the major facilities, though, while minor facilities are still facing hardships. The Arena at Harbor Yard in Bridgeport, Conn., is still looking for a naming partner even though the facility has been open for two months.
The "sport glut" can also be seen in the increase of sport management degree programs. From a handful in the early 1980s, there now exist more than 200 programs, with some programs being based in business rather than physical education departments. There are more than 3,000 undergraduates pursuing this major just in the Northeast. Will there be jobs for these students if this trend continues? Furthermore, will there be jobs in our industry that pay more than $20,000 a year? Will the continued low entry salaries scare away the best and brightest talent who will go to other industry segments with higher salaries? These are serious questions that need to be examined not just in the tough times, but even more so during the good economic times.
The bottom line from this spectator is that the sports industry is going through a maturity phase in the product life cycle analysis. We are going to see what works and what might be flashes in the pan. Sports marketers cannot just hope to utilize gimmicks to sell; they need to provide true values and true experiences.
Gil Fried is an associate professor in the School of Business at the University of New Haven.