SBJ/March 17 - 23, 2008/World Congress Of Sports

Can sports weather storm?

The sky isn’t falling.

Despite a daily barrage of ominous reports chronicling the shrinking dollar, soaring oil prices and tightening credit markets, top property, sponsorship and marketing executives assured attendees of last week’s IMG World Congress of Sports that the industry remains impervious to an economic recession.

“We’re actually looking at this as a huge opportunity for us and for the industry,” said Bea Perez, Coca-Cola’s senior vice president of integrated marketing. “The break sports offers from the struggles of life can really capture consumers’ attention. For us, it’s ‘don’t ease up.’ It’s ‘do it bigger, do it better, do it stronger.’”

Don Garber
MLS commissioner

MLS Commissioner Don Garber, noting that there have been no signs of teams and leagues scaling back in anticipation of a recession, said, “Traditionally sports has been relatively inelastic, and the ups and downs of the economy haven’t had a significant effect in a consumer respect. It’s a very bullish time in the industry.”

Such attitudes are rooted in the sports industry’s resiliency during past economic downturns. There have been five bear market periods since 1973, and studies have shown attendance increases in the four major sports throughout each of them, unless a labor disruption occurs.

While a belief that sports will weather the storm once again was the predominant perspective of panelists and many attendees, the sentiment wasn’t universal.

“The problems are coming,” said Rich Luker, chief strategy officer for Relay Worldwide. “We’re not there yet. I’d be surprised if we’re not seeing some effects (of the economy and $4 gasoline prices) beginning between July Fourth and Labor Day.”

As the current economic slowdown unfolds, league executives report that attendance remains strong. NHL Deputy Commissioner Bill Daly said hockey is poised to break an attendance record this year. AFL Deputy Commissioner Ed Policy said that his league’s lower ticket prices will keep attendance strong. And both Major League Baseball and Major League Soccer, based on early sales for the 2008 season, are projecting attendance records. The NBA, grappling with a few particularly troubled franchises, is the lone exception to that trend.

“We basically are what we are,” said Lewis Wolff, owner of the Oakland A’s. The club for the last seven seasons has stayed in a tight range of annual attendance, between 1.9 million and 2.2 million. The A’s are budgeting again for 1.9 million to 2 million at the gate this season.

“We made the final four of baseball two years ago,” Wolff said, “and saw absolutely no bump from that, either at the gate or from sponsorship. It’s why we need a new facility and need to expand our market.”

Two key sports revenue drivers outside of the gate — sponsorship and advertising spending — won’t slow down either due to economic weakness, marketing executives said. Strong ticket sales reinforce the commonly held belief that consumers turn to sports in hard times as a distraction. As a result, brands see sports as an area of opportunity in a tightening economy. The difference now is that marketing activation is becoming more grassroots and locally oriented, just as many teams are making their attendance numbers through smaller individual ticket buys.

“This is the time for sponsors to turn to sports and work with sports in local markets because (consumers are) not going to be able to travel around and spend a lot of nights in hotels,” Perez said. “Going to the local baseball games, going to the local football games, going to soccer games — that’s where consumers are going to be spending their time with family and friends, and they’re going to want to have that break away from the struggles.”

Tony Ponturo, Bea Perez, George Gillett and Don
Garber (from left) discussed the economy and
other headline topics in the event’s first panel.

Added Tony Ponturo, Anheuser-Busch vice president of global media and sports marketing, “Sponsors are probably looking closely at their investment relative to the return because there’s a lot of pressure going into a recession. Making sure you’re getting the right return, making sure you’re getting the right value, from that standpoint, it will probably be a little tougher.”

A slowdown bodes well for sports media as marketers continue to spend against sports in an effort to reach consumers who are staying home and watching games more than they might have in the last few years. It’s a strategy that Hope Frank, Olevia’s chief marketing officer, calls “techno cocooning.”

“The recession is great for us,” Frank said. “People stay home more.”

The big question is: How long can sports remain sheltered from the strains on the broader economy? The industry has already felt some of the symptoms of a slowdown as strains on the credit market have challenged financing for deals such as those for the purchase of Liverpool FC and the Tampa Bay Lightning. Other areas that require large financial commitments may follow, and ad sales for some local TV and radio stations have begun to show weakness, even as national TV and digital buys continue to grow.

Garber expects that the naming-rights sector may be the next to feel a strain. The Washington Nationals and the New York Jets and Giants, for example, continue to seek high-dollar naming-rights deals for their new stadiums in large markets, many months after starting sales efforts. MLS’s Real Salt Lake still hasn’t sold the rights to its new stadium in a smaller market. Similarly, some pro teams in mid-tier markets have begun to struggle in their attempts to renew contracts for luxury seating.

Peter Ueberroth
USOC chairman

“The question is, What kind of impact is it going to have for the corporate community as they start taking on these big bets?” Garber said. “You’re not talking a one- or two-year commitment. You’ve got a long-term commitment on the stadium and on club seats, and that impact is something we just don’t understand.”

WCOS keynote speaker Peter Ueberroth, who chairs the U.S. Olympic Committee and heads his own private equity firm, the Contrarian Group, believes the other revenue streams in sports will feel the same pressures because consumers will feel a need to cut spending as gas prices and commodity prices continue to rise.

“Sports may get an uptick initially because it replaces something else that’s more expensive — a vacation or something else,” Ueberroth said. “It’s a lagger in that sense, but it’s coming, and the economy is suffering in a way that’s going to last for some time.”

Sports’ history as a “lagger” in tough economic times means that it won’t feel any pain until the second quarter of 2009, Luker said. He is studying the economy and conducting surveys for a report in June that will show how external factors affect sports and how variables such as rising gasoline prices affect discretionary spending.

Rich Luker

Because of fans’ strong affinity for their teams and the escape that those teams offer, sports are traditionally the last form of entertainment that consumers will sacrifice, Luker said. Six months after data shows that consumers cutting back on other forms of entertainment — vacations, amusement parks and movies — also will be cutting back on sports, he said.

“You have to understand: It’s not coming, it’s here,” Luker said. “The second thing to understand is, this is the start, not the end. The fact is many people who would love to be at the table in sports today can’t, but the people in the industry don’t see that because they don’t feel the same pain.”

But Luker and Ueberroth were the rare prophets of doom, or at least a little gloom. Most executives remained bullish.

“It’s hard to say with a straight face that sports is recession-proof,” said NBA Deputy Commissioner Adam Silver. “I think John Skipper (of ESPN) said it right when he said we’re recession-resistant. So far, we are, to the extent that we are in a recession.”

Staff writers John Ourand and Terry Lefton and correspondent Patrick Kinmartin contributed to this report.

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