SBJ/20100927/Up Next

Industry must adapt to decline in American spending on sports

The spending crisis continues. The amount of money Americans have to spend after paying their bills is down for a second consecutive year. Call it “spending money” or “discretionary income,” by any name, it is the pool of dollars used to sustain the American sports industry and it has decreased appreciably and in ways not likely to recover any time soon.

Seventy-one percent of American households earned

In August 2009, Luker on Trends conducted the first national study of discretionary spending on sports. No surprise, the study found that roughly two-thirds of Americans said they had less money to spend after paying bills in 2009 than they did in 2008 (see chart, top). More surprising, only 34 percent said they were at all likely to spend those dollars on “something related to sports.” They were a bit more likely to spend on technology (42 percent), but 86 percent said they were likely to spend on “getting together with family and friends.”

Second verse, same as the first. Results from the August 2010 reprise of the discretionary spending study are largely the same. Again, the majority of people feel they have less money to spend than they did the previous year. In addition, the number of people likely to spend on sports, technology or gathering with friends has fallen slightly from 2009 to 2010.

Let’s face it: We are not getting past this any time soon. The impact of this economy has already lasted more than two years. We believe the impact will continue for several more years and we are not alone in our thinking. The Conference Board has been studying discretionary spending for more than 40 years and its findings are consistent with ours. (see Forward Thinking with Lynn Franco).

DISCRETIONARY DOLLARS

Compared to this time last year, do you think you
have more or less money to spend or save after all your monthly bills are paid?

Percentage, by household income, who have less
to spend after the bills are paid

Luker on Trends/SSRS surveys show Americans remained hopeful, with a majority anticipating a better year to come in 2008, 2009 and again in 2010. But when asked about their present financial situation in those years, the majority said it was worse than the year before. Reality has not lived up to our hopes. We had half a century from 1950 to 2000 when relatively short recessions were followed by growth. That is not happening this time.

And in 2010, it appears the loss of discretionary income is reaching into higher income groups (see chart, center). Lower income groups are still more heavily affected, but the percentage saying they have less to spend has increased in households earning $50,000 a year or more while it declined in households earning less than that.

What does it mean?

Just because the economy bounced back quickly and even advanced after recessions in the past does not mean it will this time. Americans are even more cautious in their spending this year than they were last.

There have been clear advertising revenue gains in 2010 from increased consumption of free sports media. But is it realistic to think that we, as an industry, can just keep shuffling from one source of revenue to the next without addressing the crisis in Americans spending money when fundamentally Americans just can’t afford personal involvement in sports?

These aren’t just people below the poverty line. It includes families making $50,000 to $100,000 a year.

Among the lessons to be learned from the Great Depression is that the companies that emerged the strongest took bold risks to build new products and services appropriate for a new economic climate. It took a while, but now companies are taking entirely new approaches to business and finding success.

One of the six keys defining great companies in the book “Good to Great” by Jim Collins was the ability to confront the brutal facts of reality and act on them. I think we struggle here because most of the courageous decisions that need to be made to go about business in a new and better way are made by people who earn well over $150,000. These people have not been personally affected in their ability to enjoy everyday life and continue to do all the things they enjoyed in the past.


FUTURE FIVE
The economy is still the driving issue, and the order of the top five is unchanged, but first-place votes for labor negotiations doubled this quarter.

True leaders will confront senior executives with reality. Americans don’t have money to spend. The companies in the sports industry that realize this first and change the way they do business to reflect this new reality will be the first and strongest to emerge from the effects of a tough economy that are very likely to stay with us for a long time.

Rich Luker (rich@lukerco.com) is a consultant with The Luker Co.

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