SBJ/20110103/This Week's Issue

Forecasting 2011


"I still don't think we
are out of it completely
yet. The Western
slow-growth economy
is chugging, not
steaming."


Rick Dudley

Octagon

"Sponsorship business
is back to being big
business, in some
cases bigger than
ever."

Michael Lynch
Visa

"I'm not sure
that the recession
is over."


David Stern

NBA Commissioner


With the dawn of a New Year, it's instinctive to try to forecast the next 12 months for the sports industry. But that doesn't make it easy.

As the year begins, marketers are spending again and TV advertising and sponsorship — two of sports' most basic economic engines — are back to pre-recession levels.

With many marketing budgets restored, rudimentary questions still are being asked about the sports economy: What legacy will the recession have on the sports business? And after the biggest economic pullback in years roiled an industry accustomed to more, more and even more, is the ice on the pond solid enough now to walk out to the center?

Many of the industry's top executives still aren't so sure.


GETTY IMAGES

"I don't think you can talk about legacies in such a short term, since I'm not sure that the recession is over," said NBA Commissioner David Stern. "This is the second year in a row that our ticket prices are lower. It puts pressure on attendance in certain markets and focuses more on the business model and the ability to fund shortfalls."

Octagon President and CEO Rick Dudley said that his agency experienced solid growth in its North American marketing unit, and overseas, from events such as the FIFA World Cup in South Africa.

But Dudley still sees many potential minefields.

"We've adjusted our risk tolerance when it comes to things like acquisitions and adding internal capabilities from a two or three to maybe a five," Dudley said. "I still don't think we are out of it completely yet. The Western slow-growth economy is chugging, not steaming. You see so many possible speed bumps, whether it is Korea, sovereign debt in Europe, or growing debt in the U.S., that we are still wary."

Executives also cite dangers specific to sports that could have the ultimate chilling effect. "There's a trend, or maybe even an insistence, on ROI now in sports," said Neil Glat, NFL senior vice president of corporate development. "But it's tough to accurately forecast 2011, especially with the possibility of a work stoppage in several sports. That aside, the sports and media marketplace is trying to figure out what's the new normal."

Defining that "new normal" is about as simple as picking winning lottery numbers, and it varies widely from sector to sector.

Pre-recession, there was growing demand by brands for better ROI on the sports assets they purchase. Now they are insisting on metrics to pass up their corporate food chain.

But after multiple rounds of cutting costs and employees, many big companies are beginning to look at marketing campaigns again to help move product. "Things were absolutely dead in the water," said Doug Shabelman, president of Burns Entertainment & Sports Marketing, Evanston, Ill., which matches brands with sports and entertainment celebs. "[But] after a while, the big consumer goods companies said to themselves 'we still have to stimulate demand … and if we don't, we'll get buried by those that do.'"

As a result, both traditional and below-the-line marketing is healthy again, even if no one wants to proclaim "recovery" when unemployment is around 10 percent. Still, within areas that were moribund in the sports economy, there's a renaissance.

"Sponsorship business is back to being big business, in some cases bigger than ever," said Visa global sponsorship chief Michael Lynch. "On a global scale, you see governments more involved to landing big sports events, like the ones in Brazil, Russia and Qatar. And in some of the large categories, like banking and beer, you are seeing larger deals than ever."

Adds MLS Commissioner Don Garber, "We're seeing real areas of optimism and growth. Particularly in the area of sponsorship, companies are now willing to dive deeply back in. The difference now is that you'd better offer a much closer and direct consumer connection. It's not enough just to sell IP, you'd better be targeted, measurable, and have unique assets."

It's the same story for media companies, which are seeing ad revenue return to pre-recession levels.

Automobile advertising, in particular, has helped. Fox executives credit the auto sector for helping the Super Bowl broadcast become a virtual sellout early in the NFL regular season.

The automobile renaissance is helping other sports, as well.

"Luckily, we've overcome the legacy [of the recession] because the ad marketplace has come roaring back," said Fox Sports Networks President Randy Freer. "We could have been down for multiple years, but the marketplace has spun back."

ESPN President George Bodenheimer sounded a similar theme.

"Short-term, advertising sales obviously are back in a strong manner," he said. "Most notably, it affected our advertising sales and our advertising customers, many of whom cut back significantly during the early going of the recession."

Both Bodenheimer and Freer believe they earned good will from advertisers' during the recession by being flexible.

"We needed to be responsive to vendors who were having difficulty," Bodenheimer said. "I feel good about how ESPN weathered the storm."

Freer said the recession has changed the way FSN conducts its business.

"You can't sit there and assume that your advertising business is going to go up 5, 6, 7, 12 percent a year. If you provide more value and get closer to advertisers, you'll be rewarded with more business," he said. "Ultimately, what we learned from the recession is that we want to be in business with people. We don't just want to be a line item on a vendor list."

That kind of attitude, particularly from a sponsorship perspective, shows the maturation of a business that has long been accused of being "the corporate toy box."

"It's the progression of a business that started being about CEOs wanting tickets, suites, or to meet athletes," said Jim O'Connell, NASCAR vice president of corporate marketing. "The new reality is that you'd better be moving cases off shelves and have some way to demonstrate that."

Visa's Lynch called it "a natural evolution. … You are seeing newcomers, like P&G, get into this business now and that tells you that it can be an effective marketing tool, because they won't do anything that doesn't have a measured return."

Consumers and consumer marketers are struggling to define "value," the altered definition of which may be the ultimate legacy of the recession. "Retail has recovered, so that's helping anyone who sells products through that channel," said Mark Warsop, CEO of trading card licensee Panini America. For the trading card company, "the new normal" meant adjusting a mix of more cards per pack at a lower cost, with fewer of those including things like autographs and memorabilia. "We changed to adjust for where consumers are now," Warsop said.

Across sports and a multitude of consumer categories the same kind of transition is taking place.

When it comes to sports marketing, there's a mixed message. Pricey assets like Super Bowl ads are selling briskly, but title sponsorships, the ultimate big-ticket sports marketing sale, have been in the deep freeze. The Cowboys' new stadium in Dallas has received a multitude of accolades, but it still lacks a corporate moniker, even with the Super Bowl coming in a month. The new Jets/Giants stadium in North Jersey is also without a naming-rights deal. Value and the unwillingness of large corporations to take on title sponsorships while they are laying off employees are the two biggest impediments.

"It's poised to come back," said Rob Yowell of Gemini Sports Group, Phoenix, which is selling naming rights to the two-year-old home of the Arizona Diamondbacks' Class AAA affiliate in downtown Reno, Nev. Yowell noted smaller deals this year for retrofits like Sun Life Stadium or new venues like the arena in Louisville, Ky. "The larger domestic venues may take a while, but internationally the World Cups in Qatar and Brazil should produce some big deals. Domestically, you look at the dollars Chase is spending with MSG and it's just as big a number as the NFL stadiums want."

The sports sponsorship marketplace is cluttered enough that sponsors and potential sponsors are looking for new ways to conduct business, both physical and virtual. "We see a lot of money moving to the edges," said Wasserman Media Group founder Casey Wasserman. "The questions we're getting now are about how sponsors can improve the game for fans and get rewarded, and how sponsors take advantage of their investment with a sports property in a virtual/social media kind of way. Everyone's looking for those answers."

If there is a recovery in the sports economy, there are a couple of lagging indicators.

One is suites and other premium seating. It's a perception-reality problem. As a perceived corporate luxury, premium seating was among the first budgets eradicated by recession. Now, even with an improved economy, many corporations are loath to fully reinvest.

"The new normal for us is flexibility," said Peter Luukko, president and COO of Comcast-Spectacor, which owns the NHL Flyers, NBA 76ers and Wells Fargo Center, among other assets. "You need to have a lot more packages. We've got more shares than we've ever had, so we'll do suite nights with dinner and wine for a corporation, and ones with pizza and soda for a youth hockey team."

Luukko says at least one corporate hospitality client could save itself money if it bought a year-round suite, instead of buying individual nights as it does now. But the client continues to piecemeal nights together because "it looks better in their budgets to assign a night to each client or department."

Another lagging indicator is with video distributors, who pay the TV networks, who, in turn, pay the leagues.

"We certainly saw unemployment impact us [with higher disconnects]," said Tom Cullen, Dish Network's executive vice president of sales, marketing and programming. "Foreclosures hurt us. We started seeing that in 2008, so you have an early warning system when you have non-paid disconnects."

But Cullen allowed that Dish is "seeing some encouraging signs recently," with more consumers buying subscriptions and fewer unpaid disconnects.

For the NBA's Stern, it's those types of encouraging signs that create some optimism.

"In some ways, we may have more people watching more games on television than ever before as consumers seek to be entertained," he said. "Viewing is not down. Sports does very well in that. So there's a mixed message."

Steady on the optimism

Each month, the Turnkey Sports Poll asks sports executives to describe their confidence level regarding the next 12 months for their own business. The percentage saying they were optimistic was nearly the same in December 2010 as it was in December 2009. However, the level of optimism rose through the final quarter of 2010. The highlights:

  December 2010 November 2010 October 2010 December 2009
Optimistic 83% 80% 79% 84%
Neither optimistic nor pessimistic 8% 9% 10% 8%
Pessimistic 9% 10% 11% 8%

Source: Turnkey Sports Poll, conducted by Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. The survey covers more than 1,100 senior-level sports industry executives spanning professional and college sports.

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