Will the credit crisis flatten big-time sport?
Columnist
By Spiro Zavos, 13 Oct 2008 Spiro Zavos is a Roar Expert
- Tagged:
- Australian rugby, John ONeill, Northern Hemisphere, Rugby League, Twenty20, USA
The New York Yankees are apparently having few difficulties in selling off the hugely expensive corporate boxes in their new ballpark. But as the world credit crisis deepens this might change.
However, there are so many billionaires in the USA that the couple of hundred boxes should be safe enough for the Yankees to bank on.
I’m reminded of the Hunt family, the Texas millionaires who bought the Dallas Cowboys in the 1960s. When they were told by some journalists that the team lost a $1 million the year before, one of the family mused for a while and then replied: ‘In that case we’ll be bankrupt in a couple of hundred years times.’
Right now the suggestions from people who should know is that while there will be some problems, in general the huge sponsorships of big-time sport will continue.
The UK Telegraph, for instance, has looked into most of the world sports and has concluded that right now the sponsorships will carry on. The Texas billionaire, Sir Alan Stanford, for instance, is intent on pushing ahead with his $20 million Twenty20 series in England next year.
There will be some spectacular failures, though, given the steep dive in the profits of financial institutions and the collapse of share prices around the world. The US market is at a 10-year low, with all the gains made in the decade wiped out. Some of the big bank sponsorships will now disappear.
So too will once-wealthy club owners like West Ham United’s Bjorgolfur Gudmundsson who has lost his fortune with the banking crash in Iceland.
Incidentally, this case points to the way that clubs in a number of sports in Europe have made themselves vulnerable by being taken over by wealthy individuals. This raises the issue of how some of the A-League clubs in Australia are going to get on if the crisis hit their owners.
Also, one would think that the franchise idea put forward by the ARU’s John O’Neill might have to be put on the back-burner. Macquarie Bank which is one of the strongest supporters of rugby had its share price down to $28 on Friday, after being as high as the $80 a year ago.
Rugby League has its TV contracts established for the next year or so and with the relative strength of the Australian economy, the localised nature of the sport has an advantage, for once.
Cricket has the Twenty20 game’s popularity and the vast numbers of Indian fans to keep the game afloat with money for years to come.
One benefit for Australian rugby is that its contracts with News Ltd are written in US dollars. With the Australian dollars plunging from almost parity a year ago with the US dollar to below 70c recently, the ARU has had a bit of windfall.
The days of gratuitous expenditures and outlays on players and their trips and training camps, though, is probably over. One would think that player contracts in sports like rugby will be pruned and that the excessive amounts of money offered to southern hemisphere players to play in the northern hemisphere will be cut back.
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Redb said | October 13th 2008 @ 8:38am | Report comment
Sponsorship and TV revenue provide the majority of dollars to many sports around the world and in Australia. Sponsorship will be clearly be harder to attract as corporates cut back on marketing dollars to reflect reduced profits in times of lower business turnover.
TV rights revenue is also at risk to some extent cnow but definitely in the future. Sure Sporting bodies have contracts now in place, but if the TV channels are unable to attract advertising due to the same reason sponsorship will be harder to come by, their revenue will suffer. A contract is a contract but if a TV station fails there goes the contract.
It is the fringe clubs of the AFL and NRL who will suffer first from sponsorship drain and they will look to their governing bodies for support. In the AFL’s case it has a sizeable warchest to assist struggling clubs. I guess News Ltd could bail out the NRL clubs.
What does it mean for new clubs in expanded competitions?
Redb
True Tah said | October 13th 2008 @ 9:06am | Report comment
In this sort of credit crisis, I think the community-based sports model (like AFL clubs) have an inherent advantage over the private equity model (like HAL clubs) due to the fact that private equity needs to make an ROI and a profit on behalf of its backers.
For example, it may well have an impact on the new Gold Coast United Club – Clive Palmer is heavily involved in mineral resources and I gather one of the reasons behind his decision to back the club was to build business relationships with the Chinese…I read in the AFR over the weekend, that several Chinese manufacturers have asked Australian resource miners to hold back. If we ultimately do less business with the Chinese, then how would that impact on Clive Palmers committment to the club?
Having said that, AIG doesn’t appear to have cut its sponsorship to Manchester United, despite requiring government support to stay afloat…so I guess the American taxpayer is partially funding an English futbol club!
True Tah said | October 13th 2008 @ 9:07am | Report comment
BTW Spiro,
great article and Im sure it will ensure a healthy debate.
For those who are interested, there is an article dealing with English futbol and the credit crisis in this morning’s SMH worth reading.
oikee said | October 13th 2008 @ 9:16am | Report comment
You know something spiro, redb, i have only been on this blog site for a few weeks, and the way some people carry on about sports you would think they are running the world. I had mentioned somewhere that the boutique sports will do well in the future and got laughed at and ridiculed for even making a suggestion like this and i talked about the economy at the time.
Football being such a large world player will be hit hardest, its only the tip of the iceburg at the momnet and i also said that sth africa is going to be its down-fall, i will stand by this remark and time will tell. Rugby will also be dealt a blow in europe.
Cricket 20/20 will also fall on hard times along with american sports, they are just too over-priced, the money does not match the game for what it really is worth. Rugby league as you said is well placed, this being my boutique sport as i have mentioned, and the t/v deal is a few years yet, 2012 is the expirery date so by then the economy will have changed.
Billionaires and sport dont mix in my mind, it turns the whole play of the game into a farce and inflates what the games are really about ansd worth, i will just sit back now and see how many clubs sink or implode .
oikee said | October 13th 2008 @ 9:21am | Report comment
Yes i also dont think the afl will be that affected true tah, they are another boutique sport.
Midfielder said | October 13th 2008 @ 9:27am | Report comment
The next few years will be interesting ……… it’s just a matter of time before this hurts some clubs ………. remember firepower ……….
Redb said | October 13th 2008 @ 9:38am | Report comment
True Tah,
I think your right AFL club membership provides considerable revenue for clubs and gets bums on seats. You can’t buy rusted on support, so this is good for existing clubs, more cautionary for expansion clubs.
EPL clubs running on casino capitalism would have found a salary cap mechanism useful to contain irrational expenditure. It is much more painful to contract than expand. The issue is how even the fall is across the differing competitions within each sport (futbol) and between sports (Rugby codes) .
Will rugby union suffer more than rugby league?, thus attracting more players and vice versa. The credit crisis is about creating winners and losers – a chaotic form of industry rationalisation.
Bubbles almost always burst – this ones a big ‘un.
Redb
Redb said | October 13th 2008 @ 9:41am | Report comment
TT,
AIG has a sponsorship contract and has been effectively bought by the American tax payer – it will be reviewed for value.
Redb
True Tah said | October 13th 2008 @ 9:46am | Report comment
Redb,
in the UK, I think rugby union is fairly safe, the clubs operate under a well-policed salary cap, and several own their one grounds. Both Leicester and Gloucester have recorded their highest ever season ticket sales.
Im not sure about France though, they do not have a salary cap, although the clubs are policed and audited by the governing body, but I predict things are not so sound there. In terms of crowds, Toulouse got over 30k to their game against Bath, so maybe my fears are premature.
I actually think Englsh futbol will level out a lot more, as the amount of billionaires will decrease. Those already in the game will stay there, but will probably find it harder to find the billions required to shell out for top level talent. So maybe we will see the likes of Wigan, Blackburn and Hull City push for the title? Plus futbol players might need to sell some of their bling and fancy cars and houses, but I dont foresee them having to make drastic changes to their lifestyles.
Pippinu said | October 13th 2008 @ 9:56am | Report comment
Will definitely affect new franchises. The AFL is already taking a closer look at its Gold Coast venture.
Some smaller AFL clubs, incl my own, the bullies, don’t have a major sponsor at the minute – if that persists for too long, it’s a huge chunk off the bottom line (for a club that struggles to break even at the best of times).
The AFL has experienced 18 years of constant growth, and may need to ready itself for a couple of years of stagnation (it will be hoping the decks are cleared before the next TV deal is up).
This comes at the worst possible time for the HAL – some readjustment of expectations is inevitable. It probably means little movement in the cap over the next few years, good for ensuring sustainability, not so good for the wow factor.
Gallop will be pleased that they have reigned in NRL salaries (after a mad period of unsustainable increases), and should ride it out, but with zero growth.