The Coronavirus pandemic has sent shockwaves around the world, leading to a public health emergency that has already taken over one lakh lives and infected more than 13 lakhs as of now. COVID-19 has plunged the global economy into what the International Monetary Fund(IMF) warns could be the sharpest downturn since the great depression. And as a consequence, it has further put the global sporting calendar into disarray.
In pic: Top 10 professional sports leagues by revenue
In fact, all professional leagues around the world are suspended indefinitely in order to stop the spread of the virus. Such scenarios remove revenue from gate takings, significantly affecting sport media broadcasters and leads to knock-on effects for sponsors and advertisers. Even the Summer Olympics, one of the world's most-watched sporting broadcasts, has been pushed back a year. Let's first understand the business model of sports and how a sporting institution generates income:
The business model of sport:
Starting with the basics, there are the main income streams for sports leagues: from broadcasting (the sale of media rights), commercial (sponsorship, advertising, and partnerships) and matchday revenues (ticketing and hospitality). One must understand that sports leagues are analogous to entertainment companies. And there is nothing wrong with it. Those guys pumping in over a billion dollars every year should enjoy their share of profits too. In both sports and entertainment, the more the number of eyeballs on the product, the more valuable it is. All major sports leagues are reliant on broadcasting income as demonstrated by the chart below:
In pic: revenue breakdown of all major sports leagues
The global value of sport media rights is well above €50 billion. But around 60% of this amount can be accounted for ten big leagues itself. Although every sport monetizes differently, a general principle is that the organizing body distributes its income among participating clubs. Individual clubs generate their own income by signing sponsorship agreements or developing their own Direct-to-customer (d2C) media subscriptions. NBA's current TV deal is worth €21 billion over nine years while EPL's deal is worth €12 billion over three years. Major League Baseball's seven-year deal is worth €5 billion. The impact of the suspension of leagues will be enormous as no games mean no TV deals and no matchday income. No income literally means no club.
What strategy is the industry currently adopting:
In order to combat these huge losses, the industry is finding new ways to engage customers. In the absence of live games, ESPN and Fox Sports are broadcasting classic matches, archived contests, documentaries, and eSports in a bid to keep customers engaged. NFL has made every game since 2009 available on its d2C game pass. In difficult times like these, the industry is looking for alternatives. One is left to wonder how long would it take for this sector to return to its normal state once the lockdown is withdrawn.
In pic: eSports, a way forward?
A way forward:
Let's look at some long term solutions to tackle the current situation. The pandemic underlines how dependent the model is on TV broadcasts and live audiences. There needs to be a feasible solution so as to combat such situations in the future as well. The industry needs to accelerate the adoption of d2C to distribute sports content more effectively. Benefits include a large volume of content available online to keep people occupied and no fixed schedule to watch one's favorite matches. Organizations should look for a more diverse income strategy. In the UK, Subscriptions for Amazon's Prime membership increased by 35% in the Q4 of 2019, coinciding with its first-ever live streaming of the Premier League matches. Sports leagues across the globe should use eSports to maintain a sense of communication during the shutdown.
Also Read | Closed doors: A driving mechanism?
Writer's take:
Leagues should look at the digital side of sports so as to diversify their income streams, rather than adhering only to the TV rights sale. In adverse times like these, the ability of sports to bring people together is being missed more than ever. Stay home. Stay safe.
