Covid-19 and Sport’s New World Order

As I write this, more than 120,000 people are confirmed to have died from Covid-19 despite extensive social-distancing programmes globally. The true number is likely to be far higher.

The pandemic is primarily a human catastrophe and is the biggest global challenge of our generation. So as a father, husband, son, brother, former professional athlete and CEO, the last month has been spent primarily ensuring Two Circlers and their families’ health is protected to the best possible degree. And that will be the primary consideration long after this pandemic is over.

Of course, the direct correlation between health in society and the economy is well understood. All economists agree we will enter a global recession that will directly cause hundreds of millions of job losses; the abrupt halt of commercial activity has caused an economic pain so profound that recovery in every region could take years.

The most optimistic projections – such as from McKinsey on April 13 – show that the US economy, the world’s biggest, will return to its pre-crisis growth during Q4 of this year. Other projections show a far less optimistic outlook; Goldman Sachs, on March 31, said they believe the US economy will shrink an annualised 34% in Q2 of 2020, with GDP not reaching its pre-pandemic path before the end of 2021.

For our sporting microcosm, a lot will be written about the economic state of rights-owners, as the short-term outlook will be brutal and hard. That said, compared to most other industries, in recent times of economic adversity sport has proven to be recession-resilient.

The amount paid, for example, for 30-second ad slots during the 2009 Super Bowl, held four weeks before the Dow Jones hit its lowest level following the 2008 financial crisis, grew to $3m – up from $2.7m between 2005 and 2008. And less than a week after the 2009 Super Bowl, across the pond the Premier League increased the value of its domestic broadcast rights by signing a record £1.8bn deal. The harsh global economic climate showed little impact on sport’s commercial growth.

Theses have been written about why this is – but to summarise in a sentence, it is because in times of economic hardship, consumers have prioritised their short-term discretionary-spend-cutting on ‘bigger-ticket’ costs such as cars, holidays and house renovations over sport.

In testing times and with a growing experience economy, sport provides thrills, escapism and happiness. So in times of austerity, that treat more often than not involves sports above all else, and even where fans decide season tickets are too great a luxury, they will still cling on to their TV subscriptions and buy merchandise for birthday presents.

At Two Circles we’re data geeks, so it will come as no surprise that we track the value of the sports economy, and over the five-year period from 2014, our data analysis shows that the global sports industry¹ grew at a compound annual growth rate (CAGR) of 4.1% to reach $129.0bn in 2019. And pre-Covid-19, our projections were that the industry would grow by 4.9% year-on-year to reach $135.3bn in 2020.

As you can expect, this projection for 2020 is now being revised – with projections changing daily as the pandemic unfolds. However, by analysing past crises, we have been able to project the short-term impact on the three biggest revenue streams for sports rights-owners – eventday, sponsorship and media – for the first half of 2020.

As of April 20, our projections² show the global sports industry will generate $73.7bn this year, just over half ($61.6bn) of the pre-Covid-19 projection of $135.3bn. The depression is being driven by a complete shutdown of eventday businesses – with payments from broadcasters and sponsors either offset or rebated due to a deficiency of live content. Eventday is the worst hit – our modelling showing a shortfall of $21.2bn versus our pre-Covid-19 projection of $36.4bn for 2020.

Total Sports Revenue (Global)

These figures are probably unsurprising for anyone working in the sports industry, and whilst sport is halted, every corner of the sports industry will continue to feel this significant financial pain.

However, one thing we are certain about is the slump sport is experiencing will not be as stark – nor last as long – as the global recession, as history tells us that once live sport returns, either behind-closed-doors or with full houses, sport’s economy will thrive once again, albeit carrying some Covid-19 financial scars, and, of course, more robust insurance policies.

Paradigm Shifts

Over the next two months we will share a series of articles for how sports properties can best position themselves to thrive post-Covid-19 and ultimately return to profitable growth.

But before this, we think it’s important to explain the macro-trends at play in the sports industry – as all of our analysis indicates that when live sport returns, it will not simply be a case of picking up where we left off at the start of March.

Historians will tell you that, over the course of time, a sudden event has had a seismic impact on society and brought about fundamental paradigm shifts. Isaac Newton discovered gravity in the 17th century under quarantine as the Great Plague of London ravaged through the city. Good will come of this, as it did of that.

Covid-19 will shape the world – not just healthcare systems but politics, culture and behaviours – for generations. And in the world of sport, it will accelerate a paradigm shift in how sport is structured and how it is consumed – structural changes that have been demanded for years and consumption shifts that have been happening slowly since the dawn of the digital age.

Ultimately, this will see the sports landscape change more in the next decade than in several decades preceding it, driven from the top through the development of a New World Order – one where the biggest events command a greater share of attention, resulting in a consolidation where the bigger sports properties get bigger, new rights-owners come to the forefront, and smaller events are squeezed out.

The short-term impact of pausing live sport to help stem the spread of Covid-19 has been considerable. For many sports rights-owners – and others in their supply chains for that matter – this has resulted in a draining of cash reserves and/or the injection of new capital.

The bigger properties with deep financial backing will see this period through, albeit with cost-cutting measures and government support. And plans are already being made to enable them to host live sport safely before the pandemic fully subsides in front of empty stadiums – satisfying broadcast and sponsorship commitments and easing schedule congestion further down the line.

However, at the other end of the spectrum, the sad reality is the length of downtime will result in many smaller properties going out of business, with great uncertainty as to whether they will ever be able to return.

Though at the time of writing it is hard to say for certain who these will be, the teams and leagues in particular danger are those in sports reliant on cashflow from gate revenue, and/or without cash-rich owners prepared to finance them through the hiatus.

Just last week the XFL laid off all team and most league staff, cancelling the 2020 season with those close to the league saying there are no plans to return in 2021. Sadly, there are more stories like this to come – and some may have happened since I wrote this.

With live sport still months away from returning, in North America and most of Europe at least, this means the sporting calendar as was projected for 2020 and beyond will lose some of the teams, events and competitions that we were expecting at the start of the year.

New Battle for Attention

As a direct consequence of 2020 cancellations and postponements, a scheduling battle has also started.

The sports calendar as we know it has developed over decades of fragile co-operation between rights-owners, resulting in a cyclical global schedule providing regular, appointment-to-view live sport.

All our data indicates habitual, cyclical behaviours underpin the best events in the world. We all know the UEFA Champions League is the culmination of the club season with national team tournaments to follow. We all know the NBA season starts when the World Series is bringing the MLB season to an end.

And we all know the Olympic Games and the FIFA World Cup, the two biggest global sports events, take place in summers two years apart, and have done since 1948. The list goes on.

Any rights-owner that has tried to permanently break this has come unstuck, unable to convince athletes and their representative bodies to commit to their event without something else giving way. And those new sports that have found a gap in the calendar have had to plug events into an already over-saturated media landscape.

But Covid-19 has thrown the sports calendar as we know it into disarray. We were in a cycle of consuming sport in a certain way – and now it’s broken.

Any culmination of the 2019/20 NBA season will go head-to-head with 2020/21 MLB season – putting the two major leagues against each other for the first time, and giving both fans and broadcasters an attention dilemma they’ve never had before.

The move of the Tokyo Olympic Games to 2021, meanwhile, has caused the World Athletics Championships – originally scheduled for the summer of 2021 – to move to the summer of 2022 when both the European Athletics Championships and Commonwealth Games are taking place.

Though World Athletics say this will create an “extraordinary international season for athletics”, the reality is athletes will have to prioritise events over each other, and with other major events – such as the UEFA European Women’s Championship – likely to be taking place at the same time, so will broadcasters, fans, and to a less-but-still-significant-extent, sponsors.

Whilst our analysis has consistently shown there is more demand than supply in the sports’ fan attention universe, there will be losers in this scheduling battle. In addition to the sports that disappear either temporarily or permanently because of their inability to recover from the cancellation of live sport, the losers will be those events that get rescheduled to a date that negatively impacts the attention they receive, or don’t get rescheduled at all because they are deemed surplus to requirements.

Playing the Long Game

As Sebastian Coe said a year after the 2008 financial crisis, and three years ahead of hosting what many believe to be the greatest Olympics in modern times, great political, technological or artistic movements have come out of periods of great adversity.

In the sporting landscape that is developing, rights-owners have an opportunity to create – and accelerate – the things that were until now simply pipe dreams. Everything is on the table.

The winners in the New World Order will grow, or continue to grow, their viewership and engagement. And they will be able to do so by making unimaginable innovations with their product and introducing positive change that would have otherwise taken years without the blackout.

Currently most sports rights-owners, including our clients, are focusing brilliantly on engaging fans during the live-sport blackout. This is important during such times of uncertainty as fans look to the things that mean the most to them for entertainment and inspiration.

But we think that’s the short game – the long game is recognising that due to Covid-19, every event will have new pressures to overcome and that the best custodians of their sport, league, competition or club will be the rights-owners who focus on being ready to adopt new methods to engage fans, ensuring they benefit from continuing or creating new habits once the New World Order emerges.

For eventday businesses, this includes understanding how fans’ appetites for live experiences will evolve as a result of Covid-19. In sponsorship, tracking which brand sectors will increase or decrease spend will be critical, as will accelerating the development of digital sponsorship assets. For media businesses, meanwhile, developing and scaling direct-to-consumer media offerings will be key.

References:

1. 1. Cumulative revenue generated by professional sports rights-owners through their eventday businesses, and the sale of media and sponsorship rights
   2. Projections are based off actual revenue numbers for Q1 2020, and projections for the 2020 sports calendar correct as of April 20th, 2020