Tuesday, March 17, 2020

For U.S. Sports Leagues The Cost Of Coronavirus Is $5 Billion. And Climbing


Kurt Badenhausen Forbes Staff Mar 17, 2020,02:57pm EDT
When Utah Jazz All-Star Rudy Gobert tested positive for the coronavirus last Wednesday, it triggered the NBA and other sports leagues to suspend play. Many fans thought (hoped?) teams would be back in action sometime in April. No more. The Centers for Disease Control’s recommendation on Sunday for Americans to cancel or postpone events with 50 or more people over the next eight weeks almost certainly means no pro sports before mid-May at the earliest.
No March Madness. No Masters. No opening day for baseball fans. Not even a Kentucky Derby. In fact, if you are looking for a sports fix, your only option will be WrestleMania, which as of Tuesday morning, is scheduled to take place, without fans, at WWE’s training facility in Orlando on Sunday.
For major sports properties alone, the cost of being sidelined for two months will be at least $5 billion, according to Forbes calculations, which includes lost sales of tickets, concessions, sponsorships and TV rights fees. Baseball alone represents almost 40% of the total ($2 billion), while the NBA is facing a loss of about $1.2 billion in revenue and the NCAA about $1 billion. The NHL, Nascar and MLS are potentially on the hook for a combined $900 million.
The above assumes the NBA and NHL seasons will resume at some point in June, which could lead to a massive spike in viewership for beleaguered fans weary of home containment. A longer stoppage – or complete cancellation of basketball and hockey plus a half season delay for baseball — could trigger more than $10 billion in lost revenue.
The situation is especially punishing for the NBA. Local and national media deals represented more than half of the league’s revenue of $8.8 billion last season, a far cry from 40 years ago when basketball was so irrelevant that CBS aired the NBA Finals on tape delay.
“The national NBA and NHL TV deals are very weighted towards the playoffs. If those postseasons happen, the leagues will able to preserve most, if not all of those rights fees,” says media rights expert Chris Bevilacqua, who has negotiated dozens of sports media rights deals.
The current deal signed by ESPN and TNT in 2014 pays the NBA $24 billion over nine years, tripling the prior deal, while some teams have their own blockbuster local deals, such as the $5 billion, 25-year deal the Los Angeles Lakers signed with Spectrum SportsNet in 2011.
“It is customary to have provisions in each TV deal for loss of games or loss of product for natural disasters, work stoppages or other extreme situations,” says Bevilacqua“There are a range of ways they are dealt with and negotiated. There is not a one size fits all.”
Depending on the number of games missed, teams or leagues can offer additional incentives to a media partner in the form of a separate team sponsorship or a shift in the split in advertising sales. The alternative is a credit to future rights fees. Leagues and their media partners are used to this negotiating dance for missed games.
At this point, most games are postponed and not cancelled, so refund policies around ticketing, sponsorships and rights fee haven’t been set. More cancellations are coming though, beyond just the NCAA basketball tournament.
“Nobody wants to give the money back, but what you want to do is make the other options more attractive than taking the money back,” says Bill Sutton, who consults with sports properties as founder of the University of South Florida’s Sport and Entertainment Business Management MBA program. “You will refund the money if someone asks, but you don’t want that to be your first option.”
It’s not uncharted territory, especially for the NHL and NBA, which have endured a combined five work stoppages over the past 25 years that cost regular season gamesBaseball lost parts of two seasons in the mid-1990s, including a World Series. In such casesa sponsor might look for an extra activation or a trip on the team plane or, in baseball, seat upgrades, food credits or a night in a luxury suite.
“Always have a lot of inventory at your disposable in MLB. You need to capture the consumer’s eye,” says Sutton.
And then there are the spinoff effects.
Cities will lose of dollars in economic activity from the shutdowns. It’s hard to quantify that figure but consider that last year’s NFL Draft drew a record 600,000 to Nashville, creating a reported economic impact of $224 million for the area. This year’s draft will take place in Las Vegas at the end of April but without any crowds.
Players will also feel the impact. The collective bargaining agreements for the NBA and NHL both require a portion of player salaries to be held in escrow accounts during the season. When the end of season accounting is done, the escrow account is divvied up between players and owners to ensure both parties receive about 50% of league revenue.
Another clause in the current NBA CBA allows player salaries to be reduced 1/92.6th for every game canceled for “force majeure” events, including epidemics. The season is about 80% complete, costing the average player roughly $1.5 million if the regular season doesn’t resume and owners trigger the provision. The league’s top-earner Stephen Curry could lose $8 million.
And, of course, the hardest hit will be the arena and stadium vendors, security guards, janitors, ushers. Players in a league with an average salary of $8 million will be fine, as will their billionaire bosses, whose teams are worth $2.1 billion on average. Hourly workers may not, though most owners have now pledged to pay their in-game arena workers during this time, with a few notable exceptions like Boston Bruins owner Jeremy Jacobs.

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