Thursday, March 5, 2009

Are professional sports in trouble?

Today, Major League Baseball raised the curtains on its popular World Baseball Classic. The NBA is rolling toward its playoffs with as much exciting talent as it's had in two decades. Same for the NHL.

So what are sports business types buzzing about? A column by ESPN.com's Bill Simmons in which he reports that the NBA is seriously struggling financially, that an executive predicts 15 NHL franchises will "go under" next year, and that MLB is "about to get creamed beyond belief."

Simmons is well-sourced in the NBA, which he says will play franchise hot potato in the next few years, with struggling owners and lustful cities finding each other in 3-8 franchise moves. The SportsBusiness Journal recently reported that the league had secured $175 million in financing that will be made available to 15 teams, supplementing an existing $1.7 billion league-wide credit facility.

Bill King, an enterprise reporter who covers the economics of sports for the SportsBusiness Journal, doesn't share Simmons' sense of sports doom. But yes, he says, there's some significant struggling going on.

We caught up with King for some questions on the state of sports - and what it means to fans.

The Squeeze: How badly are sports leagues and franchises suffering financially right now?

King: Not as badly as the banking and auto industry. But just as badly as most any other storefront, particularly when you consider that the auto companies and banks have spent big on sports.

Sports teams typically make their money through five channels: tickets, TV and radio rights, sponsorship, merchandise and the leasing of premium seats, which are suites and club seats. Some of that is locked up long-term. Some is volatile. So, if you're in the middle of a deal, you're fine for now, but if you're trying to sell, you're struggling. The longer this lasts, the more those renewals will come into play and the more they'll struggle. So for sports properties, the issue is probably less about how bad it is and more about how long it will last.

If you're an NBA or NHL team, your season tickets and suites were renewed before the economy tanked in the fall, so it's the coming selling season that scares you. If you're a baseball or NFL team, you're already in the storm. Sports properties have fared relatively well in bad times in the past because people find a way to preserve the things they care deeply about, no matter how bad it gets. But that was when prices were lower and fans were paying out of their own pocket. Now, so much of the sports economy is driven by corporate spending that I think it's probably more at risk than ever. It's hard to spend the money to renew a suite or put your name on a golf tournament when you're laying people off.

The Squeeze: Give us a realistic worst-case scenario - multiple teams in different leagues declaring bankruptcy, perhaps folding?

King: I don't see it as quite as dire as Bill Simmons seems to, but I do think you might see franchises under pressure because the owner is bleeding money elsewhere and no longer can afford to absorb the cash losses of the team.

Right now, the model for many owners is this: If I buy a team for $150 mil, I can live with losing $5 mil or $10 mil a year, because I know I'll make it back with a profit when I sell it. And even if I'm holding onto it, it's appreciating in value, much like a home that you improve. That's all well and good until I no longer can afford those losses - particularly when they double because I can't sell sponsorships and my suites are empty. My partners won't give me any more money, the banks won't give me any more money, and I don't want to cover it with cash. Now, I'm a seller. Trouble is, there are few buyers in this economy and it's really hard to finance these deals now.

You'll have some very unhappy owners who want out but can't get there. Some might be willing to let the franchise bleed out and die. But, with so much revenue sharing in these leagues and such a large percentage of the pie coming from national TV contracts, I can't see the leagues letting it happen. You might see a team absorbed by a league for a period while it finds a buyer -- particularly in the NHL, where we've seen bankruptcies in recent memory. But shut the doors and default? I don't think so.

The Squeeze: Some cities remain very ready to take on a professional franchise - or more than than they currently have. Do you see an upcoming trend of cash-strapped owners leaping at good incentives - or selling to interested groups in those cities?

King: Ready, yes. Able? I'm not so sure. Have you seen the empty seats behind home plate in D.C.? The struggle to get an arena built in Brooklyn? The hotel vacancy rates in Vegas? Oklahoma City got in under the wire when it landed the Sonics. Kansas City built an arena and wants a team badly. But I don't see many cities putting public money into sports venues and sweetheart leases when they're slashing the school budget.

The Squeeze: Would the Charlotte Bobcats be one of those teams with owners looking to move?

King: I'm not an attorney or an accountant, but I can't see any way they could afford to get out of that lease.

The Squeeze: Let's make this about us - ticket prices are going to come down, right?

King: In the overwhelming majority of markets and sports, absolutely. I don't think many NFL teams will drop prices. Demand is too high. But in every other sport, you're already seeing it. If it's not an out and out price drop, it's a 2-for-1 ticket deal or a package that includes discounted
concessions. Several baseball teams are testing dollar menus this season.

The sun may soon be setting on that $8.50 Sam Adams. Let's hope so, anyway.

27 comments:

Anonymous said...

I would think The Bobcats radio and TV revenue may be the worst in the NBA. When The Hornets were in town everyone knew WBT was the flagship station. I could not tell you who has the Bobcats radio rights and I consider myself an avid sports fan. I know it is somewhere around the 106 area of the dial. I have listend to the games in the past but the station does not stick out in my mind. There appears to be no marketing between the staion and the franchise.

On a related note I see no possible way to keep the AAA Baseball team in our area. No uptown stadium and dwindling attendance.

The NFL must be in good shape. Player saleries are escalating with no end in sight.

Anonymous said...

I've said it for years: VIP boxes would be the death of all professional sports.

Anonymous said...

I would love to see ticket prices come down on every major sport. I would then be able to afford to take my family of 3 to a game one in a while - as it is, the last game we went to was 4 years ago when I got free tickets from a friend.

Perhaps the easiest fix would be to lower the players salaries to a reasonable amount - athletes along with music/actors make such ridiculous salaries, this has to be the reason for the high ticket prices. Look back at history with the Romans, the fall of their empire was based on placing athletes/entertainers in a GOD status. Let's hope we can stop the fall of the U.S.

Anonymous said...

Many people dare touch on this but the NBA popularity has declined rapidly since the Bird/Magic days. The "Thug" mentality exhibited by many of the players has hurt the image. European-Americans have a difficult time relating to cornrowed tattoo players.

Anonymous said...

get your facts straight. Attendence has increased the past few years in Minor League baseball. Familys are looking for an affordable substitue this summer and that is the CHARLOTTE KNIGHTS.

Anonymous said...

Geez, there's that tired old line about the NBA again.

The NBA was setting attendance records before the economy went in the tank last fall. Their problem is a salary structure that locks teams into long-term contracts, regardless of revenues, not a lack of popularity.

As for "thugs," the NBA can't compare to the NFL. How many pro football players in Charlotte alone have been arrested for one thing or another?

Anonymous said...

Professional "sport" is the opiate of the masses. The Roman circuses of the modern day are a distraction and a lame one at that.

Anonymous said...

Pete:
I think you're doing a good thing for the most part....but lately, you've been contributing to the doom and gloom - the creative writing piece, the questioning of professional sports, the difficulty of people being terminated.....
I understand it's called the Squeeze, and I understand it's generating buzz - but don't you think SOMEHOW, SOMEWAY you can help generate slight rays of hope? You have a very powerful tool here - not to mention a very high profile section on Charlotteobserver.com...does all this equate to driving hits to the site and creating controversial blog topics to see how many people will react? We need our media to help restore public confidence - it's in EVERYONES best interest - including you and your family.
Many thanks

Anonymous said...

I think that many so-called stars contribute to the current situation. Let's take Manny Ramirez. His fight with the club owner over the size of his compensation shows how totally out-of-touch are our athletes. Crying that $45 million is not enough for him to play for two season is a disgrace and slap in the face of regular folks.

Anonymous said...

The correct spelling is attendAnce! And my facts are straight from the business office at the Knights. Call them yourself, and take a spelling class while you are at it.

The Kights do well on special event nights such as York County Polyester Night, Free Redman Night, Bring Your Cousin/Wife Night, Tractor Night, Lint Head Night.

pstonge said...

Anon, 10:14: Yours is a very valid concern - and it's one I share. I try to find a balance of reporting the news - dire as it might be - while finding opportunities to write about the hope you'd like to see.

A few examples:

1) Yesterday, I wrote about people pulling together and invited readers to share their stories.

2) A guest contributer, Laurie Reid, writes with humor and candor in the face of her husband losing his job and the household's only income.

3) A post last week about "insourcing" - people doing for themselves what they once paid others to do.

When the news is good, you can be sure I'll report it as quickly as the bad. Thanks for reading, and keep offering your thoughts and suggestions.

Pete

Anonymous said...

Some NBA teams are winning only 20-25% of their games, CONTRACT and gives the fans who are paying $$$$$ their monies worth.

rick b said...

"King: I'm not an attorney or an accountant, but I can't see any way they could afford to get out of that lease."

I presume Mr. King means that the Bobcats would be crazy to give up that lease?

Let's see: they have a FREE place to play, courtesy of the taxpayers...

They have FREE premium parking spaces that they resell at a profit, courtesy of the city (taxpayers).

They have FREE traffic management, by extra CMPD officers, courtesy of...yep, the taxpayers.

And...and this is huge...they keep every penny of revenue from every event that takes place there...from the Checkers to the Circus to concerts to conventions.

And yet, Johnson is complaining that he can't make money?

If that's true, then the NBA funding model is even worse than the doomsayers are saying.

chupacabra said...

I've been to a few Bobcats games and it was boring. I can't really put a finger on why, maybe there are so many games that no one single game is all that important. I really prefer college sports because the players seem to care whether they win or lose.

Anonymous said...

Who cares! They don't know what it is like to struggle just to make home & car payments. Reduce the players salaries to something more realistic to what they are worth and maybe they'll make it. Our companies froze everyones salaries this year.

Anonymous said...

"If I buy a team for $150 mil, I can live with losing $5 mil or $10 mil a year, because I know I'll make it back with a profit when I sell it."

Well, it worked for commercial real estate!!!

Anonymous said...

"Call them yourself, and take a spelling class while you are at it.

The Kights do well on special event nights..."

Oh, dear.

Anonymous said...

What's it going to take for sports fans to really sit and think about what a guy like A-Rod gets paid? Dude makes more in a couple innings work than a teacher that spends all day working with your child makes in a year. I don't blame A-Rod, I blame all the lemming enablers that hand over their money to him. If the recession causes people to think twice about renewing that PSL it will be my silver lining.

Anonymous said...

Honestly...can we all just stop and think for a second about this ridiculous situation? I do not know the numbers, but let's stop and think for a second about how many people in the "Land of the Free" care about sports in their every day lives. I know the number is large and that is why professional sports are so successful in America. I love sports, you love sports, and even our mothers watch sports on Super Bowl Sunday. This huge demand of sports or simply entertainment, is what catapulted these players' salaries to the multi-millions that they are today. So as we, the average Americans, are suffering everywhere financially...these random young men are reaping from our useless spending. So, this is my challenge to YOU: I DARE you to give up sports. Simply take it out of your life. I know it sounds hard, but think about it. More time with the wife, kids, and possibly more time to better this economy. Rather than dumping money into these greedy athletes' pockets, I say keep your money and take yourself out to lunch.

To tie in with this article, I simply argue that there is absolutely NO reason that professional sports franchises should be in danger, lower ALL players' salaries. Imagine where that money could go!

Anonymous said...

Here's what I see as the big issues:

Baseball: No salary cap, cheating players, too many games.

Basketball: Pay is too high, not diverse enough for a strong fan base (when 80%+ of a sport is one race, regardless of what race, it's not diverse); season is too long; over 1/2 the teams make the playoffs.

Hockey: Not diverse, pay players too much, trying to spread a northern sport to areas where it's just not popular (keep it up north).

Why Football works: Shorter season, fast paced, very diverse, high scoring, it's the purest team sport, salary cap, players aren't ruining the sport, smarter owners.

Anonymous said...

Most people in the area do not like the NBA because their favorite players in the ACC tend to have average NBA careers. After Michael Jordan there have been decent players from the ACC but the only mega superstars have been from Wake Forest(Tim Duncan & Chris Paul). As for sports in general my favorite by far is the NFL. I can watch the Lions vs. Rams from start to finish and my favorite team is BIG BLUE(NY GIANTS)....

Anonymous said...

Isn't it really this simple. Investment bankers, commercial bankers, commercial real estate executives, contractors, etc. are starting to realize that they are going to make 33% to 50% of their former salaries for the next decade or more. The simple fact is that all professional sports will survive, but athletes are going to make 1/4 to 1/2 of what they used to.

Anonymous said...

If they would stop paying the players $10Billion a year then they could afford to pay for stadiums, and whatever else they "need" to operate.

Anonymous said...

I will more than likely purchase Bobcat season tickets next season whether the price comes down or not. A price decrease would make purchasing them a certainty. In any case I am now in the market for single tickets for games. As for AAA baseball, I like it but I'm not driving to Fort Mill to see games. I have done that in the past but not now. If they move uptown I would love attending games but that seems far fetched with all the hindrances they have exprienced. If they make it downtown OK, if they don't make it downtown OK. Believe me, I am getting behind the Bobcats and stick with them for A While. I love the Panthers and don't want to hurt anyone's feeling or upset Jake fans but I am not paying money to be disappointed by Jake again. I think they need a QB but some fans don't. The people who love Jake at QB can buy tickets and attend games, that's not me.

Anonymous said...

Would the sports fans in Charlotte please recognize the great entertainment value the National Hockey League provides. Don't let the crummy all sports station in Charlotte, ESPN or sports columnists at the Observer limit your sporting interest to football, basketball and nascar. Wake up sports fans in Charlotte and pay attention to better sports entertainment which is the NHL. Diversify your sporting interests for a change.

Anonymous said...

Well, when Rome fell, the gladiators were just SOL...

I won't cry a tear for "professional" sports when it goes down.

In fact, that is the silver lining to this whole recession/depression business to me.

Nothing is more ridiculous than morons making millions playing childrens games.

It's unnatural.

Anonymous said...

The NBA is the best sport among all the other because there is diversity on the court, on the sidelines and in the front offices with black general managers. I love the NFL too, but when a sport needs to adopt a rule, like the "Rooney Rule to assure minority or black coaches even get an interview what does that mean! I'll tell you that the good ole boy owners in the NFL would hardly hire a black coach if the rule never ever was in place. You don't hear the NBA having this problem. Another thing all you college basketball fans that love basketball how you don't watch the best basketball players in the world and don't tell me because of style of play and they don't play hard. I've been a longtime Celtics' fans since I was small and love the team through the thick and then. Right now, the NBA is great to watch with the Celts, Lakers and Cavs probably in the mix of going to the Finals. The Bobcats might even make the playoffs. This is our pro team and support them like those choking Panthers.