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Economic Effect on Sports

The Corona Virus’ Economic Effect on Sports

The year 2020 has proven to be much more different than most of us would have imagined or hoped for. The world is still trying to find an answer for the Corona virus pandemic that has changed everything. Jobs have been lost, and wages cut down as desperate measures to try and delay the inevitable economic disaster are being carried out. Even the world’s biggest economies are struggling now, trying to find a way to deal with this unprecedented crisis in the 21st century. One of the industries that suffered the most in the sports industry, which has been valued at over $500 billion.

The losses witnessed by the different games we have grown to love are proving to be more than insurance companies can cover, and no contract will hold amid such a global crisis. It’s not even just the players and promoters on the highest levels that are suffering because of canceled games and less media exposure. This industry has a lot of other workers that are never under the spotlight, from event organizers to locker room workers, and they are numbered in the millions around the world. In this article, we will explore the economic ramifications of Coronavirus on sports around the globe.

Players Wage Reductions and Loss

Sports generally have insurance coverage in times of crisis, but considering the prolonged halt of all events around the world out of fear of the virus spreading, not even insurance can help keep things steady. This is why there is a general direction for a lot of clubs and associations around the world to implement certain wage cuts to balance things out. One of the most famous sporting clubs in the world, Barcelona has announced that players and staff will have to suffer temporary wage cuts as the club is struggling with the severe economic impact of the Coronavirus.

Spain is currently one of the most affected countries by the pandemic, with those affected nearing 80,000 and deaths at over 6,000 as of this writing. This is why most sporting competitions are indefinitely on hold in the country, the biggest of which is La Liga, who is suffering an unknown fate. Barcelona relied significantly on revenues from one of the world’s most influential football leagues, which is why it is implementing these wage cuts. While reports indicate the decision was met with some hostility by some of the first team players, it is expected that it will go through, considering the global crisis we are all facing, which doesn’t seem to be resolving any time soon.

In Germany, on the other hand, several of the country’s top football teams have opted the give up their share of the national media revenue. Bayern Munich, Borussia Dortmund, Bayer Leverkusen, and RB Leipzig will be giving up close to $14 million in media revenue in addition to over $8 million out of the clubs’ own pockets to support clubs in Germany’s top two divisions in order to mitigate the effects of this crisis.

Other athletes are losing money by the day, whether they like it or not. Reports claim that the Lakers’ superstar LeBron James stands to lose about $400,000 for every match his team won’t play. While that won’t really do much to the star whose net worth is close to $500 million, a lot of other basketball players simply don’t have his wealth, and they have no endorsement deals to cover them. Those players, in basketball and other sports, stand to lose their rent money, and some might not even have enough to put food on the table.

Media Revenue Setback

The biggest problem facing the sporting world right now is the damage that media revenue is taking around the world. When it comes to sports, a big chunk of league/association and club revenues come from streaming rights and television contracts. Take the NBA, for example. It makes close to $9 billion a year through different contracts and merchandising, but half of that alone comes from television contracts. The math is simple here; if the league or sport doesn’t provide the agreed-upon content, there will be reduction rights, and they will have to pay for it.

Any league’s media partners stand to lose millions because they have to air content other than the previously set matches and games, which means they won’t have enough viewership. They will also lose millions in advertising, not to mention the fees they already paid to air matches that won’t even take place. It stands to reason that the media partners will hold the leagues accountable for such loss of revenue, even while knowing that it is due to unexpected circumstances.

Speaking of media revenue losses, pay-per-view is a whole other story. Some sports rely on PPV for revenue, like mixed martial arts (UFC) and professional wrestling (WWE) events, which are watched by millions around the world. Those revenues took a severe hit as well because many of the PPV events have been either canceled or pushed to later during the year, which means a lot of people stand to lose money.

Ticket Sales

True, ticket sales don’t make up for the majority of revenue in any sport, but they still amount to millions every year, and all games that sell tickets will suffer because of that. In the NBA, tickets make for about 20% – 25% of the total revenues, and losses due to those ticket sales, if the season doesn’t resume, can climb up to half a billion dollars! This is even without considering the playoffs, and if you did, the numbers would be much worse. This is why league executives are scrambling to hold the playoffs in these crazy times still.

Teams will have to try to find answers regarding tickets already purchased because fans already paid for those, and it is not their fault that matches have been canceled due to a global pandemic. So, it’s up to leagues and clubs to find a way to reimburse fans by offering refunds or future credit. This naturally won’t be easy to do because leagues and clubs, and all sports entities around the world, have already suffered significant financial losses because of the Coronavirus, and they will continue to suffer unless the situation resolves soon.

Merchandising and Sponsorships

It is not just the media revenues and player wages that took a hit during this global pandemic. Sponsors pay millions every year for teams and star players, and this will change over the next few months. You have major companies like Adidas struggling to pay rent in Germany, and they recently announced that they are considering stopping rental payments in locations where stores are closed, which could lead to some significant complications in the country. You can only imagine what the sports brand, and others, will have to face when it comes to their financial obligations in different sports.

It is expected that over the next few months, sponsorship deals will have to be reevaluated, and many of the sponsors will try to invoke force majeure clauses – a legal term indicating Acts of God that no one could control and have legal ramifications. This means that leagues and clubs will suffer serious losses because they won’t be getting the same money from sponsors. This also applies to players who endorse certain brands and wear their products or appear in their commercials, because everything is on hold right now.

Merchandising will also take a hit because people will definitely choose to put food on the table over buying their favorite jerseys and sports memorabilia. Sponsors, sports teams, and athletes make millions every year from sales of such merchandise, and this will not be the case amid the Coronavirus pandemic.

The Little Guy

Unfortunately, it is the little guy that will suffer the most amid this pandemic’s economic effects on sports. Take tennis, for example. The top players don’t stand to lose much in this outbreak, except for losing some of their edges and not getting enough practice. But financially speaking, they are set. It is the lower-ranked players who will really suffer during the hold on all tennis competitions. Players earn money by just qualifying for a tournament, and the deeper they get, the more money they make, with each round offering more prize money than the previous one.

A tennis player can earn over $50,000 by winning a first-round match in Wimbledon, and they take home over $84,000 for a second-round win. While that isn’t much money for the top players who go to win the tournament eventually – earning a little under $3 million – it is a considerable amount of money for lower ranked players. They need this money to cover their travel expenses, coaching, and a lot more. This was just an example of how smaller players in sports will suffer because of the Coronavirus economic effect on sports, and this applies to just about most games you know of because there are always lesser-known players who struggle to make ends meet.

Players aside, workers are even more significantly affected because of the current freeze on sporting events. Arena workers are the first to suffer because they have the most to lose when games aren’t played. Some people work in security, take tickets from fans, cook them food, and do a lot of different things at a stadium or arena. They won’t be making much money, if any, during these economically challenging times. Some of them won’t even qualify for health insurance because they usually need to work a certain number of hours to be eligible with their unions. These people will be in jeopardy of losing their homes or not having enough money to put food on the table.

A lot of the players and influential figures across different sports promised not to abandon those people, and some have offered significant amounts of money to support those families. But this can only go on for so much longer, and soon, those workers will start facing severe financial complications.

Countries Losing Billions

Sadly, it won’t just be players and leagues losing money due to the Coronavirus, but whole countries as well. Japan is one of the countries that will suffer substantial economic losses and financial setbacks because the Olympics were moved to 2021, after their initial date this year. Japan had already invested billions in creating new stadiums, for starters. Dozens of private companies have also spent billions on sponsorships and media contracts for the world’s biggest sporting event, which will all be useless now that the event has been moved to 2021. Private companies stand to lose a lot of money, which will reflect on their staff and wages for months to come.

All this, in turn, will reflect on the country’s economy, especially considering that Japan will also lose the money that would have come from hosting the event. From the tourism and hospitality sectors to food vendors in the stands, all sectors stood to benefit from the Olympics. So, it’s not only the fact that the country will lose the money it spent on preparations but also the billions that it would have gained in revenues.

Japan is now scrambling to regroup and prepare for the event, which will hopefully take place in 2021. Organizers have to shift their schedules by a whole year, and the hotels which stood to make a fortune will now try to find alternatives so they can survive until 2021. There is no question that Japan will recover and host a successful event in the upcoming year, but it will have lost a lot of money, and people will have to make sacrifices for that to happen.

There is no telling how this whole crisis will unfold over the next few months, which is why people are terrified. Economies are already suffering, and the sports industry is one of many taking one blow after the other. Athletes and leagues stand to lose a lot of money, but the sports world will recover. If anything, people will have a yearning for their favorite matches and sports and the excitement they get from them. They will flock to support their teams and favorite games once all this is over. Unfortunately, there is no telling when that will be, but we can only hope for the best.