Money Changes Everything

Sports have always been recession-proof. Not this time
October 12, 2008

IF YOU'RE the person charged with selling luxury suites at the Mets' new stadium, Citi Field, you may have asked yourself this question once or twice in recent weeks: Uh, what recession? Although the park isn't complete yet and the team once again went out of its way to be unlovable, all of the 49 skyboxes have already been leased, at a cost of $275,000 to $500,000 per season, for a minimum of three years. The same economy appears to obtain in the Bronx; the Yankees won't comment on sales figures, but none of its $650,000- to $850,000-per-season boxes will be empty when their new house opens (with, most likely, a roughly $20 million-per-year sponsorship deal with Bank of America that doesn't even include stadium naming rights). Nor is it still 2007 just in certain precincts of New York, or merely in baseball. Sponsors are said to be clamoring for spots in the Cowboys' new stadium, which opens next fall; Ford and Bank of America are among those already on board to do Dallas proud.

Surprised? Historically attuned analysts would say you shouldn't be. It may be because games provide escape from thoughts of a plunging Dow or a tight, mean mortgage market or because they're simply so addictive, but in tough times "sports has always been one of the last industries to take a hit," says Rick Horrow, CEO of Horrow Sports Ventures, a consulting firm. "Sports have a high place among our discretionary spending priorities, for corporations and individuals."

Horrow is right, of course. The trouble is, conventional wisdom and the experience of a few high-profile franchises don't tell the full story of what's happening to the sports business in the fall of 2008. "We should be very careful not to get too cocky and overprice ourselves," baseball commissioner Bud Selig told reporters last week, shortly after his office released figures showing a 1.1% drop in attendance for major league baseball this season, the first dip since 2003. Recently, NFL commissioner Roger Goodell circulated a memo to teams warning them that league revenues will be "under pressure." What these industry leaders are seeing, and fretting over, are the first small—and sometimes not-so-small—signs that the current economic downturn is unique in at least one respect: It will not spare sports.

At a time when ticket prices are soaring, gas remains expensive and unemployment rates are the highest they've been since 2003, average fans are finding it possible, if not necessary, to stay away from the events they love. Faced with the prospect of declining revenue, the Denver Broncos laid off eight employees last March. The NBA, anticipating soft ticket sales, has already shuttered its Los Angeles office and trimmed 50 jobs from its league staff of 800. The Charlotte Bobcats laid off 35 people last month and considered canceling their entire season of radio broadcasts until the league convinced them not to. At NASCAR races this season overall attendance is down, and the crowd at the Amp Energy 500 at Talladega on Sunday, usually one of the hottest tickets of the season, was estimated to be 50,000 short of last year's. Even the horses are hurting: The average price of a yearling at the thoroughbred sales at Keeneland last month dropped 10.2%. The general sentiment in all of these sports is that the numbers have only begun to fall.

The major pro leagues do have a safety net of sorts, since most TV contracts and sponsorship arrangements are long-term and were locked in before the current economic crisis. (The NFL's $3.7 billion deal with CBS, Fox, NBC, ESPN and DirecTV doesn't begin to expire until 2010. Baseball's contract with Fox, TBS and ESPN runs through 2013 and is worth over $700 million.) Such deals kept pro sports strong through the dot-com crash of the early 2000s and the recession of 1991. But for the relationships between sports and the networks to remain healthy, both sides must prosper, and TV ad revenues may be shrinking. The unhealthy state of the American auto industry has been especially troublesome for networks with sports programming to peddle. On Sept. 22, General Motors, which spent $77.1 million on Super Bowl advertising in the last 15 years, said that it will not buy commercials during the 2009 game.

The silver lining for some sports fans is that they're being courted more aggressively than ever—and that there are some deals to be had. The Diamondbacks, Rangers, Royals, Giants and Twins lured fans with gas-card promotions for ticket buyers this season. The Nets, who normally require payment before the season begins, are letting season-ticket buyers pay after the holidays this year. The Blues instituted a kind of Priceline system, giving fans a week to name their price for season tickets. Pacers employees are walking around Indianapolis with vouchers for free lower-level seats at Conseco Fieldhouse that they will give away on a whim. "Say I go to a movie with my wife, and I see a guy wearing a Pacers jersey," says team spokesman David Benner. "I might go up to him and say, 'Hey, do you want to see a game?' and hand him a card."

The sports entity that faces the most uncertain future may be the PGA Tour, which has seen event sponsors Wachovia and Merrill Lynch teeter on the brink of failure before being swallowed up by rival banks. (Comedian Amy Poehler summed up the financial crisis on Saturday Night Live: "Basically, if your commercials air during golf tournaments, you're done.") Neither company has pulled out of its sponsorship, but it's uncertain that they will renew when their contracts run out. How does the Warren Buffett Open sound?

Selig said owners should not get cocky and OVERPRICE THEMSELVES.

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