By Mark Maske and Michael Lee
Washington Post Staff Writers
Tuesday, October 14, 2008
The economic crisis has executives in the country's major professional sports concerned about the potential long-term impact on their leagues and franchises if belt-tightening by consumers and businesses affects future ticket sales and advertising revenue.
In the most immediate sign that the country's economic problems are beginning to affect professional sports, NBA Commissioner David Stern said the league is laying off 9 percent of its domestic workforce, or about 80 employees, and that season ticket sales are down. Stern commented as NFL team owners gathered in St. Petersburg, Fla., for a two-day meeting that was to address the effects of the crisis on the country's richest sports league.
"This business has been thought to be recession-proof for a long time," New York Giants co-owner John Mara said. "But I don't think any of us has seen anything like this for a long, long time."
The major sports leagues have existed in a sort of financial fantasyland for years, with billionaire franchise owners assembling rosters of multimillionaire players. The NFL and NBA, along with Major League Baseball, could largely ignore the economy's ups and downs because they had guaranteed revenue from national television contracts, and fans and businesses seemed eager to continue to spend money on tickets and advertising sponsorships.
But the current climate is different, analysts say. "Everybody that does business with these leagues is taking a good, hard look at where they spend money -- fans, advertisers, municipalities," said David Carter, the executive director of the Sports Business Institute at the University of Southern California. "Basically, everybody that spends money in sports is going through some belt-tightening."
Talking to reporters in London, Stern did not say where the NBA would cut personnel, but laying off employees is a drastic step considering that the league was able to extend for the next eight years its lucrative TV contracts with ESPN/ABC and TNT last summer. Those contracts will pay the league almost $1 billion per year through the 2015-16 season.
Stern admitted this month that despite the league's strong TV and sponsorship deals, there might be a decline in overall attendance this season.
"Clearly, as business gets affected by the slowdown, then spending will get affected, both personally and by businesses," Stern said during a conference call with reporters. "So sports, I don't believe, can exist apart from that reality. The only thing that will probably increase will be television viewing as a low-priced alternative to spending money going to the movies, going out to eat, or going to the event itself possibly."
The economic downturn has already affected some NBA franchises. The Charlotte Bobcats laid off about 35 employees in non-basketball operations in late September. The Bobcats also attempted to save money by cutting radio broadcasts before the league office persuaded the team to keep them.
Peter J. Biché, the Washington Wizards' president of business operations and chief financial officer, said the team has yet to feel the sting from the financial crisis. NBA teams generally start selling season ticket packages in the spring, and Biché said the team has maintained the number of season ticket holders from last season, about 11,500, while suite and club level packages are on pace to beat the record numbers the team reached last season.
The team may find a decrease in walk-up tickets, Biché said. "I don't want to suggest we're naive. We all look at the market. We all see. We're in touch with it. I think our primary thought is, 'Put a good product out there.' "
He said the major challenge for the Wizards is with corporate sponsors, which "might be an area where we're flat. I think in this current state of the world, flat is not such a bad thing."
Washington Capitals President Dick Patrick said the team hasn't felt the effects of the downturn in ticket sales, but said there had been a slowdown in cooperate sponsorship sales over the past month.
"We'll be up from last year, but not by much," Patrick said, referring to sponsorships. "Sponsorships have been trouble at the league level and our level. Certain companies have cut back, like the automotive industry, which was a big sponsor for years. So instead of chasing GM or Ford we're focusing on the people we have now."
The NFL has been the most prosperous of all U.S. pro sports leagues, with annual revenue approaching $8 billion. The NFL's biggest source of revenue is from its national TV contracts with NBC, CBS, Fox, ESPN and DirecTV that are worth about $3.7 billion per year. That's guaranteed income for the league through at least the 2010 season, after which the DirecTV deal expires. The NBC, Fox and CBS contracts run through the 2011 season and the ESPN deal, worth $1.1 billion a year for Monday night games, runs through the 2013 season.
The NFL has set single-season attendance records six years in a row. The league had its national sponsorships for this season in place months ago, and individual teams had sold most of their tickets and local sponsorships in the summer. "The only thing people were worried about back in the summer was gas prices," said a top executive with one team.
The executive said the prevailing sentiment around the league is that the NFL and its franchises probably will be fine, but that there is no way of being certain at this point.
"I think people will probably still buy football tickets, but I don't know for sure," said the executive, who spoke on the condition of anonymity because he didn't want to be viewed as raising concerns that might turn out to be unfounded. "How many companies will keep buying suites and sponsorships? It's a time of uncertainty for everyone. I'm anxious to go to this [owners'] meeting and see what people say about how things are going in their markets."
The executive said he worries about the possibility of an owner with financial troubles in other businesses taking too much money out of a team to address those needs.
"Do I think a team will go out of business and cease to exist? I doubt that," Carter said. "What we could see is some franchises being sold or relocated."
Washington Redskins owner Daniel Snyder would not comment for this story, but the stock price of one his companies, Six Flags Inc., was 44 cents per share at the close of yesterday's markets. It has dropped more than 80 percent in the past year. The Redskins remain an economic powerhouse, ranked first in the NFL in annual revenue ($327 million) and operating income ($58.1 million) and second in franchise value ($1.538 billion) in the latest Forbes estimates. Snyder declined to comment through a spokesman.
"We are not immune," NFL Commissioner Roger Goodell told reporters during a recent appearance in Houston. "We've been talking about what I consider the economic downturn for well over a year and making sure we are prepared for it and planning for it. It affects not only the NFL, our clubs, our owners, and stadium financing, but our business partners. More importantly it affects our consumers, our fans, and so we are very sensitive to it."
Baseball attendance this season was off slightly, which Commissioner Bud Selig attributed to higher gasoline prices and poor weather in September. Selig last week warned club owners to keep ticket price increases in check.
NHL Commissioner Gary Bettman, who was in Washington yesterday, said the league remains in a "growth mode" and that season ticket sales are up over a year ago. "Having said that, we remain cautious," Bettman said. "We are obviously focused on the fact that if the economic downturn continues for a prolonged period of time every business, not just sports and not just us, nobody will be immune."
Staff writers Tarik El-Bashir in Washington and Dave Sheinin in Boston contributed to this report.
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