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The Economy

In a tumultuous financial climate, sports can spend lavishly and, almost simultaneously, still struggle

November 23, 2008|KURT STREETER

The latest economic news from the sports world presents us with a mixed-up, bipolar scramble.

ESPN just inked a fat, $500-million contract to broadcast a full plate of college football bowl games beginning in 2011, a deal more than 50% bigger than the one currently in place.

But General Motors, cash-strapped and having already pulled support from two NASCAR tracks and golf's Masters tournament, announced it won't run a commercial during this season's Super Bowl.

The Yankees just ushered in the year's baseball free-agency spending spree, offering pitcher CC Sabathia the richest contract ever tendered someone at his position: a reported $140 million over six years.

But last season, major league baseball attendance dropped for the first time in years.

The NBA is cutting nearly 10% of its workforce and has shuttered its L.A. office.

The NFL recently slashed playoff ticket prices and its commissioner frets publicly about everything from attendance to the fiscal health of corporate sponsors, to how the credit crunch may hurt new stadium plans.

Women's golf? Contracting. The Olympics? London 2012 organizers are scrambling to find top-tier sponsors and enough cash to build venues.

NASCAR? Two of its most prominent teams just melded together to cut costs.

All of this is more than a little confusing. In some parts of the sports world, it's as if the Wall Street meltdown is simply a stiff, inconvenient wind that can easily be ignored. Other, more cautious parts see not just a stiff wind but a terrible hurricane at the doorstep.

To gain some clarity on this matter I spoke last week with a handful of scholars who make their livings studying economics and athletics. A summation of their thinking: Yes, that is indeed a terrible hurricane at the doorstep. And yes, we can take the old adage that big-time athletics is somehow recession-proof, and toss it out the window.

But what of the news signaling that not much has changed? What, I wanted to know, of Sabathia and the reported $55 million for two years offered Manny Ramirez and the fat TV deal that signals ESPN is bullish on the future?

A touch of silver-lining news in times like these should come as no surprise, said Wayne DeSarbo, director of the Center for Sports Business Research at Penn State. "In some sense every economic condition presents not only a loss, but an opportunity . . . which is exactly what we are seeing now," DeSarbo said. "Star players are going to get their money. It is going to be the middle-range guys who are going to get squeezed."

Adding to this scenario, DeSarbo said that on one hand, with the corporate world gasping for air, fewer athletes will have opportunities for gild-the-pocketbook endorsement deals. But on the other hand, a smaller band of athletes, likely the top tier or the extremely charismatic, will still make out like bandits.

On one hand, team owners will feel the heat if ticket sales sharply decline. Yet, even here lies opportunity. Television probably will take up the slack. Outlets such as ESPN know that if attendance drops more people probably will be watching live events from their homes, boosting the kind of captive audience that TV advertisers love.

That's a complex economic mix. What became of the much simpler view, the adage that a wall exists between our sports teams and economic shocks that hit broader society, such as the Great Depression?

And what to make of the fact the Lakers, Dodgers and Angels told me last week they've yet to feel a crunch, or the recent study by John Moag, founder of a Baltimore investment firm that specializes in sports?

"The sports industry may take a hit, but it won't be major," Moag wrote in the preface to that study, which asserts pro teams have actually thrived in the last several bear markets and that there's little reason to think much will change.

Don't get fooled, the experts warned. The recession has yet to bottom out, yet to really hurt gold-plated franchises like the Lakers, yet to damage sports in mega-cities with diverse economies such as L.A. But if the storm keeps brewing it will soon break through the doors of the standard bearers.

Moreover, to compare other downturns to this one is folly. The current climate in the athletic marketplace -- with its deep reliance on corporations and revenue from the behemoth that is modern media -- makes this period uncharted territory.

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