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Covid 19 future of sport


COVID-19 was a game changer, what now for the future of sport?

Published 5 March 2021 in Magazine • 13 min read

Empty stadiums, canceled fixtures and a massive loss of revenue: the pandemic has wrought havoc on everything from the Olympics to the Superbowl. But some sports have adapted better than others.

The Super Bowl is usually America’s biggest sporting event, on a par with Thanksgiving and Christmas. COVID-19 took the shine off this year. There were 25,000 fans allowed at Tampa’s Raymond James Stadium, far short of the 65,890 capacity. Hit hard by the pandemic, some of the world’s biggest brands, such as Budweiser and Coca-Cola, which have in years past put out famous commercials for the National Football League’s ultimate match, pulled out this year. The broadcaster CBS only sold out its inventory of commercial slots about a week before kick-off; in normal times, they’re sold out months in advance. But times are anything but normal.

Occasions such as the Super Bowl are gripping spectacles; less so are the NFL’s financial statements. The game, between Tampa Bay Buccaneers and Kansas City Chiefs, capped a torrid season for America’s richest sports league. It is bleeding billions of dollars, primarily due to lost revenue from fans attending games. Across the world, leagues in different sports face financial crisis. For much of the last “golden decade” of sport, the growth of international games has been unrelenting, turning top teams into commercial titans. The boom soon turned to bust due to the pandemic. The accounting firm PwC projected that sports in North America would generate $75.7 billion in 2020. Instead, the value shrank by more than a third as leagues were suspended, television ratings tanked (with so much televised, viewers couldn’t watch everything at once) and advertising revenues dried up.

Trouble is brewing in Europe too. Consider FC Barcelona. The Spanish soccer club was the first and only team to top $1 billion in annual revenue. It has (arguably) the best player ever in Lionel Messi and attracts 100,000 fans to its iconic stadium on matchdays — until COVID-19 landed.

The pandemic has exacerbated the club’s deep financial troubles, as it faces a reported $500 million hit to its revenues. With the biggest wage bill in Europe, Barcelona has already broken its debt covenants with creditors. How the mighty have fallen. As we explore in this article, the finances of leagues across the world have been battered over the past year by the pandemic, which exposed or compounded the vulnerabilities of various business models. Yet, the leagues have found methods to diversify their income streams and cut costs in ways that should not only help to shore up their finances for the long run, but could have big implications for the future of the games. Indeed, 2020 may go down in history as a game-changer for the sports industry.

That said, the story of this global market in the COVID-19 era is one of massive financial losses. But they have varied considerably depending on the timing of seasons, importance of various revenue sources, the spread of the virus and government policies. Clearly, sports, leagues and teams that are more reliant on in-stadium revenues as a share of total revenue are likely to have suffered the most financially.

In the US, those leagues which depended more heavily on venue-related revenue and less on media-related income have, unsurprisingly, suffered a larger financial blow. Consider the NFL. Each team has just eight regular season home games, but the league has several massive national television contracts which yield each team close to $220 million annually. Counting all media income, the average NFL team gets approximately 70% of its revenue from media sources. This media revenue is generally linked pro rata to the share of scheduled games played. Hence, the NFL in 2020 earned approximately 70% of its typical revenues.

In contrast, Major League Baseball (MLB) depends much less on the national television contract and much more on stadium and local TV revenue. The typical MLB team receives almost 50% of its revenue from stadium activities – that figure is more than the 30% for the NFL.

There are geographical differences within leagues. Baseball teams in larger markets with newer stadiums were impacted much more than teams in smaller markets. The Yankees (in New York, a large market) in 2019 earned $669 million of non-media revenue, or 73.8% of its total revenue, while the Tampa Bay Rays (in a smaller market) earned only $79 million from non-media revenue, or 39.6% of its total revenue. This market-based disparity wreaked havoc with MLB’s revenue-sharing system, under which 48% of local revenues are distributed equally among all 30 teams, with each team receiving 3.3% of the total pot. Under this system, the Yankees would have contributed close to $100 million, and the Rays would have received approximately $40 million. Understandably, MLB’s revenue sharing system was canceled for 2020 and it is unclear whether, or to what extent, the system will be applied during 2021.

Elsewhere, timing has played a huge role in the financial fortunes of leagues in America. For example, the 2019-20 National Basketball Association season was interrupted then completed on a truncated basis. This hit revenues from a national television contract worth $90 million per team annually, around 50% of average team revenues.

Baseball also had unfortunate timing. The league opened most of its spring training camps in mid-February 2020, just as COVID-19 landed.

MLB was forced to close the camps and postpone the beginning of its season from April to July. It comprised 60 games, or 37% of the regular season. Television revenue dropped roughly in proportion to the reduced schedule, but revenues decreased more because the games did not have spectators. They yielded no ticket, parking, memorabilia, concessions or stadium advertising revenue. As a result, MLB teams lost nearly $3 billion in the aggregate during last season.

As such, we expect to continue to see increased use of technology, such as new or additional camera angles during broadcast games and microphones on the players. On the consumer side, positive changes may also stick — think of accelerating cashless stadium concessions, numerous ways that ticketing platforms can be used for enhanced safety monitoring, including building enhancements, filtration systems and even COVID-sniffing canines in the case of the NBA’s Miami Heat team.

Many leagues have had to raise capital to shore up their balance sheets. The involvement of private equity funds and other non-bank sources for both debt and equity infusions has accelerated. America’s National Hockey League tapped private markets for funding, issuing about $1 billion of new debt, allowing its teams to draw from a league-controlled central facility to meet pandemic-related short-term cash needs. Meanwhile, MLB borrowed an additional $420 million to support teams’ cash flow issues. And the NBA borrowed $900 million in the private market and transferred $30 million to each of its thirty teams. This transfer, together with an increase in its revolving credit facility from $650 million to $1.2 billion, ensured that all of its teams would be able to make it through the 2020-21 season. Also, FIFA sharply increased its disbursements to struggling members in the short-term, in many cases providing them with a financial lifeline.

Elsewhere, the NFL lifted the allowable debt level per team from $350 million to $500 million to ensure that individual teams did not suffer from cashflow issues. The NFL also increased its league debt facility to help the teams, as added insurance. However, the NFL did not have to make any significant adjustments or sacrifices to its 2020 season, thanks to the strong profitability of team ownership in typical years, the explosion of franchise values (according to Forbes the average NFL team is worth $3.11 billion), and the deep pockets of the 32 ownership groups.

Moreover, the losses suffered by individual NFL team owners over a multi-year period would be largely controlled, because players’ compensation is tied to a salary cap at roughly 48% of defined revenues. That meant players would take a salary reduction proportional to the league revenue reduction in the previous year.

Although the NBA also benefits from a salary cap that automatically reduces player compensation in proportion to its revenue, the league and the players still struggled over how this loss to the players would be spread over the coming years. We expect that player salaries, like revenues, will return to normal when the COVID-19 crisis abates.

In contrast, MLB does not have a salary cap, so it had to negotiate with the players’ union to decide what adjustment would be applied to players’ compensation. The agreement provided for players to be paid pro-rata for the 37% of games that were played.

In Europe, the largest expenditure for soccer clubs is player compensation which is not directly linked to revenues, as is often the case in the US through collective bargaining agreements. UEFA’s financial fair play rules, which limit clubs’ losses to €30m over a three-year period, are of course a step in this direction. But teams were given partial relief from those during the pandemic, to cover steeper losses.

In addition to making financial arrangements to cope with COVID-19, many leagues made public health adjustments. For its prime club competition, the Champions’ League, UEFA utilized a bubble format in Lisbon for the final eight teams. As the clubs involved came from multiple countries, this allowed UEFA to effectively deal with one set of health protocols for quarantining, testing and social distancing. The same was done for the Europa League, UEFA’s secondary competition.

Thus, UEFA was able to mitigate financial losses by completing these two competitions. The NBA, NHL and MLS also played part of their seasons and postseasons in a bubble, but this was not without its challenges. For instance, MLS needed approval from and coordination with governmental authorities, the players’ union, club owners, broadcast partners and a host venue. These difficulties mean the logistical changes are likely to end when the crisis abates. Competition rule changes may outlast the pandemic, however.

This could include everything from changing the length of competitions to modifications in the format of the competition, such as UEFA reviewing the possibility of a final eight or final four for its highly successful Champions League, because it was successful in the pandemic. Baseball, meanwhile, modified some of its playing rules to lessen the fatigue and exposure of its players. It expanded team rosters from 25 to 28 players, started extra innings with a man on second base, and expanded the number of teams in the postseason.

Governing bodies across the world will have to balance the interests of various stakeholders — media partners, sponsors, athletes, fans and others — when deciding which of these changes will continue beyond the 2020-21 period. But some of the changes in sports leagues may have improved the game, and are financially viable as well as popular with fans. These changes include the introduction of a designated hitter in US National League baseball games, which could create more scoring opportunities. Some of these changes were new and others were simply the development of incipient activities, such as the explosion of sports betting in the US. COVID-19 also offered the opportunity for owners and players to improve communication and cooperation to confront an external enemy. Yet others, fighting over the reduced revenue pie, experienced a deterioration in the owner-player relationship, which could lead to bad blood and, potentially, temporary disruption via a strike or a lockout.

While the financial and other effects of COVID-19 on the sports industry have been enormous, it’s too early to know which of these impacts, if any, have caused long-term damage. Will European soccer transfer spending decline over the medium term as it did this past year or will spending quickly ramp up as fans return and media partners continue to pay huge sums for live content? The answer to these and many other questions is dependent on matters outside of the sports realm, namely how quickly national economies recover.

What is clear is that coronavirus has highlighted the long-term problems for global sport (a dependency on narrow revenue streams such as live events and television broadcast income) and has sparked new solutions to diversify income and control costs (player salary caps, digital fan engagement, mobile sports betting). While it’s too early to tell whether the sports industry will reverse the damage of 2020, the quick actions of leagues and other stakeholders (tapping the capital markets, improving cash flow and changing competition structures and rules) have at least drawn up a blueprint for a more sustainable future for the industry. Clearly, many sports leagues were in a bubble, and COVID-19 burst it wide open. Now there is an opportunity to build the industry back up, better.

Tokyo Olympics 2021Celebrations for the Tokyo Games proved short-lived

Tokyo dreamed of Olympic glory but faces $35 billion nightmare

Perhaps the sporting event or competition hardest hit by COVID-19 was the scheduled Tokyo 2020 summer Olympic Games. Japan was hoping for a reputational boost similar to the one it experienced from the 1964 Games in Tokyo. It was then that Japan was emerging as a pro-Western, modern developed economy and used the Games to advertise its evolution to the world. The 2020 Games were meant to announce Japan’s emergence from the post-1990 economic stagnation and the Fukushima nuclear disaster.

The original budget in Tokyo’s 2013 bid was $7.3 billion. Actual costs, including related infrastructure, skyrocketed well beyond that. In 2016 Tokyo’s new governor, Yuriko Koike, ordered a government audit on the actual costs for the Games. The report came back with the alarming news that, at the then current pace, the final price tag could rise to near $30 billion. Upon the release of the report, the IOC immediately dispatched its Vice President John Coates to Tokyo to say that any cost above $15 billon would make it impossible for the IOC to find future hosts and to demand that the cost be lowered. Tokyo obliged by cutting costs first to $15 billion, then to $12.6 billion (after another visit from Coates), but did this by simply removing certain items from the budget. The official budget notwithstanding, according to a subsequent government audit, a full accounting of the total costs would exceed $30 billion.

On 23 March, 2020, the IOC announced that the Games would be delayed until the summer of 2021, making Tokyo 2020 the first postponed Games in Olympics history. In order to push the Games back 12 months, Tokyo 2020 had to secure the 40-plus venues which had been already booked for other events, maintain all temporary venues, negotiate with the prospective condominium owners in the Olympic Village, continue to employ the 1,000-plus people who were helping to organize the Games, design policies and procure equipment to safeguard public health, inter alia. These postponement-related activities are estimated to cost almost $3 billion. Thus, Tokyo is looking at a cost of close to $35 billion. Tokyo also faces the potential for no or a greatly reduced number of spectators at the events. Ticket sales had been expected to generate approximately $900 million. Tokyo will also lose the projected revenues from hotel stays, restaurant consumption and other tourist expenditures.

Paralleling the response from fans across the globe, in January 2021, 80% of Japanese citizens were in favor of either postponing the Games again or canceling them. As a result of COVID 19, what began as a very expensive and tenuous economic proposition for Japan has turned into one of staggering financial losses, and perhaps a public relations and political debacle.

Home advantage: is it a myth?

The pandemic has afforded the sports world an interesting natural experiment on the dimensions of home advantage. It is a widely accepted and empirically validated proposition that the home team has an advantage over the visitors. For instance, numerous studies have documented that the home team in a soccer match scores as many as 37% more goals than the opposition. In MLB, between 2000 and 2020 the home team won 53.9% of its games against 46.1 % for the away side. Various explanations have been offered to understand this differential. Perhaps the most prevalent theory is that the home team benefits from the emotional energy provided by fans. This energy can not only stimulate the home team players to greater exertion, but can provide impediments to the visiting players’ ability to communicate with each other (such as crowd noise making it difficult for signal calling or quarterback audibles in the NFL). Crowd support can also lead umpires or referees to make judgments that favor the home team, particularly less experienced officials.

There is also evidence for this officiating bias: yellow cards being issued more frequently to visiting team players or the strike zone being smaller for visiting pitchers. Indeed, a 2021 study of 6,481 soccer matches across 17 countries during 2019-2020, with 1,498 played behind closed doors, found that the home team win percentage dropped by 2.6 percentage points and that the number of yellow cards issued to visiting teams fell by a statistically significant margin. It is because of the home advantage that league scheduling usually provides for equal numbers of home and away games and why championship games are often played at neutral fields.

Other theories of home advantage include greater familiarity and comfort with the weather, the altitude, or field characteristics and greater fatigue from travel for the visiting team. Evidence from the pandemic should enable us to isolate whether the home advantage derives more from fans or more from the environmental factors. There is no evidence for the NBA since all games were played at neutral courts in its bubble and the sample size in the NFL is probably too small to draw any statistically significant conclusions.

There is, however, interesting data available from MLB for the 2020 season when no attendance was allowed. The average home team won 53.87% of games during 2000-2019. If fans played no role in generating home advantage, then we would expect the home win percentage to stay roughly the same in 2020. In fact, the home win percentage in MLB increased to 55% in 2020, suggesting that it is environmental factors not fans that play the larger role in baseball. However, there is a wrinkle to the story. During the 509 games played during July and August, the home win percentage was 52.2% and, hence, below the historic average, suggesting the importance of fans in home advantage. In September, however, the home win percentage jumped to 58.6% in 389 games, lifting the percentage to 55.0% for the season. This anomaly might be explained by the small sample size or by the likelihood of greater travel fatigue as the uncertainty of the COVID-impacted season wore on.


Sunil Gulati

Sunil Gulati

Sunil Gulati is a Senior Lecturer in Economics at Columbia University, a member of the FIFA Council and was president of the United States Soccer Federation from 2006 to 2018.

Andrew Zimbalist

Andrew Zimbalist

Andrew Zimbalist is a Professor of Economics at Smith College and has consulted in the sports industry for players’ associations, cities, companies, teams, and leagues.


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