Record breaking cash rate cuts and unprecedented stock market collapses- COVID-19 has wreaked havoc on all aspects of the economy. While people fight over line positions at their local Centrelink and crash government websites to get through these uncertain times, it is clear that one issue supersedes all others. That being, the closure of sports competitions globally. If you’re anything like me, you’re probably feeling helpless and unsure of what to do with your life as this hiatus continues.
While this is a major exaggeration, the potential effect that this can have on the economy on both the micro and macro scale cannot be underestimated. After all, we are currently in uncharted territories. In major economic crises of the past, the sports industry has remained constant as a stimulant for consumer expenditure in the economy. With this cloak of invincibility now lifted from the shoulders of this $160b industry, the question remains. How large of an economic impact might this have for our economy, if at all?
No Fans, No Games
As your favourite athlete would (hopefully) tell you, the reason they play sports is to provide entertainment to the fans. However, the closure of these competitions means many game days have been called off, with no consideration to even continue until early June. It has been estimated that game day ticket sales generate around 12% of all revenue earned. The loss of this would present a significant hamper to economic growth. Furthermore, when delving into the extremities of these cases, the loss of matchday ticketing is actually felt a lot worse. This holds true for many smaller firms, who don’t have massive broadcasting deals and millions of fans buying merchandise to bail them out.
To highlight this point more clearly, I studied the income statements of two sporting organisations on opposing ends of the popularity spectrum (judged by Twitter following). These are the massive Premier League giants, Arsenal FC (15.7 million followers), and League 2 minnows Accrington Stanley (71,000 followers).
Accrington Stanley Revenue Streams (2018-19 fiscal year only): Figure A
Arsenal Revenue Streams (per year): Figure B
As highlighted in Figure B, only 24.51% of Arsenal’s revenue was generated through matchday ticket sales in the last fiscal year. Although this presents a sizeable loss, more than 75% of their cash flows are still maintained and thus would easily survive this economic shock. However, when analysing the revenue streams of Accrington Stanley in Figure A, we see that more than 75% of their total revenue is generated from matchday ticket sales. This seems appropriate; due to their smaller size they would be unable to gather the same amount of cash from merchandising and are unable to secure larger broadcasting deals that would make them fiscally secure in uncertain times such as these.
That is to say that smaller businesses bear the brunt of matchdays cancelled and are now forced to frantically look for ways to cut costs. With all day-to-day operations coming to an abrupt halt, an easy out for these firms are to furlough (leave of absence where taxpayers pay a portion of wages) or even stand down staff, leading to adverse effects on the labour market.
Now that’s an early retirement
On the surface, this seems like a pretty cut and dry issue to understand, no different from any other business that you would have seen before. Firms cease ‘production’. Firms then have to stand down workers. However, due to the far outreach of sports being as equally prevalent at the grassroots level as it is at the biggest stages, it is a much more complex and nuanced process than that.
Before going any further, it is important that we first discuss the ‘anomalies’ to this labour shock; those which have proved to be immune. Specifically, if you’re a staff member of big sporting firms such as the Dallas Mavericks (owned by Mark Cuban) and FC Barcelona, you’re in for a special treat! It would be most likely the case that these superstar athletes have cut you a large portion of their 500,000 AUD a week wages in order for you to maintain full pay as the COVID-19 outbreak continues. Players of these bigger clubs have been seen to cut as much as 87% of their wages to ensure those less fortunate are still able to pay their rent and feed their families. However, as has been a common trend throughout this article so far, most companies do not have this ‘get out of jail free’ card due to their smaller nature.
Trent Robinson, a coach for an Australian Rugby League team recently created headlines by stating that one of his players was already ‘back on the tools’. While it is tradition for Australians to be equally as skilled with a rugby in their hands as they are with a pocket wrench, not all athletes have this option. This contributes to an increase in structural unemployment, which is a mismatch in the skills provided in the economy with the skills needed. More doctors would be great, but all the sports sector can really produce are people that can kick a ball. This notion obviously extends past just the athletes themselves, as even your local AFL trainer will now be left without a job amidst the closure of these competitions.
Unemployment has experienced an abrupt surge
I heard ScoMo’s a Sharkies supporter!
Over the past few years, government expenditure in the sporting industry has steadily increased. To justify this, governments usually cite the improvement to grass-roots projects as a means to generate regional income and labour demand in the market. However, an additional side effect of the investment in sports is that it provides an opportunity to host major sporting events, which can provide an immense boost to a country’s GDP. Take the 2014 World Cup in Brazil as an example. It generated over 45 billion AUD and created 3.23 million jobs from the years between 2010-2014. However, in light of the virus, many major sporting events including the Tokyo Olympics and European Championships have been cancelled. This has severely crippled economic growth in GDP due to the foregone consumer expenditure that could have been accounted for.
It will be back, bigger than ever
From one avid sports fan to another, I KNOW that the sports industry will be booming once more when we return to normalcy. Stadiums will be filled to the brim, excitement will be at an all-time high and the cheers will be the loudest they have ever been.
After all, it will be our duty to carry our local teams back to a state of financial security once this all passes, by buying all the season passes and merchandise that we can afford!
References:
https://www.statista.com/statistics/251152/revenue-of-fc-arsenal-london-by-stream/
A Review of Economic Impact Studies on Sporting Events
https://www.accringtonstanley.co.uk/news/2019/june/clubs-finances-announced/