Will Sports Weather The Economic Storm?

Sports have historically been recession-proof. Sportswriter Stefan Fatsis says events like the Sept. 11, 2001, attacks had little impact on the sports business. But, he says, in the present economic climate three issues must be considered: the credit market, corporate fallout and fans.

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MELISSA BLOCK, host:

From NPR News this is All Things Considered, I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel. If you had to pick an industry that can withstand an economic downturn, professional sports would be a tempting choice. In good times or bad, after all sports are a refuge, a way to escape the real world if only for a few hours, unless I suppose, if you're a Chicago Cubs fan. Americans may be willing to eat out less in hard times or take the bus, but can they go without watching the big game? Sportswriter Stefan Fatsis joins us now and Stefan, how do sports fare in an economic downturn?

Mr. STEFAN FATSIS (Sportswriter): You know, the history has been that sports are kind of recession-proof. There are a diversion, a way to treat yourself. And the fundamentals of the business are a kind of bulwark against bad times. Television contracts account for the bulk of the revenue in major sports. And those deals are locked in for the long term and it's as the same thing with luxury suites, major sponsorships, naming rights deals. Teams and leagues have this built-in cushion against at least a short term economic decline.

SIEGEL: But that very system and the cushion it provides really hasn't had to cope with a long disruption in the economy.

Mr. FATSIS: No, and that's really important to consider now. The sports business was not as big or as sophisticated or as highly leveraged during the depression or World War II or the recession of the 1970s. The closest we've come was 9/11 and the collapse of the internet bubble earlier this decade. And sports weathered that pretty well. You saw a temporary slowdown in franchise sales, a couple of hockey teams filed for bankruptcy protection but the economy wasn't entirely responsible for that. Attendance though didn't sink in any sport and the run up in the industry resumed pretty soon.

SIEGEL: But this is different, perhaps, what we face, from what happened after 9/11. How would the differences affect the sports world?

Mr. FATSIS: Well, I think there are three main issues to think about here. The first is the credit markets. Sports operate on credit. Credit to buy teams, to build stadiums, to fund payroll. It wouldn't surprise me to see a highly-leveraged team and a smaller market experience some serious operations problems that lead to loan defaults or bankruptcy court. The second issue is the corporate fallout. Companies already are questioning whether to renew luxury suites or sponsorships, whether to buy naming rights for a building, whether to advertise on television. And then the third area is fans. Sports are an escape, yeah, but the question is whether average fans for whom attending a game is still a luxury after all, will maybe pass up those $400 nights to go to a ballgame.

SIEGEL: Well, what, if any, reaction, are we seeing so far in the sports to all of this?

Mr. FATSIS: We're not seeing a lot of panic, but there are signs of fallout. General Motors says it's not going to advertise during the Super Bowl. Major League Baseball is holding a meeting after the World Series to discuss the economy. The NFL's commissioner, Roger Goodell, recently warned teams about declining revenue. The NBA closed its Los Angeles office and laid off about 50 people. Overseas in England, soccer's Premier League, Liverpool just halted construction of a new stadium. And the owner of West Ham United is the chairman of an Icelandic bank that just collapsed. Auto racing worldwide seeing some hits, Toyota's frozen the budgets of its racing teams. There have been swathes of empty seats at NASCAR races. You're going to see a lot more cost-control with teams and leagues and then steps to keep them from losing companies and fans.

SIEGEL: Steps such as?

Ms. FATSIS: You're not going to see ticket prices go up much in the next year or two. Many teams are going to start offering discounts. In some sports like hockey and soccer in the United States, anyway, turnstile is very, very important to the bottom line. Then I think you're going to see sponsorship prices start to come down. Golf is going to have to get very creative. They've got 13 events that are supported by banks, investments firms, or credit card companies. Good luck renewing those. And then keep an eye on player contracts in the offseason. Teams may try to shear some payroll if there are signs of a prolonged recession, and that could increase tension between leagues and players unions.

SIEGEL: Well, thank you Stefan. Next time, maybe we'll get a chance to talk about sports.

Mr. FATSIS: Let's hope so, Robert.

SIEGEL: Sportswriter Stefan Fatsis, who talks with us about sports and about the business of sports. He's an expert of what's happening in business now because his book is called A Few Seconds of Panic. It's about place-kicking.

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