Hey, we're paying for this
This new version of trickle-down economics - more like
cascade-down, jumping-out-of-windows panic - may just be the answer to fans'
increasing complaints that professional athletes are overpaid.
As Wall Street's rich get itchy-er, the high-rolling culture of
professional sports suddenly is faced with the proposition that it isn't any
more recession-proof than the big spenders who have fueled its enormous growth
in recent years.
"This is not going to change the game," said Clemson University economics
professor Raymond Sauer, founder of the 3-year-old "Sports Economist" Web site.
"But it's going to be a challenge.
"The situation over the past 25 years is such that a drunk could make money
running a sports team. They've been printing money. One of the things you
might see now is ramifications in the baseball free-agent market; those numbers
probably are going to come down."
Experts agree that tighter credit in the fraying financial system
potentially means a hold on naming-rights sales as well as reduced income from
corporate suites and general sponsorships.
Automakers, who long have considered sports audiences their core customers,
are suffering badly, squeezing their advertising budgets. Attendance in
baseball and football, which had been steadily rising for years, is flat. The
NBA is laying off employees and has closed its Los Angeles office.
For the really big sports transactions, such as the pending sale of the
Kurt Badenhausen, an associate editor at Forbes magazine who covers sports
business. "You can't buy an NFL team, particularly, without borrowing hundreds
of millions of dollars."
Though the entertainment and sports industries historically boomed during
dire economic times, "the pricing for sporting events certainly has changed
over the last few decades," Badenhausen said. "I don't think fans will flock to
sporting events to forget their woes, because things certainly are more
expensive than they used to be."
Average tickets prices for Major League Baseball increased 10 percent (to
$25.43) this year while the NFL raised its average by 8 percent (to $72.20).
The best seats in the Mets' new stadium next season will cost $495 and the top
Yankees ticket will be $2,500.
In that sense, teams and leagues are being hoisted on their own petards,
running with a trend that for years began to price out what Sauer called "the
average Joe and his family" while courting corporate customers. And now, the
sports industry is stuck with business types who "have more to worry about the
balance sheet than taking clients to the game," Sauer said.
Badenhausen noted that: "To some degree, teams are insulated with long-term
contracts. Companies are locked into five-, seven-, 10-year plans,
particularly with the more successful teams.
"But one of the first places you'll start to see teams have trouble is in
sponsorship sales, because that's one of the first places companies cut back
when things get tight."
Sauer found "really stunning" last week's Forbes report that roughly a
quarter of pro sports' sponsorship revenue - about $10 billion annually - comes
from financial services companies, the same industry most troubled by the
current economic chaos.
The poster company of financial services involvement in sports is American
International Group, its $59-million deal with the English soccer power
Manchester United the largest sponsorship contract on the books. With this
month's unsettling U.S. government bailout of AIG, taking control of 80 percent
of the company's stock, observers wonder whether the government will be
looking for out-clauses before the AIG-Man U. contract expires in 2010.
"In the short term," Sauer said, "the money that teams thought they'd get
won't be so lucrative. The PSLs [personal seat licenses] are going to be harder
to sell because the corporate market will be impacted, and luxury boxes are
going to be much tougher to sell."
Sports economists agree that the three new metropolitan stadiums under
construction - the shared Giants/Jets facility and the parks for the Mets and
Yankees - likely would have been put on hold if the economic downturn had hit
before shovels were in the ground.
As it is, Badenhausen said, "it will be interesting to watch what happens
with the new football stadium. They turned down the, quote, 'tainted' money
they could've had" - between $20- and $30-million annuals offered by the German
insurer Allianz, which had ties to the Nazis in World War II. "What will they
Forget the scoreboard. Keep an eye on the big board.