With Major League Baseball and the NBA completing their seasons and football moving along with its season, Ben Cohen and Louise Radnofsky came up with some lessons after sports’ first Covid-19 season in Saturday’s Wall Street Journal. Among them is this:
“The past few months have taught sports that fans are important but not essential – at least for now. The games can be played without them. Being flexible and doing the unimaginable, whether it is a closed-door competition or shortening some baseball games to seven innings, paid off for the leagues.
But the economics of sports depend on getting fans back in arenas as soon as possible. What the leagues have done so far is spend money to lose less money. That isn’t a sustainable business model.
NBA commissioner Adam Silver has said that 40% of the league’s revenue comes from having fans in arenas. The pandemic will remain a financial calamity until it is possible to feel comfortable about people spending on tickets, buying hot dogs and beer and joining 20,000 other screaming fans indoors.”
Actually, in spite of what the article says and what Mr. Silver says, sports is possible without fans in the stadiums. If Mr. Silver is correct that 40% of the NBA’s revenue comes from “butts in seats,” then the financial solution to playing without fans is to figure out a way to put on a season with just 60% of the normal revenue. Here are some ideas:
First, there are some costs you don’t have when stadiums aren’t open. You save that.
Second, teams are going to have to learn to get by with fewer back-office staff. Maybe fewer scouts; maybe fewer “assistants to the general manager.” That is unfortunate for those people, but without fans in the stands, there is less money to go around.
Third, owners will have to make less money. Let me note that I am not saying owners have to lose money. Just because they are rich, doesn’t mean they should be expected to run their clubs as charities. I don’t claim to understand the economics and accounting of major sports. There is a lot of smoke and mirrors there. The numbers that are published are almost certainly one-sided and misleading. I’m just saying that owners have to make less.
Fourth, some employees have to make less money. There are a lot of people, from back-office staff to minor league players, etc., who can’t be asked to make less. They’re making a regular wage now. They can’t be cut. There are, however, a number of people who are making a lot of money. Ultimately, if fans can’t get back in the park (or stadium), those people are going to have to earn less. It’s not just a matter of a pro-rata cut because fewer games are being played (as baseball did this year). It’s a matter of earning less absolutely. Today’s salaries are based on a certain economic model. If that model doesn’t apply anymore, then those salaries can’t apply anymore. If somebody says he or she doesn’t want to play for the salary that the new economic model would provide, then they don’t have to play. There will be others who will. They will still make a lot of money. They just won’t make the amounts they are being paid now.
Let me emphasize it’s not just some players who will have to earn less. It’s head coaches, general managers, and team presidents. Anybody – and everybody – who is making big bucks. Until the fans get back in the stands, they are going to have to earn less.
Getting by on 40% less revenue may mean going back to a time when revenues from everything were 40% less than they are today – or at least 40% less than they were a year ago. There may be some fixed expenses, such as stadium rental, that can’t be reduced. That will make it tougher, but there was a time, not all that long ago, when teams were making a lot less money than they are. Until the pandemic is over and fans are back, that may be the economic model professional sports is going to have to follow.
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