Sports teams fear hit from economic crisis

October 29, 2008|By Childs Walker | Childs Walker,

With major sponsors facing economic collapse and fans worrying about fuel costs and retirement funds, sports executives are worried that their business - normally immune to economic downturns - might feel serious effects from the current financial crisis.

Baseball just experienced its first attendance drop in four years. NFL commissioner Roger Goodell has warned of possible budget shortfalls. In Baltimore, the Orioles saw season attendance fall below 2 million for the first time since they moved to Camden Yards. Analysts are warning that a proposed new city arena might be a tough sell until better economic times arrive. Even the Ravens have had to scramble after struggling companies bailed out on contracts for luxury suites.

"Sports is big business in this country," said Anirban Basu, chairman of the Baltimore-based Sage Policy Group, an economic consulting firm. "And what's happening to big business right now? They're taking it on the chin."

But don't worry too much about the nation's teams and leagues, other financial analysts said. The business of sports has proved remarkably resilient during times of economic crisis.

"It's kind of like booze and movies," said John Moag, founder of Moag & Co., a Baltimore-based investment banking firm that specializes in sports. "Psychologically, people do not want to give it up."

A recent study by Moag's firm found attendance and franchise values went up during the bear markets that have occurred between 1970 and this year.

Though Major League Baseball and Orioles officials blamed the economy for the smaller crowds this season, experts suspect that losing corporate sponsors and suite holders poses more of a threat to the Orioles and Ravens. With the financial sector taking huge hits, many banks and other companies are cutting costs, and luxuries such as suites might seem like easy targets.

"I don't know that we've ever been through a deep depression when so many of the team's local revenues are dependent on sponsorships," Ravens president Dick Cass said. "We've already seen some pressure from it, though we've been able to scramble around and fill holes."

Baltimore is attempting to get a new arena project off the ground, and that might be difficult in the current climate, with credit tight and potential developers and investors reluctant to take risks.

"State governments might be nervous about making a big investment in a sports facility when they're facing budget crunches," said Alison Asti, chairwoman of Asti Strategic Advisors, a sports and economic development division of the Baltimore law firm of Gordon, Feinblatt, Rothman, Hoffberger & Hollander. "On the private side, nobody wants to do a deal. This could have a profound effect on building. It sort of puts a hold on everything."

Basu agreed, saying he wouldn't be surprised if the arena were delayed.

City officials said it's too early to say whether tough economic times will stall the project. "We're so early on in the arena process that I think it's premature to predict how what's going on in the market now will impact financing that could be years down the line," said Sterling Clifford, a spokesman for Mayor Sheila Dixon.

Asked whether a bond issue would be a tough sell to the legislature in the current climate, Clifford said: "An improved arena would also be an economic engine, so you have to view it as an investment as much as an expense."

The financial crisis has already produced some ripples in the sporting world.

NASCAR has been among the hardest hit as it struggles to fill tracks where empty seats had been rare for most of the decade. The year ahead looks grimmer still, with the nation's leading automakers trimming their investments in racing and successful teams scrambling to find corporate sponsors. Petty Enterprises Inc. sold a stake in its racing operations to a private equity firm, and other teams might consider similar options.

The NBA is planning to cut its work force by 6 percent.

Despite widespread fears, many sports business analysts can't imagine the financial chaos having a devastating effect on their industry.

"In the last market fall in 2001 and 2002, we saw the largest loss of wealth in American history," Moag said. "But the fundamentals of sports business never changed. I don't know anyone who lost a job in the sports industry because of it."

Athletic spectacles have long served as pick-me-ups in times of crisis. During the Depression, a boxer such as Joe Louis or an underdog horse such as Seabiscuit could pull together a dispirited populace with unmatched force. In the aftermath of the Sept. 11 attacks in 2001, the World Series at Yankee Stadium offered the nation a form of catharsis.

In times of confusion and anxiety, people yearn to come together in blissful familiarity, Asti said. "That's why sports is so resilient."

It's an idea supported by hard data.

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