COVID-19 Results in Major Financial Losses for Major Sports Leagues
On March 11th, the National Basketball Association (NBA) made the decision to pause its season indefinitely after Utah Jazz player Rudy Gobert tested positive for COVID-19. After this decision was made, other leagues quickly followed suit, including major NCAA conferences such as the BIG 10, ACC, and SEC, which all made the decision to cancel their conference tournaments immediately despite the fact that some had already begun. Soon after, the NCAA made the decision to cancel the March Madness tournament, which has been held every year since its inception in 1939.
The impact of COVID-19 has been felt by sports leagues across the world. The MLB has pushed back its season indefinitely, while major global soccer leagues such as La Liga, Serie A, and Bundasliga have had to pause their season. With no games being played, leagues are losing millions of dollars worth of ticket sales, television contracts, and merchandise sales from inside arenas.
The NBA suspended the remainder of its season with 259 regular-season games remaining, accounting for 21% of the regular season (Neil_Payne). Each NBA regular game generates an average of $1.2 million in gate revenue, which is the biggest source of revenue for the league (Schaefer). This means that the league will be losing over $300 million dollars in gate revenue for the lost regular season games alone. This is before adding on the extra revenue that the playoffs bring as ticket prices and sales are higher for playoff games in comparison to regular season. Each playoff game brings in $2 million as a general rule of thumb, which is $800k more than the $1.2 million per game for regular season games.
On June 4th the NBA Board of Governors approved a plan to finish the NBA season with 22 teams at the Walt Disney Resort near Orlando, Florida. Under the plan, the season would resume on July 31st with 9 teams from the Eastern Conference and 13 teams from the Western Conference playing 8 “seeding games” to determine the 16 teams moving on to the playoff. The games would be played without fans, so the NBA would still be losing out on all the revenue that could have been generated from the playoffs and the conclusion of the regular season.
The new plan does help the NBA avoid some financial losses when it comes to media contracts. The NBA has National TV contract deals worth $2.66 billion per year with ESPN and Turner, and the deals the league has with local TV providers are also very valuable (Novy-Williams). The NBA has finished about 79% of its season, a number which gets them close to satisfying their local TV contracts, and with the planned conclusion of the season consisting of 8 regular season games as well as the playoffs, there is added value for TV providers.
However, The economic impact of COVID-19 on the NBA doesn’t end at the lost revenue. Arena vendors are also losing out on millions of dollars in food and merchandise sales. Merchandise sales themselves account for $9.3 million annually. Additionally, State and Federal guidelines require that all NBA teams close down their arenas and practice facilities, leaving thousands of employees without their jobs. Many NBA players and team owners, like Mark Cuban, have pledged millions of their own dollars to ensure that employees for their respective teams still get paid while their facilities remain closed.
This has contributed to the growing unemployment rate in the United States. Without their normal income stream from the NBA, these people must live on unemployment benefits and hope that they get back to work soon. This rising unemployment caused by sports leagues, such as the NBA, pausing their season is felt throughout the US economy. In times of high unemployment, consumer confidence and spending decreases, leading to a drop in national Gross Domestic Product (Ludvigson).
The trickling effects of a major sports league such as the NBA halting its season will have an impact on the entire U.S. economy because of how many people are employed by the league, and the amount of people that serve as workers at each of the 30 arenas in the league. The lack of employment currently being offered by the NBA, along with all of the revenue being lost will have a role in how the US economy performs in the future. Along with this, it can be expected that there will be a sharp decline in US GDP due to lack of consumer spending that is currently being experienced. With there being no more NBA games with a live audience this season, there will be less ticket revenue, which in turn leads to less tax money for the government. On top of this, there will be a large decrease in consumer consumption as people who used to work at NBA arenas have lost their main source of income, so they will be less likely to go out and spend.
Even for future NBA seasons, there will be permanent changes that have to be put in place which likely impact the revenue stream for the league. Consumers may be less likely to physically go out into crowded arenas to watch NBA games live, and may choose to instead watch more games from the convenience of their homes. Until people feel comfortable going out again, the NBA will have to keep its season on pause or play behind closed doors.
The impact that COVID-19 has had on the US economy, in particular the professional sports sector,is magnified when you consider all the other leagues that have been shut down. The MLB, NHL, and Nascar are other leagues that have had to pause or delay their seasons due to the ongoing pandemic. This means that millions of people who are employed by the sports industry in the U.S. are currently furloughed or unemployed. This lack of income is causing a downward spike in consumer spending, which has hit the retail sector hard. This has had a role in major retailers, such as JCPenny, considering filing for bankruptcy.
Works Cited:
Ludvigson, Sydney, C. 2004. "Consumer Confidence and Consumer Spending." Journal of Economic Perspectives, 18 (2): 29-50.
Neil_Paine. “The Coronavirus's Economic Effect On Sports Could Be Staggering.” FiveThirtyEight, FiveThirtyEight, 16 Mar. 2020, fivethirtyeight.com/features/the-coronaviruss-economic-effect-on-sports-could-be -staggering/.
Novy-Williams, Eben. “NBA and Other U.S. Sports Leagues Inch Toward a Return to Playing Games.” Variety, Variety, 4 June 2020, variety.com/2020/sports/news/nba-return-playoffs-new-games-mlb-nfhl-shutdown-1234624690/.
Schaefer, Rob. “Report: 'Nearly $500 Million' in Ticket Revenue at Risk for NBA.” NBC Sports Chicago, 12 Mar. 2020, www.nbcsports.com/chicago/bulls/report-nba-could-lose-nearly-500-million-ticket-revenue-without-games.
