Living with crisis

The year 2008 has once again been a test of endurance and financial stability for major sporting leagues. The global financial crisis, set off by millions of unpaid mortgages lent out by large American financial institutions, has made it difficult for the public to patronize international sporting leagues, and thus increased the burden of maintaining them.

In October, the National Basketball Association became the first major American sporting league to cut jobs. About 80 people from unnecessary or redundant positions were cut as an effect of the global economic slowdown. Com. David Stern said that the league is hitting all its financial targets, despite reports that crowds in many arenas are thinner than previous seasons. Individual NHL teams started cutting employees days after.

In November, NASCAR, the most economically sound sports business model in the US, suspended all testing for all its sanctioned top-tier races for the 2009 season. This is a big part of teams’ preparations for the next season, beginning with the Daytona 500 in January.

Later last month, General Motors, one of the three major American automobile manufacturers hoping for a government bailout, cut its sponsorship contract with Tiger Woods after nine years. GM spent over half a billion dollars in sports advertising last year, and is desperately trying to cut costs where it can.

Honda, Japan’s second-largest car manufacturer, announced that it was pulling out of Formula One at the start of this month. In November alone, Honda’s US car sales dropped 32 percent. Maintaining its two-car F1 team cost them $217 million this season.

“No one knows how serious the world crisis is,” Max Mosley, president of Federation Internationale de l-Automobile, F1’s governing body, was quoted as saying on Bloomberg.com. “It’s not just the racing teams. It affects fans’ abilities to attend racing and sponsors’ paying fees.”

A little over a week ago, Suzuki pulled out of the World Rally Championship after finally becoming a full-fledged member. Its Paris-based headquarters for the WRC announced the pullout on the 15th. At the same time, Arena Football League, the 22-year old indoor version of the NFL, reveals it was not going to play at all in 2009, supposedly with all team owners agreeing to come back in 2010.

Why is sports so hard-hit?

Professional sports anywhere is a combination of both entertainment and advertising. In tough economic times, these are the two areas corporations cut costs first. Advertising is either eliminated or scaled down, and entertainment becomes more selective.

Take the cost of going to any game in the US. First, you have to buy the tickets, which average out at about P50 per person. Then you have to drive to the venue, which is usually outside of the downtown area, where land used to be cheaper. Then you pay for parking and buy expensive popcorn, hotdogs and beer. The whole evening could cost you upwards to $200 for two persons. If you have season tickets, the spending becomes all the more unreasonable.

So what does the future hold for professional sports leagues?

For the ultra-expensive like Formula One, obviously the first thing to do is find new owners for teams that fold, and Honda will probably be followed by at least one other team that will most likely just announce a change in ownership. It wouldn’t be surprising if F1 announced it was scaling back the number of races for 2009. Middle East businesses have reportedly expressed interest in buying major Formula One and American sports teams, as well.

Although the NBA has announced it will play regular season games in Europe, they are mum on the dates, and other international playdates are being considered for later dates.

Advertisers will definitely be cutting down on global sports spending in the next two years, until they get a clearer picture of what the future holds. Some long-term endorsement deals with big-name athletes will certainly be restructured, either quietly or openly.

There is actually no need to worry for now, as no major sports leagues like the NBA, Major League Baseball, NFL or NHL will be doing anything drastic. The election of Barack Obama will, at the very least, engender some hope for change. The next two years will be difficult, but then again, we’ve been through this before.

The big sports leagues always find a way to survive.

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This writer would like to thank Subaru and Motor Image for assistance in a recent out-of-town coverage.