COVID-19 impact: Sports and entertainment
HRSM professors discuss sports, entertainment cancellations, delays
Posted on: March 20, 2020; Updated on: March 20, 2020
By Craig Brandhorst, craigb1@mailbox.sc.edu, 803-777-3681
As the coronavirus threatens health and upends daily life throughout the world, UofSC Today is turning to our faculty to help us make sense of it all. While no one can predict exactly what will happen in the coming weeks and months, our faculty can help us ask the right questions and put important context around emerging events.
Two sport and entertainment management professors from the College of Hospitality, Retail and Sport Management — associate professor Tom Regan and assistant professor Nick Watanabe — answer questions about COVID-19’s economic impact on the sport and entertainment industries.
Widespread cancellation of sporting events and other communal entertainment due to COVID-19 has affected us economically and culturally. Apart from the fear of contagion, what other major variables have influenced the decision-making process?
REGAN: Contagion is the issue. As leagues and conferences started making decisions to suspend or cancel, it fostered a wave of “I don’t want to be first to contaminate a fan base.” One variable is “leadership.” Like it or not, sport has multiple platforms that most of the USA and world follow. Who doesn’t participate in sport and or entertainment (concerts, shows, state fairs, etc.)?
WATANABE: I believe the decision-making process was a combination of trying to keep consumers healthy, while also considering the ways in which to operate without taking too large of a financial loss. For example, certain leagues, such as Major League Soccer, rely on game-day revenue (tickets, concessions, parking, etc.) more than other leagues like the NFL. Based on this, one would expect a league like the MLS to delay matches until they can start bringing fans back into games, as playing in empty venues will hurt teams financially. There is certainly this type of calculation going on throughout the sport and entertainment industry, especially as they consider forecasts for the future and how they can reopen and try to gain back some of their losses.
For a league such as the NBA, it will hurt, but it will not be something that causes the entire organization to fold. However, for newer upstart organizations, such as the XFL, the loss of revenue could lead to their ultimate demise.
Nick Watanabe, HRSM professor
What can the sport and entertainment sectors do now to help mitigate the economic impact of widespread event cancellations?
WATANABE: To be honest, I think it is too late to mitigate the impact of event cancellations. Either organizations had a good risk management strategy and resources in place to weather an issue like this, or they do not and will likely suffer because of it. For example, the NCAA's insurance reportedly only covered a fraction of their losses from the cancellation of the NCAA Basketball Tournament, and thus will probably lead to some financial issues for certain athletic departments that had budgeted based on being allocated a certain share of revenues from the tournament.
Basically, this will serve as a lesson for the sport and entertainment industry, and probably will lead to organizations rethinking their approach to risk. In reality, the biggest impact from the cancellation of these events will likely be for part-time employees who are out of a job. Fortunately, in some cases we have seen athletes such as Zion Williamson (of the New Orleans Pelicans) pledging their salary to help those who are out of work because of cancellations. Although some teams and owners have joined in as well, not all leagues have had such a universal response. At this point in time, we need to make sure that those who are most exposed to the risk are taken care of.
REGAN: E-sport will pick up — NASCAR is leading the way. Economic impact will be devastating. No other way to look at it. Leagues and major conferences have deep enough pockets to weather the cashflow disaster. The real issue is the marginal sport and entertainment entities.
Recently, some music performers have been exploring the possibility of streaming concerts live via social media. Have you heard of other examples of performing artists, or sports leagues, finding creative ways to persevere in the face of recent challenges?
WATANABE: Yes, the Phoenix Suns have started to replace all of their scheduled games with streams of one of their NBA 2k League (e-sports) athletes playing each game on the schedule. European soccer clubs have started playing tic-tac-toe, Connect Four, Go, and other games on their Twitter platforms as well to keep fans engaged and interested in their digital presences. These are certainly creative ideas, but they will not be able to fill the void of canceled competitions and events.
REGAN: First-run movies are now moving to your living room. These may cost more and probably should. Market will dictate pricing for sure. Concerts are the cash-flow cow for entertainers now. (The industry) may switch back to digital online and other electronic means to increase earnings and cash flow. Maybe. Never forget: We are social animals, and fans enjoy many aspects of the event: tailgating, gambling, in venue experience. That will not go away — it’s just paused.
No one can truly predict what will happen to any industry at this point, but can you provide some possible scenarios in terms of economic impact and recovery?
REGAN: The economic impact will be devasting. No other way to say it. However, contracts for leagues and conferences are in play. Media is more important cash-flow-wise than tickets and attendance for NFL, MLB, NBA, NASCAR, etc. NHL needs fans in venues. Possible recovery timeline? MLB: June 1. NCAA football and NFL: August 2020. Of course, this all depends on no further escalation of virus outbreak. Outdoor concerts: July 2020. The key to outdoor events? Look at what the PGA will do with events. If the Master’s goes in late May, that will be a game changer.
WATANABE: There is a solid body of sports economics research in regards to the economic impact of hosting sporting events. Overall, sport does generate significant economic impact to cities, but I would not be concerned in terms of sport driving the overall health of an economy. Instead, focus should be on other industries that operate daily and employ a high number of individuals, such as restaurants.
There is, of course, concern for hourly and part-time employees who work events for sport teams, and small businesses that rely on sporting events. In terms of recovery, the literature would suggest that once events start up again, there will likely be a build-up period, but that things will return to close to normal in regards to demand and fan interest. Perhaps the big issue will be the potential loss of revenue for a season, or even an entire year for some organizations. For a league such as the NBA, it will hurt, but it will not be something that causes the entire organization to fold. However, for newer upstart organizations, such as the XFL, the loss of revenue could lead to their ultimate demise.
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