Interesting piece here, based on a discussion with economist Dan Rascher. It starts with the Texas Rangers’ trip to bankruptcy court:
“The Rangers are like a microcosm of how so many companies have fared in this credit crisis,” said Daniel Rascher, president of Sports Economics, a sports consulting firm. “Once the economy turned bad, their revenues flattened or declined and they realized they didn’t have enough equity in their business.”
You may recall earlier posts at TSE that noted the valuation and leverage skills in the world of private equity of Rangers owner Tom Hicks . Perhaps his luck ran out on the leverage part.
The story goes on to discuss the recession’s impact on teams and players.
From the perspective of ordinary fans, attendance has been dropping for many pro sports franchises, although TV ratings have generally been flat. Major League Baseball attendance fell about 6.6% in the regular season in 2009, compared with the prior season.
“Regular fans slowed down their ticket purchases,” Rascher noted. “Many sports teams responded by lowering ticket prices or by offering financing to people seeking season ticket deals. As a result, while attendance dropped modestly, revenue dropped substantially.”
It is really at the corporate level where teams have endured significant losses. Companies have reduced expenditures on luxury suites, corporate sponsorships and season tickets.
“Since these big corporate sponsorship deals are signed on a mufti-year basis, sports clubs did not see an immediate loss of revenue at the onset of the recession,” Rascher noted. “But once those deals expired, they either evaporated, or the companies sought to renegotiate their contracts at substantially lower terms.”
How have the sports franchises responded to the economic slump? Aside from lowering some ticket prices and re-doing corporate agreements at cheaper rates, some teams have pushed out overpriced journeymen veterans and replaced them with cheaper, younger substitutes.
“This has happened a lot in the NFL,” Rascher stated. “A number of pro football clubs have reduced payroll.”
The superstars, however — that is, the players the fans and corporations are most excited to see — have not suffered salary losses at all.
I’ve not followed NFL roster moves very closely. Given the NFL’s relatively stable fiscal situation, one would think that throwing “overpriced journeymen” over the side would be no more common now than in normal times. The resilience of superstar salaries certainly rings true though.
Looks like his valuation skills might be misplaced too, if it’s going to be his bankers who decide how much Liverpool FC will be sold for.