Super Bowl XLII Versus The Economy

Los Angeles (January 28, 2008) – As the premier event for the most successful sports league in the U.S., this Sunday's Super Bowl XLII offers a brief respite from the recent steady stream of negative economic and financial news. Looking ahead , IBISWorld, Inc. (www.ibisworld.com), one of the nation's most respected independent publishers of business intelligence research, examines the challenges that franchised sporting leagues face as they balance the interests of their fans, the media, sponsors, and the players.

"The past 15 years have been good to the franchised sports industry, and technology has reinvigorated spectator sports in many ways," said George Van Horn, senior analyst at IBISWorld. "With expanded broadcast channels, the Internet, innovative mobile broadcast rights, new state-of-the-art stadiums, and more disciplined financial management, franchised sports have enhanced the game for fans and sponsors alike."

While revenues have been highly favorable, confirming the success of these initiatives, the proliferation of media exposure also provides additional opportunities and challenges to sports franchise operators. At the same time that changes have boosted armchair support and buoyed overseas interest, the prevalence of TV coverage and dedicated sports channels has helped smaller sports attract interest from a wider range of demographic and geographic audiences.

Moreover, expanding media coverage may also influence the unshakable level of brand loyalty historically associated with sports teams. Between inflated salaries, over-sized egos to match, on-field and off-field player antics, some changes can alienate segments of the traditional fan base.

Historically, the franchise sports industry has been somewhat immune from short-term economic swings. While changes in disposable income has a broad influence on discretionary consumer spending, most spectators will weather a short-term economic downturn without giving up their season tickets.

"For major league sports, demand for tickets often far outstrips supply, keeping the fans pouring through the gates, and the sponsors happy," said Mr. Van Horn. "And despite the current economic climate, over the longer term, we expect disposable income to keep growing, along with leisure time availability."

While ticket holder behavior is one source of economic sensitivity, sports marketers are an equal, if not more important, source of industry income. Marketers are looking for a measurable and consistent ROI from their sponsorship spending, which means they won't be taking any chances in leaner times," said Mr. Van Horn. "At the same time, we expect the concentration of advertising revenue among the most popular leagues will hold fast, with NFL potentially increasing its hold on the advertising dollar even further."

The significance of the sports advertisers and sponsors extends beyond media associated revenues. With NBA, MLB, and NFL players increasingly finding themselves on the wrong side of the law due to dalliances with dog-fighting, drugs convictions, murder and rape accusations, as well as gang connections, rogue athletes are threatening the clean sporting image sought by major sponsors, and merchandise-buying parents.

"No major sport is untouched," said Mr. Van Horn, citing how the NFL has had its fair share of negative press with a number of players arrested or suspended for their antics on and off the field. Most recently, Michael Vick, the star Atlanta Falcons quarterback, is now out of the game and serving a prison sentence for his role in operating an illegal dog fighting operation that dominated the headlines for months."

"NHL players have been charged with assault for violent attacks during games, MLB is fighting steroid and human growth hormone scandals, and the NBA had its infamous wild brawl in Detroit last year with players and fans at each other's throats," said Mr. Van Horn. "These issues may pose a more long-term threat to franchised sports than a rough spot in the economy."

"Advertisers are all too aware of the downside of poor player performance on and off the field, and for the sports themselves, there's an awful lot at stake, said Mr. Van Horn. "For instance, advertising rates jumped 15 percent for the television broadcast of this year's Super Bowl, with the most expensive 30-second spots selling for $3 million. At some point, major league sports will need to do a better job of self-policing or face outside regulation on a scale currently unfolding with the MLB steroid scandal playing out in Congress."

Since 2002, the franchise sports industry's revenue has increased by an average annualized rate of 3.3 percent to $26.52 billion. The industry as a whole employs approximately 146,000 people, with an average wage of $84,100, a figure which reflects the relatively skilled nature of those working in the franchise sport field, particularly in the major franchised leagues. IBISWorld forecasts industry revenue will hit $30.06 billion by 2012. A significant proportion of that growth will come from the country's largest sporting league, the NFL. Over the past 12 years, the NFL's average team value has gone from $160 million to around $960 million, eclipsing the other major leagues and creating a new generation of multi-million dollar sports dynasties.

While the industry in aggregate is doing quite well, the wealth is not evenly distributed by sport (nor across the individual teams that make up a league). Franchised football teams currently earn around 25 percent of the franchise sports industry revenue with an average game attendance of 67,738 people, led by the Washington Redskins (87,631), New York Giants (76,613), and Kansas City Chiefs (77,909). Annually, a staggering 150 million people worldwide tune in to the Super Bowl on TV, 90 percent of NFL games are sell outs, and U.S. networks pay more than $3 billion a year to broadcast games. The combined revenue for the 32 NFL teams for the 2006 season was $6.54 billion.

Baseball makes up around 20 percent of the franchise sports industry, which is comprised of icons such as the New York Yankees, the team that typically achieves the highest average game attendance in MLB with 51,848 spectators. The New York Yankees are closely followed by the Los Angeles Dodgers (46,400) and the New York Mets (42,327). The 30 Major League Baseball teams earned $5.11 billion in revenue in 2006.

"An aging fan base could pose future challenges for baseball, with more than half of the sports' TV audience over the age of 50," said Mr. Van Horn. "While 35 percent of the NBA's fan base are under the age of 50, a fact which bodes well for future development of NBA attendance and merchandise sales."

Basketball teams make up 13 percent of franchised sports in the U.S., and an average of 17,558 spectators regularly attending basketball games in the NBA, with the Chicago Bulls (22,103), Detroit Pistons (22,076) and Cleveland Cavaliers (20,499) topping the popularity stakes, respectfully. The combined revenues from the 30 NBA teams are approximately $3.37 billion and rising.

Horse racing and auto racetrack operations each makes up 11 percent of the sports industry, with hockey clubs contributing 10 percent. In the case of the NHL, after losing a season to a labor dispute in 2005, attendance figures for League teams have returned to solid ground; but the League's TV audience has not because of ESPN's decision to drop the sport from its schedule.

The NHL League's current agreement with NBC gives the sport a share of revenue from each game's advertising sales, rather than the usual lump sum paid up front for game rights. The NHL is estimated to earn annual revenue of around $2.27 billion.

"And though soccer has often been touted as the sport of the future, it has yet to make its mark in the U.S., despite the hype surrounding the "Beckham phenomenon," said Mr. Van Horn. "Even the cities with a franchised soccer team are struggling to fill stadiums, and their balance sheets look bleak." He added, "While basketball's popularity among kids holds it in good stead for the future, the soccer craze with children doesn't seem to translate into a financially viable franchised sport, at least not in this country, and not for the foreseeable future."

Looking to the future, with less robust economic conditions likely to prevail in 2008 and beyond, corporate sponsors will be looking for consistent and measurable results from their sporting investment. As a result, management will have to exert greater control over their players' sometimes scandalous off-field behavior to hold onto lucrative sponsorship and advertising dollars or risk losing them to better behaved rivals.

And yet, IBISWorld believes the NFL, and other major leagues, will continue to deliver the best results for corporate marketers, which is less than positive news for smaller and "up and coming" sports. "It seems they may have to wait in line, adds Mr. Van Horn. "And it looks like a long one."