The Impact of COVID-19 on the Sports Industry

Keisha Green analyses the impact of the COVID-19 pandemic on the global sports industry.

The economic effects of COVID-19 (CV19) are being compared with that of wartime economies. However, it should be noted that the main, and obvious, difference is that where there were calls for the population to work en masse during the war we are seeing the reverse. The ‘downing of tools’ for all but non-essential workers, and those able to work from home, is having a profound impact on the entertainment industry. The ban on social gatherings has led to a standstill for the sports industry and annexed professions. Owing to Government advice on social distancing, up-and-coming sport events have been either postponed or cancelled. This includes the postponement of European football and rugby matches, cycling races and the Olympics. For many sports, much of their revenue comes from match day spending (tickets and hospitality, etc.), broadcasting and sponsorship contracts.

Effects on local investment

In the run-up to the Olympics, Japan is reported to have spent $12.6 billion hosting the Games. The “Economic Impact of the Tokyo 2020 Olympic Games” report  conducted by the Bank of Japan noted that hosting the Games would be economically beneficial, due to increased tourism and investment. However, prior to the outbreak, Japan’s tourism industry was on the decline, and it is hardly surprising, that in the aftermath of CV19, the tourism industry ground to a halt.

The Olympics have been postponed but will apparently be held by 2021 at the latest. It is unclear whether Japan is hopeful that the pandemic will be countered by this time, but it seems the Games will be held regardless of the global position. If the Olympics were cancelled, what effect would this have on the economy? Japan is said to have generated $3.3 billion in sponsors and $800 million generated in ticket sales. With regard to the sale of tickets, it has been suggested that purchasers will not be able to claim a refund owing to a force majeure clause relating to the extent of the postponement. (For more information on force majeure clauses, see here.)

It has been suggested that postponing the Games would reduce Japan’s GDP by $6 billion. However, it should also be noted that were the Olympics eventually hosted, this reduction in GDP could be negated. Clearly, then, it could be said that hosting the Games irrespective of the global position on CV19 could be beneficial for Japan’s economy.

The impact of cancelling an event as opposed to postponing can be seen with the Grand National. It has been estimated that its cancellation has caused the sports industry, including betting industries and the local economy, an estimated £500 million loss.

Effects on broadcasting

The postponement and cancellation of sports events has also impacted upon broadcasting rights. According to SportBusiness Consulting, in 2018, global broadcasting rights contracts amounted to $49.5 billion. The English Premier League (who announced that its domestic and international contracts would be worth £9.2 billion between 2019 and 2022) has suspended matches until at least 30 April 2020. The coronavirus has come at a time when BT Sports and Sky Sports are due to pay a six-month licence fee for the first half of the season (a combined total of £530 million). However, if the season does not finish by 16 July, Sky Sports and BT Sports could demand up to £762 million. This is because the Premier League has obligations to broadcasters to air live matches.

It has been reported that the resumption of matches is being considered. Broadcasting closed door events is an attractive proposition as a measure to balance the books. However, such measures could also increase the possibility of exposing players to the coronavirus.

Effect on jobs and related industry

The longevity of the lockdown raises questions as to the immediate impact on the industry and whether it will be able to weather the storm. Indeed, three weeks into the lockdown, companies are already feeling the financial burden. The Norwegian Ski Federation announced the termination of multiple employee contracts and a loss of $2.9 million, due to cancelled events.

Similarly, with matches having been cancelled, rugby players in the Premiership have been subjected to a blanket salary reduction of 25%. Some players are said to be considering legal action owing to questions of the legality of a pay reduction where consent has not been given.

Tier one Test rugby generates the most revenue for the Union and, with summer and autumn tests in the calendar, a continued lockdown is going to have negative consequences; with potential losses of £35m and £60m for Australia and New Zealand, respectively, should the lockdown continue for 2020.

Effect on global supply chains

In 2018, global sales in sport services and related goods came to $489 billion.  But, measures to contain the spread of the virus has created difficulties for the international supply of goods for the sports industry. For instance, sportswear firms have suffered delays in the supply of kit manufactured in China, and Puma and Adidas are noted to be negatively affected by the closure of their stores in China. The global production of goods from China in March fell to an all-time low. The supply of goods has been slowed by a reduced workforce as well as a shortage of component materials. It should also be noted that the supply of goods from China has been affected by the US-China trade war, which slowed the global delivery of goods from Asia.

The global reach of the coronavirus is such that the immediate effects of international competitions and tournaments is in doubt. A return to life will depend on the willingness and trust of the public as to whether they return to packed stadiums.

By Keisha Green