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Sport Leverages Future

26 September 07
by Mike Stevens

Forget steroids or stealthy cameramen stealing signs, the latest threat to sports may be a cryptic economic ailment: the global liquidity crisis.

Last week the British bank Northern Rock lost nearly 2 billion pounds of deposits after jittery customers overwhelmed the bank’s website and queued up at local branches to remove their savings. Shares of the Newcastle-based bank took a beating. The problem? Northern Rock is primarily a mortgage lender. The volatile American housing market has as of late burned many banks and investors. Suddenly there is little, if any, interest in buying mortgage debt, including Northern Rock’s.

Desperate for an infusion of cash, the bank applied for and received an emergency loan from the Bank of England. Sounds benign. But the national bank is a “lender of last resort.” Borrowing here is tantamount to a bank admitting a failure is in the offing.

Forgetting for a second that the global economy supports—you know—human civilization, why should a sports fan care? Well, because Northern Rock sponsors the Newcastle United Football Club. This deal is a big part of the team’s bottom line. No matter its standings, a team must remain solvent.

Sport has long ago shed its simple business model of ticket sales. In the last decade it has immersed itself ever deeper into the overall economy. Such diversification leaves teams directly vulnerable to financial downturns far afield of a team’s performance on the pitch. Remember Enron Field? After an accounting scandal brought down the Houston-based energy company, the Houston Astros jettisoned the tainted name replacing it with the staid Minute Maid Park. “They have the values and commitment to the public,” owner Drayton McLane said of Minute Maid at the time, adding “but they also have great financial security.”

Today the most valuable sports franchise, the Dallas Cowboys, is worth an estimated $1.5 billion, according to Forbes latest team valuations. Such fiscal weight is not won by putting punters in seats alone. But instead by leveraging a brand—what fans call a team—into something bigger. Into T-shirts, credit cards, TV deals, and taxpayer-subsidized stadiums with profitable skyboxes.

The Cowboys, for example, are set to move into their new 80,000-seat stadium in 2009. Some of the 200 skyboxes will lease for more than $350,000 a season. Among its corporate sponsors: Miller Brewing, Ford Motor, Verizon Wireless, PepsiCo, Bank of America.

Over the last decade, financially savvy front-office types have spent less time reviewing videotape of high school phenoms and more time unearthing new revenue streams. Stadium names have been sold; scalping has been transformed into a standardized secondary market; streaming video subscriptions have proved profitable.

Baseball has tried to litigate its way towards higher profits arguing in court that player stats are league property thus justifying a cut of the fast growing fantasy sports industry. Online coverage is being protected so aggressively that journalists have been banned from live blogging at some sports events.

Even recruitment has an eye towards the bottom line. In an attempt to grow audiences, prospective athletes from lucrative untapped markets (China chief among them) get more than a second look. The NFL has gone so far as to create a mini-camp for Chinese athletes in the hopes of training the league’s first Chinese player. Let’s call it the Yao-effect. Since Yao Ming arrived at the Houston Rockets revenue from sponsors has risen 300%, according to Business Week.

Back in Newcastle, Sir Bobby Robson, the former manager of Newcastle United, opened a Northern Rock account last week in solidarity with the beleaguered financial institution. Should Newcastle supporters follow Robson’s lead? With a sponsorship in the air, wouldn’t it make sense for Newcastle’s owners to avoid unnecessary expenditure? Or more plainly, they might avoid spending the money necessary to field a competitive team. (There’s a reason frugal sports teams, the Kansas City Royals for one, stink you know.)

As the business of sport becomes increasingly sophisticated, fans might benefit from checking the business section more regularly. Think of it as next season’s forecast.