Recession points to tough 2009 for sport

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(Agencies)
Updated: 2008-12-17 17:11

MILAN - Sport is less vulnerable than other industries to the highs and lows of financial markets but it has still suffered in 2008 and faces a tough future as fears of a prolonged recession spread to every sector of the economy.

Sports heavily reliant on the auto and financial sectors have been in the firing line and experts wonder if signs of recovery will surface before 2010.

"It's still too early to say how big any problem will be. It's maybe a problem like the housing market, like the banking sector, for six months, nine months, maybe 12 months," said Richard Worth, chief executive of European sports marketing company Sportfive.

"Golf and Formula One may have more problems but it's not forever, it will come back."

Sponsorship has been most affected by the global downturn while companies and families are cutting back on non-essential spending.

Japan's Honda withdrew from Formula One this month because of worsening conditions in the auto industry and the FIA, the sport's governing body, proposed radical cost-cutting measures including the possible use of standard engines from 2010.

Japanese manufacturer Suzuki pulled out of the world rally championship this week and a day later former champions Subaru followed suit.

In the United States, golf's PGA Tour is considering replacing some struggling auto and financial sponsors. Next year's LPGA Tour will feature three fewer events than in 2008 while Major League Baseball (MLB) and NASCAR have been hit by job cuts and a dip in attendance and sponsors.

American International Group's (AIG) bailout by the US government raised concerns over the future of the insurance giant's 56.5-million-pound ($83.6-million) deal with Manchester United, one of the world's more marketable soccer clubs.

"One thing for sure is that the sponsorship market is going to be difficult. And it is going to be very difficult in the financial sector," Worth said.

Television deals are in a better position to weather the storm due to longer-term contracts and a global audience but terrestrial broadcasters dependent on advertising are feeling the strain.

"Sponsorship will be most affected, while the impact on TV deals will be measurable in three to six months," said Andrea Radrizzani, Group CEO of Singapore-based media agency MP&Silva.

HIGH DEBTS

Many analysts agree that top-level soccer, which stirs up passion in 73 percent of Europe's population, is avoiding the worst of the crisis because of its global fan base and long-term sponsorship deals but clubs may be forced to pay the price for their high debt exposure.

English soccer alone has amassed debts of around three billion pounds ($5.2 billion) at all levels of the game and David Triesman, the chairman of the English FA, said in October he could not rule out a top club falling into receivership.

Dan Jones, head of the Sports Business Group at Deloitte consultancy firm, said he expected European soccer revenue to be flat for this season.

The total European soccer market grew to 13.6 billion euros in 2006/07, a one-billion increase in revenue on the previous year, according to Deloitte's last annual report.

"I think what we will see is that 2008-09 revenues will level out, I expect that they will be pretty flat but they will not collapse," Jones explained.

Players' wages are likely to remain high, despite growing calls to reduce the gap with smaller clubs and improve competitiveness on and off the field.

"Clubs will continue to spend as much as possible in wages as they can. It is a very competitive market. I don't expect the wages-turnover ratio (a key performance indicator) to drop," Jones added.

As families tighten their purse strings, ticket sales have begun to suffer. Soccer's world governing body FIFA expressed concerns that the number of visitors to the 2010 World Cup finals in South Africa could be lower than expected.

SAFE HAVEN

Deloitte's top expert does not see a huge impact on soccer ticket sales in the short term, however.

"In six months from now I would expect that they still hold up well. You have to get to a very desperate point before someone gives up buying tickets," Jones said.

There is still interest in buying clubs too.

England's Manchester City became the latest to fall into the hands of wealthy investors when it was bought by the Abu Dhabi United Group in September and European soccer's governing body UEFA is investigating whether there should be tighter rules on foreign ownership to better control finances.

However, a rush of further foreign acquisitions in European soccer was unlikely in the current economic climate, experts said.

In broadcasting, pay television firms in particular are showing fewer signs of vulnerability to the global squeeze.

Sky recently signed a five-year rights deal with the Rugby Football Union (RFU) and Premiere, Germany's only pay-TV satellite broadcaster, won the rights to show Bundesliga soccer for the next four seasons.

"Terrestrial broadcasters dependent on advertising are the most exposed to the downturn while pay-TV firms are suffering less because of their steady subscriber base," Radrizzani said.

"American and European markets will be able to withstand the pressure," said Worth, whose Sportfive group held television rights for some of the year's top sporting events including June's Euro 2008 soccer championship.

"Asia is a new market, it's less mature and that's where the first problems will come."