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The Coronavirus’s Economic Effect On Sports Could Be Staggering

The coronavirus pandemic has begun to shake institutions in the United States to their cores, and perhaps the sports world most of all. Although several organizations initially planned to play games in front of empty arenas, by last Thursday nearly every major league in the U.S. had paused its season indefinitely. (Or, in the case of the NCAA, canceled its men’s and women’s tournaments outright.) The first move in that direction came from the NBA, which suspended its season for at least 30 days after Utah Jazz center Rudy Gobert tested positive for the virus.

At the time games were called off on Wednesday, there were 259 games left on the NBA regular-season schedule — meaning 21 percent of the regular season could be lost, to say nothing of the playoffs, if the league doesn’t complete the season. (Commissioner Adam Silver has said he has every intention of resuming the season eventually, though it remains to be seen whether the league might need to use a condensed format.)



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For the good of its players and fans, the NBA had no choice but to suspend play. But like every other sport disrupted by the pandemic, it could have major economic implications for the teams, players and workers whose jobs are connected to the games. With all U.S. sports in a similar stoppage, let’s use pro basketball as a case study to play out just how far-reaching those consequences could be.

The NBA makes about $8 billion a year, most of which comes from television contracts, merchandising, sponsorships and gate receipts. Unpacking each of those areas reveals how much the COVID-19 crisis could affect the business of basketball.

Most obviously, gate revenue would be missed (or refunded) regardless of whether games were canceled or simply played in empty arenas. Tickets are not the largest source of income for the league; according to Forbes data gathered by sports economist Rodney Fort, they made up somewhere between 20 and 25 percent of league revenues in 2018-19. But that still works out to nearly $2 billion over a full schedule, meaning a 21 percent reduction in games could cost between $350 million and $450 million before the playoffs are even factored in. And playoff ticket sales can be much more lucrative — which is probably why league bosses like NHL commissioner Gary Bettman have emphasized they will preserve the playoffs if at all possible.

Between merchandise sales, food and parking fees, there’s plenty more money being lost to the suspended season — for teams, of course, but also for arena vendors. According to documents Fort gathered from the Brooklyn and New Jersey Nets and the New Orleans Hornets (before they became the Pelicans) and the Charlotte Bobcats1 in the past 16 years, extra arena revenues such as parking and concessions make up somewhere between 4 and 14 percent of a team’s total income, which would also work out to something between $350 million and $1.2 billion leaguewide in the 2018-19 season (averaging to about $800 million). That average basically jibes with Team Marketing Report’s research on its fan cost index, which uses the cost of four average tickets — plus food, beverages, parking and team gear — to estimate the price of a family attending a game. The average NBA ticket price in 2018-19 was about $72, which would be $288 for a family of four. The total cost of attending a game was estimated to be about $421, meaning costs beyond the tickets make up about a third of the overall total. If the NBA made roughly $2 billion in gate receipts in 2018-19 — which it appears the league did, according to Fort’s data — that implies it also made about $900 million in nonticket revenue. This means canceled games would cost the NBA somewhere between $150 million and $200 million over the last 20 percent of the regular season.

At a bare minimum, that will also mean tens of millions of dollars in lost wages for arena workers, who always stand to lose when games are not played — whether due to league labor disputes, teams failing to make the playoffs, or an unprecedented outbreak of disease. The men and women who work security, cook for fans, take tickets and clean the arenas not only depend on the money from the games, but also may need to work a certain number of hours to qualify for health insurance with their unions — an especially important consideration during a public health crisis of this scale. While some NBA figures, such as Dallas Mavericks owner Mark Cuban and players Giannis Antetokounmpo, Zion Williamson and Kevin Love, have spoken about supporting hourly workers during the crisis, the disruption in games stands to hit many of these vendors hard.2

The rest of an NBA team’s income is relatively fixed, between arena naming-rights deals, other sponsorships and, of course, those all-important television rights. In fact, the plurality of league revenue comes from TV deals like the nine-year, $24 billion contract with ESPN and Turner Sports, which has paid the league about $2.6 billion annually since 2016. Local TV deals can also be worth in excess of $100 million a year, depending on the market. These numbers were negotiated into contracts years earlier, and they tend to provide teams with stable revenue streams over time.

However, this is the season that sports fans may get acquainted with the legal term “force majeure.” As Sports Illustrated’s Michael McCann points out, these clauses — usually invoked in response to acts of God — could allow TV networks and sponsors to reduce or get out of some of their financial obligations in the event of extraordinary circumstances, depending on how the contracts were written.

Otherwise, the league’s media partners stand to lose millions in advertising revenue by running alternative programming over the rest of the regular season (again, without even factoring in the playoffs), on top of the rights fees they paid for games that aren’t happening.

ESPN’s Bobby Marks also points out that there is a clause in the NBA’s collective bargaining agreement that cuts players’ pay if games are canceled in a force majeure situation. According to the CBA, players lose about 1.08 percent of their salary for every game missed in the event of catastrophic circumstances, including epidemics. ESPN’s Adrian Wojnarowski, however, reports that there so far have been no discussions between the league and players union about invoking the clause.

All told, the total financial impact of suspending the NBA regular season alone could approach a billion dollars, and that only involves one-fifth of the schedule being lost. If the playoffs must be shortened or otherwise altered to fit a new, later timeline, the costs would climb even higher.

And beyond the force majeure clause’s potential short-term effect on player salaries, the league’s lost income will have an ongoing effect on the salary cap, which is set based on the league’s total projected revenue for the upcoming season. If NBA revenues fall far enough short of the projection that was used to calculate the cap before the season, the league can reduce the salary cap and luxury tax thresholds next season to make up the difference.

That, in combination with the lost Chinese revenue resulting from Rockets general manager Daryl Morey’s tweet in solidarity with protesters in Hong Kong, means the salary cap could be lower next season than it was this season — instead of increasing by about $7 million as was projected before the season started. Obviously, this will have broad implications for teams in this summer’s free agency market (whenever it happens), as well as their longer-term plans for next year’s star-studded class.

Other sports will face similar challenges. The NHL, which also suspended its season with 15 percent of the schedule left, makes less money than the NBA annually, so its total losses could be lower. But its salary cap is also based on a share of league revenues, meaning the NHL will be in the same situation as the NBA next season. Meanwhile, MLB pulls in more revenue than the NBA, and it suspended spring training last Thursday while pushing back opening day by at least two weeks. In contrast with the NBA, gate receipts make up nearly 30 percent of MLB team revenues, so the economic effect of a shortened baseball season could very quickly rival that of basketball’s suspended season.

Then there is March Madness, which generates roughly three-quarters of the revenue the NCAA makes across all sports all year long. We can take issue with the NCAA’s amateur model, but without question, the loss of so much income will have ripple effects extending to many other college sports. Similarly, what will happen to the WNBA, which has been steadily gaining popularity and carving out a niche in the summer sports scene while NBA teams are on vacation? If the 2020 NBA playoffs are pushed forward into the summer, it would wreak havoc on the WNBA schedule — which runs from May to October and is timed such that players can spend the WNBA offseason playing overseas, where there is more money to be made. When one league’s domino falls, it can topple many others.

Every corner of the economy will or has already begun to feel the strain of COVID-19, so in that sense, sports is no different from any other industry facing this crisis. But for sports, it has also played out on a very public stage, with leagues trying to balance safety against the likelihood of losing astronomical amounts of money — often dragging their feet and seeming to put the latter over the former. For the sake of public health, though, the cancelations were necessary — and they will also have wide-ranging effects on the business and competitive landscape of sports that could ripple out for years.

CORRECTION (March 16, 2020, 2:20 p.m.): A previous version of this article incorrectly described the histories of two NBA franchises. The original Charlotte Hornets team moved to New Orleans in 2002, but no team from New Orleans ever moved to Charlotte. The current Charlotte Hornets were an expansion team in 2004 and were known as the Bobcats until 2014.

Footnotes

  1. NBA financial records are rarely released, and these teams are among the few who made some data public.

  2. That’s without even considering other businesses at the periphery of sports, such as restaurants around arenas that also depend on a regular influx of fans.

Neil Paine is a senior writer for FiveThirtyEight.

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