A Midyear Update on the Sports Industry

Morgan Lewis
Contact

Morgan Lewis

The sports industry was among the first to navigate the resumption of some sense of regular play amid the pandemic, but it was far from normal. That wasn’t necessarily a bad thing. As sports have routinely blazed a trail for others to follow, teams and franchises continued that streak, first testing and then improving on ways to protect their players and staff from COVID-19, all the while attracting new interest from investors and advancing the call for racial justice. Now as many stadiums reopen to full capacity, we take a look back and what lessons the sports industry is likely to carry forward for the rest of 2021.

COVID-19 IMPACT

In the first few months of the COVID-19 pandemic alone, the sports industry lost $12.3 billion in revenue and 1.3 million jobs. So it’s hard to overstate the impact of COVID-19 on sports. Everyone has had to pivot, and as lawyers, we had to make sense of the chaos quickly to be able to advise our clients drowning in a sea of change. At the beginning of 2020, our guidance ranged from advice on how to utilize the Paycheck Protection Program to who qualified as an essential business to stay open. Our advice then transitioned to how to safely get players back on the field. That phase included establishing safety procedures that complied with state, county, and league requirements. For NFL teams, those requirements included implementing strict testing measures, such as locating testing trailers at stadiums and practice facilities where all personnel—from players to executives—had to be tested for COVID-19 and await negative results before entering. When traveling for games, NFL teams and their personnel were limited by 50%—while the number of busses and the size of chartered airplanes doubled to accommodate social distancing requirements. Essentially, half the usual number of people were traveling, but requiring twice the space. Seating plans also had to be approved in advance and players and personnel were required to remain strictly within their hotel bubble—even precluding contact with family members.

Perhaps the most impressive protocol established by any league was the NFL requiring mandatory contact-tracing wristbands. The wristbands logged every single contact that players and staff members had with others throughout each working day and their travel schedule. The wristbands blinked red if the wearer was closer than six feet (violating social distancing guidelines) and alerted the wearer if they had been in contact with someone who had either been exposed to COVID-19 or had tested positive (so they could be placed into COVID-19 quarantine protocols). The geolocation technology that came out of these wristbands will have revolutionary applications going forward, albeit data privacy considerations will need to be taken into account.

Right now, the focus of many leagues is how to get fans back into the stands safely. Revenue is the name of the game. Major League Baseball loses about $700,000 per game without fans in the stands, so each empty stadium is significant. With the gravity of that revenue loss, job losses are inevitable. But as teams and franchises have learned to be nimbler and more adaptable, they have managed to function more efficiently with fewer personnel. As a result, it is probable that many of the workers lost may not return. At the same time, new positions have been created out of COVID-19 necessity–such as new protocol managers to ensure that new and permanent safety measures are properly administered going forward to keep personnel, players, and fans safe.

The next three to four months are going to be very telling for a lot of sports. Much will be learned about people’s comfort levels with respect to returning as fans to live sports, as well as whether infection rates continue to stabilize. If so, we could be looking at 100% attendance at sporting events in the fall of 2021 in most states.

PRIVATE EQUITY

The role of private equity in sport has also continued to surge during the pandemic. The sports sector has traditionally been perceived as high risk, vanity ownership, and characterized by erratic and unpredictable revenue. However, private equity firms and other investors, including household names, are looking increasingly to invest in clubs, leagues, and governing bodies, and in associated burgeoning industries such as sports betting, sports data, and esports.

While revenue volatility remains a risk—especially where investing in teams competing in non-closed competitions with the risk of relegation—there are plenty of attractions. Teams and franchises built over decades have strong and enduring brands and a captive market in the form of loyal fanbases. In normal times, there is also meaningful revenue certainty through predictably scheduled competitive events, lucrative commercial deals such as broadcasting (because sport is only live once), and prize money. The growth of alternative revenue streams—such as esports, the steady rise of women’s teams, the exponential growth of online sports betting, and documentary-style TV money (think Netflix’s Drive to Survive for Formula 1)—present further opportunities to boost growth, appeal and, ultimately, franchise value.

In 2020 alone, to name a few, CVC Capital Partners invested in the Guinness Pro14; RedBird Capital Partners took over Toulouse FC; Dorilton Capital bought F1 team Williams; and a consortium, led by MSP Sports Capital, invested $247 million in F1 team McLaren Racing.

But investors need to remain alive to the risks—not least the obvious risk of underperformance (and its financial and reputational consequences) notwithstanding investment. Sports are compelling to watch precisely because it is unpredictable. Significant investment does not guarantee returns; prospects are driven by the performance on the pitch, the field, the track, and the court. It is significantly reliant on top athletes performing or outperforming and, sometimes, on just sheer luck.

Firms also need to remember that while pre-existing and loyal fan bases may be a blessing, they expect responsible and prudent custodianship by owners, focusing on metrics beyond the financial. Sometimes that means tempering opportunities where it risks undermining a team’s or a league’s history, culture, or soul. Sometimes it means promoting the safety and wellbeing of players and sports stars above all else (for example, the halo in Formula 1 or safety protocols on head injuries in contact sports). And, ultimately, if fans disagree with the approach taken by owners, negative publicity can quickly catch fire.

SOCIAL IMPACT

When Colin Kaepernick first took a knee to raise awareness for the Black Lives Matter movement, he garnered attention, but not action. It wasn’t until last year that we started to see real change, when the death of George Floyd and international support for the Black Lives Matter movement prompted individuals throughout the sports industry to add their voices to the call for equity. The NFL approved a resolution to incentivize the development of minority coaches and senior personnel by rewarding teams with draft picks. NBA players have heightened the league’s long history of fighting for social justice, using their platform to champion the Black Lives Matter movement. And proactive company leaders more than ever are now actively listening to their employees on their personal challenges and experiences. While these are important steps, changing the deep-rooted day-to-day operations of the sports industry, and corporates more generally, cannot be accomplished through just discussions. There must be continued action and accountability.

Policies, procedures, and programs are never enough on their own to establish a diverse and inclusive workplace free of bias, discrimination, and harassment. But they are important building blocks in creating and enabling such a workplace, which then supports the recruitment, retention, development and advancement of Black employees, other people of color, women, and other under-represented groups.

Companies and organizations stand at different points today in how wide-ranging their diversity, equity, and inclusion (DEI) efforts are and how embedded those efforts are in their structures and strategic plans. But the most thoughtful of companies are looking at ways to do better and quite frankly identify issues before they become problems. These companies are largely being pushed by their employees to make changes, and all are seeing athletes stand for social justice. Many sports-related companies have employees who are telling their employers that if the companies endorse the athletes acting in their own right, the companies should take action as well. It’s been said that sports are as close to a national language that America has. And while some question athletes using the court or the field to deliver political or social messaging that can be polarizing, it can also encourage self-reflection among fans. The changes we are seeing in corporate America to increase diversity, equity, and inclusion are a direct result of the actions taken by its athletes.

CONCLUSION

As the sports industry pivoted quickly to provide entertainment during the pandemic and find new avenues for growth, the shift in business models has opened up exciting new opportunities for permanent change. From prompting important discussions on racial equity in industries far removed from players and teams, to encouraging innovation and investment in companies around the world, to setting the standard on how to safely return to a pre-pandemic lifestyle, the sports industry is once again serving as a trailblazer for much of the world. It will be exciting to watch what is just around the corner.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis
Contact
more
less

Morgan Lewis on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.