Forbes magazine’s recent evaluation that the average National Football League team is worth one billion dollars is already out of date, writes Gideon Haigh. The days of perpetual increases in the value of sporting franchises are likely over “and things may never be this good again.”
While a team like Manchester United can cope with the dramatically changed circumstances of its sponsor AIG, “others may not be so lucky.” The global stock market plunge “has demonstrated that when asset values rise significantly and over a long period, a misapprehension grows among investors that they will rise indefinitely, that everyone will get rich, and that everyone involved is a genius.”
Big-time sport has enjoyed a huge revenue growth over the past two decades, says Haigh, but teams have also “marbled in huge fixed costs, as expenditure has risen to meet then outstrip income, with the assumption that future growth will somehow make it all work.” But with a significant slice of sports sponsorship money coming from the financial services sector, cutbacks will have to be made. Meanwhile, high-end consumers who might typically splash out on an executive box will be changing their short-term spending habits and trimming costs too.
A large part of current sports management hasn’t experienced stock market downturns because it belongs to “a generation of youthful enthusiasts with sports-marketing degrees and iPhones who scatter their conversation with quotes from Jerry Maguire. What will they make of a downturn? Which among them will know how to eliminate discretionary costs and to winnow away fixed ones? Above all, how many athletes have had to come to terms with being worth considerably less than they were a year earlier without a serious deterioration in their playing abilities?”