How is the recession impacting sports?

(source: Youth Basketball Tips)

It is generally thought that the business of sports holds up well during recessions. It appears things might be different this time. The major sports leagues are holding up well but car racing seems to be facing big problems because the auto manufacturers, and, more importantly, parts suppliers are suffering. Some stories I have read seem to imply that NASCAR, which is very popular in America, and F1, which is popular outside America, are suffering. The New Yorker conducted a wide-ranging interview with Andrew Zimbalist, an economist that specializes in sports, on the topic.

Andrew Zimbalist: ...But today, a box seat at Yankee Stadium isn’t three fifty; you pay twelve hundred and fifty dollars for the best box seat. It’s the same at other ballparks—the scale is different, but the jump is the same. Ballparks have been gentrified since Camden Yards, in 1992, when Larry Lucchino and the Baltimore Orioles moved their stadium downtown next to the business district. There’s been a drive to bring the corporate dollar, the corporate sponsorships, the corporate employees into the ballpark, and it’s been successful. It’s not as easy for the average fan to say, “I’m going to set aside enough money so I can still take my family to the ballpark.”

Another thing is that in the seventies and eighties the owners got the lion’s share of revenue from selling tickets and a little bit more from selling national television contracts through the league. Today, teams are increasingly earning revenue from other sources—corporate sponsorships, signage at the ballpark, catering at the ballpark, the Internet, and so on. All of these new sources of revenue lean more heavily on higher-income groups and discretionary spending, and are much more affected by forces in the macroeconomy.

And, to repeat something that’s been said a lot over the last six months, this recession is different. It can’t be sloughed off like the previous ones.

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But they did make some moves when they saw instances where the economic problems were creeping up on us. The N.B.A. laid off ten per cent of its front office, and the N.F.L. did something very similar. The N.B.A. is projecting lower basketball-related income going forward, which should, if it holds up, lower the salary cap. Baseball teams have heavily discounted tickets and have increased the number of comps that they’re giving out to the community.

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The New Yorker: How did America develop these incredibly rigid sports institutions, while in Europe the leagues are just much more freewheeling? You can sell and trade players, teams move in and out of leagues and there aren’t restrictions, and it reverses every stereotype we have about our different economies.

Andrew Zimbalist: Let me give a sense of what I think is going on. The European model of professional sports came out of British football. Initially in the nineteenth century there were all these local competitions, which were organized by what was called the Football Association into a national competition. Some of the local areas felt like they weren’t getting a fair shake and decided to form professional leagues. In order to give everyone a fair shake, the leagues were structured as a hierarchy, where if you finish at the top of a lower league you get to move up, and if you finish at the bottom you get demoted.

So it was set up as a model of sporting competition, and the teams, until recently, were always run as clubs, not corporations. Profit was never a motive.

In the United States, the model was established by the National League in baseball, which William Hulbert founded in 1876, and was driven by profit. Every institution in the league was supposed to be profitable. And you can make a league more profitable by limiting the number of teams in it, and strictly controlling the number of teams and where they play. And they introduced the reserve clause to keep player salaries down.