Sports Aren't Recession Proof

Sports Aren't Recession Proof

By Steven Stark - April 9, 2009

It's one of the great myths of modern American life that, no matter what travesties befall us, sports will carry on unfazed. Thus, says the hype machine, despite the poor economy, all is well in the world of athletic competition. In times of trouble, people need entertainment more than ever. And so, if there's one sector that will not be affected by the devastating downturn, it's the world of sports.

Don't believe a word of it.

The great American sports machine is crashing to Earth. And, given the intensity with which Americans love and identify with their teams, that is likely to take a good part of the national psyche -- and a hunk of confidence -- along with it.

Take NBA basketball. It's "on the road to financial ruin," according to Orlando Sentinel columnist Mike Bianchi. "[T]he entire business model on which new arenas have been built -- big naming-rights contracts, expensive seating and luxury suites -- is cracking," wrote fellow Sentinel columnist Mike Thomas. Attendance is off in many markets, too. The Sacramento Kings, once the darling of their metropolis, have failed to sell out a game this season.

As a result, the league had to take out a $175 million loan in February, with 15 teams asking to tap into the money.

Worse, from a fan's standpoint, the crisis is already affecting the game on the court. Many teams used the recent trade deadline to dump high salaries. The Wall Street Journal was virtually alone in noticing how this season has become "the year NBA teams quit early," as so many "resigned themselves to the idea that their teams are not going to be competitive this season and that, given the state of the economy, they could not make the sorts of expensive moves that would help them improve."

Thus, the Journal noted this year's title is only seriously being contested by, at best, a half-dozen teams. Next year, that number may drop even more.

We've only just begun

Hockey might be even worse off. According to Kukla's Corner, a hockey blog, "Most of the more recent NHL markets -- including Florida, Nashville, Phoenix, and Atlanta -- will be tested. In good times, these markets have had trouble financially. In bad times, they may not all make it." Just this past week that Web site featured the headline "Hicks Denies That Dallas Stars Could Be 'Repossessed' By Bank."

Baseball is facing problems, as well. Despite the Yankees' exorbitant spending during the off-season (thanks to an inflated profit margin driven by a new stadium that's in part funded by public dollars -- baseball's equivalent of AIG), the big news over the winter was how the market dried up for free agents.

The most notable aspect of the game at the start of the new season is, similarly, how most teams have passed on spending any money on their fourth and fifth starting pitchers. That likely signals the return of four-man rotations. Baseball's former competitive balance (new teams have seemed to emerge every year) may finally be ending, too, as the financial slowdown takes hold.

The truth is that this economic crisis has probably just begun, meaning what has transpired so far is only the tip of the proverbial iceberg. The NFL wants to increase the length of its season -- not because it's a particularly great athletic idea, but because it's a convenient way to raise more cash. But what happens when the auto companies and their ilk have no more money to advertise? Can the rich media contracts that fuel the sports business possibly remain the same?

Meanwhile, with college endowments way down, universities are unlikely to continue to pour millions into major sports that even in good times were money losers. In 2006, only 19 universities turned a profit on their athletic programs. (The number of secondary schools that do the same can be counted on one hand.) Ohio State, one of the few that managed to produce a small gain, has an athletic budget of more than $100 million per year. That's more than $100,000 per athlete -- a likely unsustainable investment.

As the economic crisis continues, sports will undergo a revolution. No surprise there, really -- except the psychological effects are likely to be profound. If we find ourselves increasingly unable to finance the temple of sports, is nothing sacred? Sadly, the answer is "Not anymore."

You think the markets lost confidence when Lehman and GM couldn't make payroll? Wait until the list of failing companies includes our favorite sports teams.

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