By the time the ink dried on Gerrit Cole’s nine-year, $324 million deal with the Yankees in December, the possibilities for Mookie Betts seemed extraordinary. Could the outfielder, perennially among the best position players in baseball, vault above the $400 million bar?
Four months later, the context for that question and so many others has changed drastically, the landscape for the entire sports and entertainment industry and the economy in which it resides upended. Professional sports leagues in the United States have no present and, like the environment in which they reside, confront a stormy financial future that will stretch beyond the conclusion of the COVID-19 pandemic.
For years, professional sports have been an almost constant cash cow, the ka-ching of cash registers seemingly echoing at sports arenas and during broadcasts. There’s a reason franchise valuations have skyrocketed, with teams now routinely coming with price tags measured in billions.
But as is the case across the economy, the global health crisis may create not merely ripples but tidal waves in the sports industry with repercussions that could be felt well beyond the uncertainty surrounding the 2020 season.
What will happen to free agency? If teams go without any additional revenues from games this year, or additional games without fans, will they look to slash payrolls?
There is little doubt the factors that will dictate future contracts will be very different than the ones that existed even last winter.
“The psychic income and ego-driven aspects of the sport will still be there. If this were a purely rational business run as a public company would for maximization of shareholder value, yeah, I think you’d see profound effects. But I think there’s always been a break between that motivation and that approach with professional sports. They’ve always operated on a different level, and I think they’ll continue to do that,” said Vince Gennaro, associate dean at NYU’s Tisch Institute for Global Sport. “But I do think it will be harder to envision a $400 million contract right now. Would [Mike] Trout have gotten $400 million next year if he were purely in the free agent market, if he were maybe the one guy who could command that number? I don’t know. [Bryce] Harper might have gotten $240 [million] instead of $330 [million].”
Major League Baseball commissioner Rob Manfred told The Associated Press this week, “there’s no question that what’s going on now will have an impact on ’21.” Some sports economists believe that even that portrayal understates the future that now confronts the sports world. The consequences of job losses, the expansion of the money supply, and ballooning federal deficits will reshape the economy — including the sports economy — well beyond this year.
“I think we’ll be feeling some of the reverberations from [the pandemic] for a couple of years,” said Smith College professor of economics Andrew Zimbalist. “They will diminish over time. How this unwinds itself is, I think, there’s probably going to be many factors, most of which are somewhat imponderable from the standpoint of an economist or public policy maker. It’s not going to be easy street where we have calm economic markets and you have everything flowing the way that we did six months ago.”
No one knows what that will mean for how sports leagues operate. Player salaries and free agency represent exercises in the unknown, with industry sources acknowledging they can do little more than throw darts when trying to imagine how markets might work when the conditions in which they operate are experiencing radical change.
Leagues face a 2020 season with diminished revenues from lost games while hoping to avoid the even grimmer scenario of losing either an entire postseason (NHL, NBA) or an entire season (MLB, perhaps the NFL). If there are games, many or all will be played without fans in attendance in 2020, resulting in the loss of ticket, concession, and merchandise revenues.
A best-case scenario in 2020 might feature only partial crowds to allow sports venues to space fans in a way that mitigates public health risks. That still would result in significant losses of earnings that may lead teams to seek changes to what they pay players.
Professor David Hollander of NYU’s Tisch Institute for Global Sport suggested that all leagues may have to open their collective bargaining agreements to redefine how players and owners do business. Zimbalist anticipates owners will slash player salaries to offset losses.
“The rational way to deal with that is to say to the players, ‘Look, you get paid in our system according to how much revenue you generate. You’re going to generate on average 40 percent less because we’re not getting gate, concessions, and sponsorship revenue. So we’re going to reduce everyone’s salary by 40 percent. And since we’re going to play only 75 percent of the games, we’re going to reduce your salaries by another 25 percent.’ That’s perfectly rational. That’s the only way to do this,” said Zimbalist. “Keep in mind that the players, no matter how much they kick and scream, have next to no bargaining power.”
That process won’t be easy. Already, there are signs that MLB and the MLB Players Association will clash over the question of further salary reductions in 2020.
When attendance restrictions are eventually lifted, fans may have suffered devastating job and income losses that could force all entertainment industries — including sports — to re-imagine their business models.
“People are suffering withdrawal. But it’s not happening in a vacuum. It cannot be discussed in a vacuum.”
“I don’t underestimate the hunger to return to our national addictions, to things like college football, March Madness, nightly Major League Baseball, the all-consuming NBA, the Sunday ritual of NFL football,” said Hollander. “People are suffering withdrawal. But it’s not happening in a vacuum. It cannot be discussed in a vacuum.”
Television revenues — mostly locked in on long-term contracts — should remain considerable, and diminutions in public activity could result in even greater value to in-home entertainment such as sports.
“With increased isolation, sports have the least to worry about. Their TV ratings and the need for fresh content for that audience carrying out a functional isolation is far, far greater with [the public] being at home in front of their televisions than ever before,” said agent Scott Boras. “With the revenue streams from that, the contracts that should be reopened are the media deals, not the CBAs. The labor force is going to create a revenue stream that may be dramatically different for the media rights than they were before.”
Moreover, leagues can look to offset losses from game attendance by re-examining what they offer fans who aren’t in stadiums, arenas, and ballparks.
“Attendance revenues may go down substantially but these people are going to have disposable dollars to spend on their passion for sports,” said Gennaro. “What if the Red Sox can sell a virtual season ticket, through VR, a kind of enhanced MLB At-Bat version, that has maybe a third of the games in virtual reality? You can control your view — you’re sitting behind the Red Sox dugout, that will be a whole other revenue stream that will be a partial offset. I think we’re going to see some things on the media side through technology and innovation that will compensate somewhat. I think attendance will be even less of a percentage of revenues than it is today. Even if we didn’t have the virus, I think that would be the case. Now it will be exacerbated.”
Inevitably, the other side of the pandemic will yield a different sports landscape. For now, with the crisis at a crest that has made it impossible even to play games, it remains too early to know what it will look like.