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Economic Research

Sports Still Draw Fans Despite Recession

In sports, nothing succeeds like success. Buoyed by fan loyalty, teams at larger colleges and pro levels have mostly thrived despite the challenging economic climate. Smaller teams, though, are feeling the brunt of the down economy.

Photo of foam sports fan glove

College football in the South has often been compared to a religion, even by scholars. Like an icon, your favorite team's logo can be stamped on everything from a cap to a casket.

Not surprisingly, Southerners put their money where their passion is. Five of the top 10 revenue producers in college football in the 2007–08 academic year were Southeastern schools: Georgia, Florida, Auburn, Alabama, and LSU, which brought in a combined $303 million, according to Street & Smith's SportsBusiness Journal. In spite of the recession, all indications are that these teams and their rivals will continue to rake in dollars from ticket sales and lucrative television contracts.

Sports as an industry, especially the most high-profile leagues and franchises, is weathering the downturn comparatively well. Even as unemployment has risen dramatically—more than tripling in Florida, for instance, from July 2006 to July 2009—many people are still spending at least some money on sports.

Related Links
On the Web:
Street & Smith's SportsBusiness Journal
Forbes report on the business of baseball
Article on sports-related subsidies
International Speedway Corp. filings with the U.S. Securities and Exchange Commission

"Certainly they've felt an impact, but fans are addicted to sports, if you want to think about it that way," said J.C. Bradbury, an economist and associate professor of health, physical education, and sports sciences at Kennesaw State University near Atlanta. "Once you gain a taste for it, you want to see an event, and it's a relatively cheap thing to do." Eric Bain-Selbo, head of the Department of Philosophy and Religion at Western Kentucky University wrote in a 2008 paper: "As sport around the country continues to become a communal and emotional fixture in people's lives—as it has with so many college football fans in the South—it increasingly is becoming the new opiate of the masses."

While some might consider that view extreme, the rabid devotion of fans surely helps explain why the television networks ESPN and CBS, amid a severe recession, earlier this year agreed to pay the Southeastern Conference (SEC)—home to the five schools listed above and seven others—$3 billion to broadcast mainly football games over the next 15 years.

But the recession has brought some signs of economic strain to the world of sports. In a February poll of 1,100 sports industry executives by Turnkey Sports & Entertainment and Street & Smith's SportsBusiness Journal, a third said their companies had laid off staff, while 2 percent said they had closed offices. Several minor league professional teams in the Southeast have folded.

college team logos

Attendance at NASCAR races and Major League Baseball (MLB) games, including those of the Atlanta Braves, is down. Even football ticket sales are down a small amount for a few pro teams and some major colleges in the region. The Jacksonville, Fla.-based PGA Tour's overall prize money could decline this year for the first time since 1975, according to news reports.

Gap widens between college haves and have-nots
Economic tremors have been felt on college campuses as well. Traditional Southeastern powerhouse programs, including Tennessee, Auburn, and Florida State, have experienced small declines in 2009 season ticket sales, according to various news reports. Georgia Tech's athletic program laid off a few employees.

The defending national collegiate football champion Florida Gators sold out of 2009 season tickets. Yet even that organization's bottom line has been affected. Athletic director Jeremy Foley told the Miami Herald in June that the expected windfall from national championship–related licensed products—shirts, hats, jackets, etc.—has not equaled sales of similar items after Florida's 2006 championship. Also, the school, according to the Orlando Sentinel, did not increase 2009 football ticket prices "to reward fans during these economic times."

Small schools have been much harder hit. In Louisiana, several smaller college athletic departments have made severe budget cuts and eliminated sports such as tennis. The University of New Orleans even warned that it might drop athletics altogether before local donors came to the rescue.

Pain for the little guys
More or less the same phenomenon is playing out in the sports landscape at large. Even though organizations such as the SEC, MLB, and the National Football League (NFL) have taken their share of economic blows, their survival is hardly threatened. But the situation is different for less-established leagues and teams.

"The marginal leagues just get decimated in these times," Bradbury said.

The 22-year-old Arena Football League, which had teams playing indoor football on a shrunken field in New Orleans, Atlanta, Tampa Bay, and Orlando, among other cities, folded in August 2009. A couple of minor league hockey teams in the Southeast—the Augusta, Ga., Lynx and the Pensacola, Fla., Ice Pilots—shut down in late 2008. The Lynx were the first team to close during a season in the 21-year history of the East Coast Hockey League, according to news coverage. Also, in November 2008 the Atlanta Silverbacks men's United Soccer League team became the city's second professional soccer team to shut down since the Beat, a Women's Professional Soccer (WPS) team, folded in 2003 (although the WPS expects the Beat to be playing again in 2010). The Silverbacks cited the economic downturn as a major reason for canceling the 2009 season. (The Silverbacks women's team was still active for its 2009 season, which ended in July.)

Signs of strain for the big guys
NASCAR is, of course, vastly more prominent than minor league hockey and professional soccer. Nevertheless, the stock car racing league—whose popularity soared in the few years before the recession when the economy was generally strong—is facing tough economic times. High gas prices, rising unemployment, and economic uncertainty have caused racing fans and the automotive-industry sponsors, which are central to the sport, to cut spending.

Daytona Beach, Fla.-based International Speedway Corp. (ISC) reflects NASCAR's troubles. The publicly traded company, which runs Daytona International Speedway and 12 other motorsports tracks, including the Talladega Superspeedway in Alabama and Homestead-Miami Speedway, reported in its Securities and Exchange Commission filings that its food, beverage, and merchandise revenue slid 34 percent, to $26.8 million, in the first half of 2009 from the same period in 2008. In the same period, the company's ticket sales revenue declined 16 percent, to $91.5 million. ISC posted a net loss of $31.7 million for the second quarter of 2009 compared with a net profit of $26 million a year earlier.

"We are sensitive to the economic challenges that many of our fans face, and to address this, beginning in 2009, we lowered prices on over 150,000 seats, or 15 percent of our grandstand capacity, for NASCAR Sprint Cup events across the Company," ISC said in its 2009 second quarterly report. Those challenges, the company noted, include credit availability, the decline in consumer confidence, the rise in unemployment, and increased fuel and food costs.

ISC also noted that securing corporate sponsorship arrangements is taking longer because companies have become cautious with their marketing dollars.

Football

Stadiums full for kickoff
Pro football does not have as many worries as stock car racing. For some years, it has been the nation's most popular sport in terms of television viewership and opinion surveys, and that strength appears to be serving the NFL well during these lean times. Even though the league laid off employees at its New York headquarters, the teams in the Southeast are generally warding off glancing blows from the economic downturn.

As the September season openers got under way, among the six pro football clubs in the Southeast, only the Jacksonville Jaguars appeared to be having significant problems selling tickets, according to news reports. Jaguars owner Wayne Weaver told the Florida Times-Union that all eight home games would likely be blacked out on local television because of insufficient ticket sales. "I'm concerned," Weaver told the Jacksonville newspaper in August. "But you have to realize we're in an unusual economy that most of us have never gone through."

Weaver's Jaguars are not the only NFL team whose business has been at least trimmed by recession. The Tampa Bay Buccaneers, for the first time in nearly a decade, had no waiting list for 2009 season tickets. In response, the team designed several new ticket packages, such as half-season plans.

The Atlanta Falcons have not traditionally drawn as well as the Buccaneers, but season ticket sales increased 5 percent for the 2009 season, in part because of a much-improved team in 2008 and a popular new quarterback. The Falcons' and Buccaneers' division rival, the New Orleans Saints, sold out all their season tickets for the fourth straight season.

Farther north, Nashville's Tennessee Titans maintain a waiting list for season tickets. And the team will extend its streak of consecutive sellouts to 114 after this season's eight regular season and two exhibition games, said Marty Collins, the team's senior director of ticketing. The entire season sold out before the middle of August, according to the team's Web site. As of Aug. 13 on the Titans' NFL Ticket Exchange, an online after-market sales operation run by the teams, single tickets for the Oct. 11 Indianapolis Colts game ranged up to $910.

Even some clubs doing brisk business have, like the Buccaneers, created flexible payment plans and instituted other measures to accommodate customers. The Falcons, for example, introduced a six-month payment plan, and the Saints for the first time offered season ticket holders a layaway option.

Fewer fans at the old ball game
So far, the MLB appears to be weathering the recession comparatively well. Leaguewide revenue increased 5.5 percent to $5.8 billion in the 2008 season, which was less than the 9 percent growth the season before, according to Forbes magazine's annual special report, "The Business of Baseball." Revenue figures are expected to grow even less in 2009. MLB attendance through Aug. 10 was down by approximately 5.6 percent compared with the same time last year. Moreover, IEG, a sponsorship consulting and research firm, predicted at the start of the baseball season that sponsorship spending on MLB deals—including the league, teams, and stadiums—would decline 4.8 percent this year from $540 million in 2008 to $514 million.

In the Southeast, the Atlanta Braves' crowds were down through Aug. 10, but only by 3.4 percent. The region's other two big league teams, the Florida Marlins of Miami and Tampa Bay Rays, were drawing more fans through August than they did in 2008, though the Marlins' attendance was second-worst in the majors, and both clubs trailed the Braves' attendance substantially.

One reason MLB has been able to hold its own so far is baseball's embrace of technology to generate revenue, said Bradbury, who has written books on the economics of the sport. In particular, mlb.com has been highly successful—so successful, in fact, that in 2005 a proposed (but ultimately shelved) initial public offering of the online property could have fetched up to $3 billion, according to numerous media reports.

Build it and they will come—or will they?
How much do we love our sports? Even during a recession, a few Southeastern cities and states are channeling significant public funds into professional sports venues.

Public funding of sports facilities is hardly new. Such projects date back to the early 20th century. The 77-year-old Los Angeles Coliseum is an example. Back then, cities typically built horseshoe-shaped municipal arenas for multiple uses—parades, track meets, football and baseball games, rodeos, and festivals—according to Dennis Coates, an economist at the University of Maryland, Baltimore County, and Brad Humphreys, an economist at the University of Alberta.

More recently, states and municipalities have built arenas for the exclusive use of one professional team. Often, governments pony up after a team threatens to leave the city or in order to lure either a team from another town or a brand-new team.

While the difficult economy and credit markets have postponed some projects, Bradbury said, public subsidies have flowed freely for sports arenas in the Southeast over the past dozen years. Louisiana's state government; Tampa; Miami; Montgomery and Mobile, Ala.; Floyd County, Ga.; Jacksonville; and Chattanooga and Sevierville, Tenn., have collectively dedicated billions of dollars to build stadiums and practice facilities in the past dozen years.

Even amid dire financial times for governments, some places in the Southeast, hoping to stimulate economic activity, continue to channel tax dollars into sports facilities. Gwinnett County in suburban Atlanta is financing a $64 million baseball park, which opened in April and helped bring the Atlanta Braves Triple-A farm team from Richmond, Va. County leaders expected to sell naming rights to help offset costs but have as yet been unable to do so.

Meanwhile, Miami-Dade County and the city of Miami this summer agreed to use hotel room taxes to finance the majority of a stadium for baseball's Marlins that will cost—after paying off bonds over 40 years—about $2.4 billion. Officials broke ground on the new ballpark in July.

Pro Sports Revenue in the South
Sports chart
Notes: Figures represent millions of dollars. Revenues for the NBA, NFL, and NHL are for the 2007–08 seasons; MLB, for the 2008 season.
Source: Forbes.com

That same month, Louisiana's state government finalized a deal to help keep the Saints in New Orleans through 2025. That arrangement includes spending $85 million in state funds to renovate the team's stadium, the Louisiana Superdome, and leasing space for state agencies in a New Orleans office building owned by Saints owner Tom Benson.

July was busy. That's also when the city of Birmingham began design work on a publicly funded domed stadium with no fixed tenant that, according to the city and news reports, will cost more than $550 million to build. The city council authorized spending $8 million a year to plan and design the building and at the same time voted to spend $7.5 million to restore Rickwood Field, a century-old baseball park, and to build a museum devoted to the city's baseball history.

Proponents of those projects cite potential economic benefits such as new jobs, spending, and neighborhood revitalization, along with the ability to host major events and the prestige that comes with a new venue and a big-league team. At the Birmingham groundbreaking, Mayor Larry Lankford said the city needs a "yes, we can" attitude.

Economists are not so sure. Studies by professional economists overwhelmingly suggest that such projects do not generate broad economic benefits, according to a 2008 paper by Coates and Humphreys. In a 2005 survey of American Economic Association members, 86 percent either said they strongly agree (58 percent) or agree (28 percent) that local and state governments should eliminate subsidies to professional sports franchises, Coates and Humphreys note.

They find that the results of nearly 20 years of research are "strikingly consistent. No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy." Research shows that the impact is lessened because money spent in and around a stadium would otherwise have been spent elsewhere and on other activities.

Whatever the case, we still love our sports, and based on recent experience it appears we'll continue spending money on them even during tough economic times.

This article was written by Charles Davidson, a staff writer for EconSouth.