Last week I attended a webinar organised by Brand Finance on the subject of the impact of Covid-19 on sports business. Brand Finance is a leading company in the field of brand valuation and valuation of brands in global sport can be very significant. I appreciate that not everyone is a sports lover but no one can be in any doubt of the significance of sport in terms of not only its economic value which is huge but also its impact on societal cohesion, health and fitness, and sheer entertainment value. Globally sport represents a turnover of $500 billion annually, equivalent to an economy the size of Sweden. Sporting organisations like football clubs derive their revenue from a variety of sources: match day revenue, sale of broadcasting rights and commercial relationships. Corporate supporters benefit in a variety of ways: for example, Adidas will gain from its numerous shirt deals increased brand awareness, improved brand value, higher sales, corporate hospitality, target marketing, strong return on investment and community goodwill.
There have been interesting developments in perceptions of brand image with the way different sports have reacted to the crisis. For example, in March the Mercedes Formula One team helped develop a coronavirus breathing device with a project they called Pitlane. Belarus was one of the few nations to continue to play professional football and it achieved 10 broadcast deals with countries as varied as Israel and Russia as football fans craved some live action from wherever it could come and started to follow clubs like Energetik-BGU and Dinamo Minsk. In Australia the National Rugby League together with Channel 9 planned to take the sport and play it safely on an island but sadly that did not materialise. Barcelona considered offering naming rights for its famous Camp Nou stadium. As yet no sponsor has been signed up but Barcelona came very late to shirt sponsorship and initially attracted sponsorship from UNICEF (now sadly its Qatar) and my guess is that some notable charity linked to the pandemic may well get that opportunity come the new season.
Esports thrived and Premier League players took part in a FIFA 20 tournament. Formula One organised virtual Grand Prix. In the UK only 28% of young people between the age of 25 and 34 play Esports but in China this rises to 69%. In June when some live sports returned but behind closed doors there was quite imaginative use of cardboard cut-outs. The NBA plan to return in a Disney context in Orlando, Florida.
The financial impact on European football clubs has been colossal. In total €7.5 billion is at risk. In the top five leagues domestic broadcasting brings in 1.7 billion; in sponsorship 1.3 billion. Transfers of players have been largely on hold which can have negative cash flow effects on both clubs and owners. High wages players are paid whether they play or not. In the lower leagues where there is very little broadcasting revenue and much lower levels of commercial income most income comes on match days and of course this has been practically zero since March. It is doubtful that all the lower league clubs would survive such a loss of income. Commercial contracts vary but most will have some form of clawback. After all if a shirt sponsor is not having his shirt’s message seen around the world they would not want to continue to pay for that privilege. A very high proportion of shirt sponsors are in the gambling industry and some of those in the Premier League, for example, are companies that don’t even operate in the UK. The audience is global.
The impact on the value of the club will vary greatly. According to Brand Finance the most valuable football club in the world is Real Madrid with a brand valuation of €1,590 million. Its brand strength scores 95 out of 100 based on market research, investment, heritage and commercial income. in the short term it is likely that there’ll be little impact on this valuation since so much of it has been created over many, many years of success, fame and increasing worldwide broadcasting. Nevertheless Brand Finance estimate that 13% of brand value has been wiped off the top 50 European football club brands even though most of these are over a hundred years old.
The implications for corporate sponsors and partner brands may be significant. Stakeholders include staff, suppliers, financial relationships, regulators, the media and the general public, Sponsors and partners need to ensure that sponsorship does make sense and that brand equity can be influenced by such sponsorship. But there is little question that in the crisis there will have been a significant effect of reduced broadcasting on the return on investment of sponsorship, unless there is significant clawback in contractual relationships.
What does Brand Finance recommend for these various organisations in such a crisis?
Diversify and broaden revenue streams
Keep communicating with all stakeholders
For current partners ensure you are delivering the best value proposition possible
Ensure you are identifying your brand goals when choosing a corporate partner and pay particular attention to ethical issues.
Determine whether you can get more from your current portfolio as a rights holder and track the level of uplift you can provide for corporate brands.
I found this webinar interesting but I think they could have gone further. They did not touch on the postponement of the Tokyo Olympics, Euro 2000, the Ryder Cup, the Cricket World Cup and many other major international events, nor the cancellation of major annual events like Wimbledon. But most of us hope that a vaccine can be discovered, tested, approved and manufactured in sufficient quantities to immunise us before too long and then we can return to some kind of normality. But the crisis of climate change is still with us and not nearly enough is being done to mitigate it. Sport has a responsibility here too.
Last year the Rugby Union World Cup in Japan was severely disrupted by unprecedented Pacific typhoons, and earlier this year the Australian Open was badly affected by the smoke blowing in from devastating bush fires. Even if the Tokyo Olympics had taken place they had already decided to hold the long distance running events further north as the summer heat in Tokyo is too fierce for such races to take place there.
But sport is not just a victim of climate change, it’s also a contributor. The International Olympic Committee has a carbon footprint practically equivalent to a small nation state, while worldwide football is even larger. The model of awarding these big competitions to cities that then build unnecessary gleaming new stadia is highly dubious today and the transport of thousands of competitors and their entourage involves massive use of air travel and produces tonnes of unrecycled waste.
Instead we should see sport take a lead and use its unique cultural position to set an example. All international sporting organisations should sign up to the UN’s Sports for Climate Action framework[i]
. Those national organisations that fail to do the same should be excluded from taking part in international competitions, and professional clubs should be kicked out of their local competitions if they also fail to do the same. To ensure that the right steps are taken there should be independent environmental audits and failure to comply should result in heavy fines or, in league competitions, deduction of points as they are now for financial irregularities such as happened recently to Saracens Rugby Union Club leading to their certain relegation.
All major international sporting competitions such as the Olympics or the football World Cup should be abandoned unless they are carbon neutral. And finally sponsorship should only be accepted from corporations that are committed to the same principles and in no case from fossil fuel companies.