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How covid-19 is financially devastating the sports world
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How covid-19 is financially devastating the sports world

Sports economics professor Wim Lagae discusses the impact of dwindling sponsorship revenues and sporting events without an audience.

6 minutes
10 September 2020

Belgian spectator sports are suffering under severe economic blows. The lingering corona pandemic is catapulting the sports world some fifteen years back in time. Sports economics professor Wim Lagae discusses the impact of dwindling sponsorship revenues and sporting events without an audience.

‘The football sector is being invisibly hit by the corona crisis,’ says Professor Wim Lagae. ‘A great deal of income is evaporating, while the expenses remain virtually the same.’ Because competitions are forced to take place behind closed doors, income from season tickets, walk-up ticket purchases, hospitality, catering and offline merchandising is lost.

In terms of regular income, teams are having to sacrifice sponsorships. ‘Matches without hospitality and VIP packages are a lot less attractive for sponsors, which are also experiencing economic hardship due to the corona measures. Football clubs’ commercial departments have only been able to keep sponsorship contracts, for example, by spreading current contracts over longer periods.’

Whilst income from match days is collapsing, a contract with the new pay channel Eleven Sports offers a counterbalance. ‘What makes the football sector atypical is that it has a media rights buffer,’ says Professor Lagae. For the next five years, Eleven Sports will transfer some 103 million euros per season to Belgian football. ‘That’s almost twenty million more than what previous rights holders Proximus, Telenet and VOO Sports offered.’

Renting and letting

Professional football clubs are relying on unconventional income in addition to regular income. For example, teams that win a national championship gain entry to the Champions League. ‘If you play well there, you quickly earn an extra thirty million euros,’ says Professor Lagae. ‘For top clubs with a budget of fifty to sixty million euros, that’s an enormous amount.’

Another not insignificant benefit for national champions is earnings from transfer deals. But the corona crisis is imposing a waterfall system on the transfer market, according to Professor Lagae, ‘Top foreign clubs are setting the pace for the market, as always. But they’re also losing regular income, which makes them more hesitant to buy. As a result, the demand for top Belgian football players is stagnant.’

The exponential growth – even overheating – of international transfer activity has therefore been brought to a sudden halt. AA Gent recently sold top player Jonathan David to Lille for a record 32 million euros. Nevertheless, ‘these sorts of transfers are becoming increasingly rare. This season you’ll see much more renting and letting out,’ predicts Professor Lagae.

Survival of the fittest

Smaller football clubs are all the more affected by the pandemic. For these clubs, the chance of finding unconventional income is much lower, and their share in media rights pales in comparison to that of larger professional clubs. ‘Now there’s also the extra cost of corona testing,’ says Professor Lagae, ‘which is just one more burden on small clubs.’

Agents and players can also count themselves among the biggest losers as shrinking budgets means lower wages and less signing money for new players. Large core rosters of 29 football players are being downsized to 23 players per club, whilst agents are being confronted with shrinking transfer activity. ‘Unemployed professional football players are banging down the door to get on board at a club. For new contracts, this is shifting bargaining power from agents to the financial directors of football teams.’

Catch-22

According to Professor Lagae, the crisis has exposed existing pain points. ‘In recent years, the football sector has only been growing. Avaricious agents were unstoppable and transfer negotiations turned into casino capitalism,’ says Professor Lagae. ‘Those kinds of excesses are now disappearing.’

Football clubs also appear to be anything but shock-resistant. ‘Clubs rely on the idea that shortfalls will be recompensed by financial doping and income from transfers. This sort of economic model naturally involves enormous risks,’ says Professor Lagae. ‘Inevitably a number of clubs will run into financial difficulties. They’ve been living beyond their means for a while and so are unable to absorb unexpected shocks.’

Moreover, there’s the threat of the loss of government support. ‘Post-corona, the government will have to settle its bill and have a debate about core tasks,’ notes Professor Lagae. ‘That’s dangerous for the Belgian professional football sector, because it has long been over-subsidised.’ For example, low social security contributions and the recuperation of tax withholdings translate into an annual windfall of nearly 160 million euros for clubs. ‘This substantial subsidy has already been overhauled and would perhaps be dealt with a little faster by a full-fledged government.’

Professor Lagae is looking to youth academies to find positive long-term effects of the corona crisis. Under pressure from a shrinking budget, transfer quotas will probably be taken more seriously. ‘Prospects who never got a chance in the past because clubs opted for an immediate return may now be able to advance,’ thinks Professor Lagae.

How can football clubs arm themselves against future shocks? ‘Clubs can increase their economic strength by, for example, imposing mandatory financial reserves and stricter Financial Fair Play rules.’ But according to Professor Lagae, that’s a 'catch-22'. ‘A club that’s suddenly relegated after a shorter season ends up in financial hell. So they have to cut back, but at the same time they don’t want to end up in seventeenth or eighteenth place.’

Fragile business model

Whilst football can depend on a range of diverse income streams, Belgian cycling is no less than 95% dependent on sponsorship money. ‘Budgets have increased over the past twenty years, but the cycling business model remains fragile.’ In addition to a little merchandising income and some starting money, teams run entirely on twenty to thirty sponsor brands, one or two of which are title sponsors.

‘Due to the corona crisis, sponsorship is no longer seen as an investment by many companies, but more as a cost,’ says Professor Lagae. And if a title sponsor is suffering then the sponsored cycling team also suffers. At the beginning of this summer, the main sponsor of the former WorldTour team of Greg Van Avermaet, the Polish shoe company CCC, was hit by the consequences of the corona pandemic. ‘CCC has not been able to attract new sponsors, so the first big team has already dropped out.’

‘Worldwide income from sponsorship has declined by an average of 25%. So cycling sponsorship might suffer a similar economic blow.’ As a result, riders will also have to deal with losses; a survey by the Sporta riders union shows that the majority of the professional riders lost an average of 30% of their income in the months during the lockdown.’ This impact has also had an effect on new contracts. Professional cyclist Thomas De Gendt, for example, signed with Lotto-Soudal under far less than favourable terms.

The Tour de France accounts for two-thirds of the economic value of a full cycling season. ‘Fortunately, the Tour is permitted to start on August 29,’ says Professor Lagae. ‘Although this year without VIP areas, publicity caravans and the Village Départ … but the Tour can survive a beating,’

The corona shock will last longer for women's and youth cycling. Before the crisis, various WorldTour teams were willing to invest in a fully-fledged women's team. ‘The crisis could slow that evolution. Youth cycling is also coming to a standstill, considering that the engines behind youth and local competitions are cafes with a lot of foot traffic.’

Death blow

Compared to ‘King Football’ and cycling, sports such as basketball and volleyball hardly get any exposure. ‘Football is an unbelievable cannibal, that’s why classic indoor sports have been on the decline for the last fifteen years,’ says Professor Lagae. Any curtailment of café activities and sport hall atmosphere may prove to be a deathblow to underexposed sports. ‘I fear an acceleration in bankruptcies of all sorts, which will also mean that the men and women on these teams will have to make significant sacrifices. For indoor sports, the crisis could really end in a bloodbath.’