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EY's chief UK economist Mark Gregory: Overriding Sports Financial Crisis

As sport continues to feel the financial impact of the coronavirus pandemic unlike anything in the past, Premier Sports Network sat down with accounting and consultancy firms EY's UK economist, Mark Gregory to discuss how sport can override the financial crisis.

Out of nowhere, the coronavirus has provoked an unprecedented economic policy response from Governments around the world. In attempting to reduce the spread of the virus, steps have been taken to close down or reduce major sectors of the economy such as retail, travel and hospitality. Sport has been very hard hit, based as it is on groups of people attending events. Indeed, well attended fixtures such as Champions’ League football games and the Cheltenham Racing Festival have been suggested as possibly contributing to the faster spread in certain places.

While a number of sports have advanced ideas to restart competitions, perhaps behind closed doors or with limited attendance, very few have yet moved forward. There have been some innovative ideas such as televised darts between players from their own homes, but a large-scale restart of sporting activity appears to eb some way off. There is a good chance that sport will eb one of the activities that is slowest to return to “normal” because of the challenges of managing the risks inherent in large groups of people congregating together.

In common with its peers around the world, the UK government has implemented wide-ranging measures to tackle the outbreak, restricting social and work life. As the lockdown continues so economic forecasts become ever more pessimistic with the EY ITEM Club, one of the UK’s leading independent forecasters, predicting UK GDP will fall around 13% in the second quarter and by over 5% throughout 2020 – significantly worse than the 2008 financial crisis.

Looking back at the data for the past 3 decades, he says, however, "it's hard to identify a close relationship between the performance of sport and the economy", pointing to the fact that sport has been in a growth phase throughout most of this period with a greater focus on commercialisation underpinning increased revenues from television and sponsors, while for UK sports, public funding in the run up to the 2012 Olympics helped their finances.

As an example, Mark cites football. "There was a bit of a slowdown in football attendances following the 2008 financial crisis and the Eurozone crisis, but the game still saw growth, particularly in non-matchday income during this period.

"There is a chance it will be different now because the shock is so different and potentially so large," Gregory says. Firstly, it seems likely that without a vaccine or mitigating drugs, the recovery will take a long time. As Government relaxes the lockdown, sport is unlikely to be of the initial sectors to be opened up. and even when it is, there is a significant risk that many spectators will be concerned about the health risks form attending an event with a large number of people and international travel may well be restricted, and could well be seen as too risky by many people even when the controls come off. Sport needs to plan for a significant period of reduced activity with a clear impact on revenue levels. TV income might be more significant as it seems likely the demand for content for people staying at home will create higher levels of exposure, especially as TV production schedules for drama have been delayed significantly by the onset of coronavirus. Sports organisations should be thinking about their broadcast strategies as a matter of urgency.

Beyond the short-term, the economic impact of coronavirus could well damage consumer incomes, cause unemployment to rise and put pressure on corporate finances. In addition, Governments have already increased their spending and borrowing significantly. Taken together these developments suggest lower amounts of money will be available for people to spend on attending and following sports. This will hit attendances and hence event revenues but TV incomes may also come under pressure. Broadcasters have had many customers pause their subscriptions and it is possible a share of these customers will either not renew their agreements in future or choose more flexible schemes.

Sport has benefitted from a huge increase in sponsorships as economies have become more global and TV coverage has increased branding and network building opportunities while the growth of online gambling has also boosted incomes. If business finds its finances impaired because of less growth in the post-covid world then sponsorship expenditure is a relatively easy target for cost reduction initiatives. Sporting organisations and governing bodies need to be developing their arguments and data now to demonstrate the benefits that they bring to corporate partners.

Author: Mark Gregory, EY UK Chief Economist