Financial Models in Sport
As our diet of live sport has dried up, the question on the future impact of COVID-19 on sports remains.
Large popular sporting organisations will survive due to their wealthy private ownership structures (Champion League Football Clubs, NBA and NFL for example). Broadcast revenues will eventually return once the US and Europe reduce their current movement restrictions. However professional sports cannot expect to generate significant (if any) revenue from gate and stadium takings until a vaccine is widely available.
While the significant financial reserves of organisations such as FIFA (estimated cash and near cash assets of USD 4.7 billion) and World Rugby (announced USD100m relief fund) may provide assistance, no announcements have been made yet on how the Government will assist NZ organisations.
With limited exceptions, NZ sports are mostly funded by participation fees and grant funding from the gaming trusts. As sports deal with how they will operate for the rest of 2020 year (and the increased health and safety costs) both funding sources are expected to reduce. Reduced participation fees are likely due to physical distancing requirements and turnover from gaming machines will reduce due to closures in the hospitality business.
Even the giant of NZ sport scene, NZ Rugby, has announced drastic cuts to competitions and players pay despite having the largest reserves of a NZ sporting organization ($75m at Dec 2018). Mainland Netball is a recent example of a semi-professional sports organisation now in liquidation.
Prudent financial management suggests that clubs and organisations should hold at least six months, if not twelve months, of their operating expenses in reserves. Given the ‘hand to mouth’ nature of most NZ sports clubs, very few clubs will hold that the level of reserves. Many will need assistance from the Government to continue to operate in a COVID 19 environment.
Boards and committees who manage the next 6-9 months successfully will deserve a huge pat on the back from their members. However, they will need to reassess their financial models for viability in a world of reduced community grant funding.
Difficult decisions will need to be made on what services these clubs and organisations can provide in the future and whether they can/should be fully funded from the users of each service. I was also interested to hear that NZ Golf had raised the possibility of discounts on green fees to increase social participation. One would have thought that with a scarce resource, large pent up demand, and few if any other sporting alternatives available under level 3, that green fees might have gone up. I am sure most clubs will not be extending or refunding memberships so the members will in effect be paying 12 months fees for 11 months access, and then some of that as very limited access.
How each sport restarts and handles its own unique opportunities and issues will be worth watching.
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