Now the sporting world to some degree is ‘back on it’s feet’, we should consider the changing landscape that is faced by companies in the sport and leisure industry who have had varying degrees of impact as a result of the Covid-19 pandemic.
Whilst it has been commented that previous global economic downturns such as the financial crisis a decade ago have resulted in major tech players and billionaire start-up success, it remains to be seen how the sporting world can take advantage considering the reliance on physical participation, interaction and irreplaceable adrenaline fuelled action.
For now, we can focus at a high level on some expectations that can be tested over future months and the next few years;
Leisure – Gyms’ and Health Clubs
It has been a torrid time for physical recreation businesses with gym’s, health clubs and many other sporting clubs forced to close. Typical business models involve high direct costs for property, land, equipment, maintenance and employment of specialist skilled staff at varying pay scales.
This, mixed with the reliance on income from monthly memberships and hosting high turnover events which have been lost during global lockdowns mean that annual budgets have been severely hit. Mintel predict that the market drops by 55% to circa £1.5bn
The degree to which these businesses will cope depends on the ability to absorb losses, use of government support and being able to innovate for recovery.
In addition to these challenges, the knock-on impact will likely cause issues to both suppliers within the business operating model and those that rely on the sports and fitness industry for sales. For example, companies producing commercial gym equipment will likely see a slowdown in business and sports nutrition companies may see lower levels of demand.
Whilst these challenges may seem downbeat, the positives come in the form of the potential of Covid-19 causing an uptake in individuals taking more care about health, placing a heavier weighting on the importance for inclusion in sporting activity whilst working from home and could provide a platform for these businesses to take advantage of increased demand when restrictions ease. Furthermore, many of these businesses are at the forefront of health consciousness and are able to create safe environments, socially distanced events and evolve their branding as leading the Covid-19 recovery.
Therefore, whilst the impact is apparent, the chance for innovation, branding and streamlining business models will help this lucrative industry recover at a faster pace than others.
Sportswear Brands – e.g. Nike, Adidas
Perhaps there could have been different scenarios for larger sportswear brands whereby a general economic downturn mixed with closed stores and reduced live sports marketing could have impacted sales revenues. However, similar to other retailers, some large sports brands have seen increased online sales offsetting reduced store footfall and arguably may have benefited from millions of people being constrained at homes turning to online shopping for an outlet. Nike reported an increase of 82% online sales to keep revenues nearly flat year on year (decrease of 1%)
Often attracting impressive visitor stats to retail outlets in prime locations, companies such as Nike and Adidas may re-think their property strategy to take advantage of increased online awareness where cost reduction possibilities will be prevalent.
E-sports
Is it possible that E-sports in one of the anomalies of 2020 that will show increased sector growth? Already a growing sector with well publicised investments over the past few years, it is arguable that businesses (start-ups and established) could leverage the opportunity of ‘deflected demand’ for those looking for sporting entertainment.
'Esports has become a rapidly growing global industry, with a fan base of about half a billion people and with revenue expected to reach €1.2 billion this year for the first time' (PWC 2020)
With a lack of sporting entertainment that usually attracts millions of fans across the globe, E-sports will likely have attracted increased viewers looking to replicate the adrenaline of spectatorship and nostalgia of icon/ team association.
We saw various ‘spin off’ televised events happen during lockdown such as Formula 1 racings involving celebrities, F1 drivers, other sporting athletes and regular gamers. Providing interactive entertainment this will have helped market the e-sport agenda and develop this as another channel for sporting thrill-seekers.
Heavily reliant on advertising revenue, an increase in E-sports audiences will help build the opportunity, participation and growth of the sector which has already evolved significantly.
Professional Sports e.g NFL, English Premier League
Professional sports entities are often assumed to be bottomless pits of funding, which in some cases can be nearly true but on the whole is only a very small percentage of teams/ clubs in the biggest sectors (e.g. NFL, UK Premier League). These clubs are analysed by media, supporters and speculators on a regular basis for their big money deals, signings and team success.
However, there is no escape for these companies from their high regular costs through player wages, funding stadiums and other facilities. Their ability to survive is therefore reliant on continued income from other sources such as marketing/ advertising revenue, contractual rights and other sponsorship partnerships. The legal framework involved in such arrangements mean that most of this income continues. Therefore, it is the dependency on income from ticket receipts and other lost income sources that impact these businesses and has led to instances where high profile teams have required to cut wages to support their clubs.
The fallout from this scenario is most likely to be in the contractual arrangements described where TV rights (e.g NFL) will likely be re-negotiated/ designed and other marketing arrangement explored to ensure that that actors in these business arrangements continue to meet their required return on income.
Healthcare Products e.g Sports Nutrition
2020 has undoubtedly seen an increase in attention on health and wellbeing across the global where families have realised the need for regular exercise, balanced diets and general physical and mental wellbeing. Some large corporate institutions have also been at the forefront of promoting such importance through implementing colleague wellness programmes.
This may provide the possibility of an uptake in the health and nutrition retail sector which is an already lucrative business but can potentially leverage the opportunity that stark realisation of Covid-19 has reared.
Whilst we have already considered the downturn in access to physical facilities, the rise of the online PT and potential for increases sports membership provide opportunity for sports nutrition to recover losses made during the downturn.
The highest expectations within this area stick with the vitamin and nutrient products which in some cases can provide direct linkages to increased health benefits to fight the impacts of Coronavirus.
Summary
Mixed impacts and strategies to recover place the sporting industry in a prime position to cope with and recover from the economic impacts of Covid-19. Furthermore, sport and leisure have an opportunity to re-shape the way in which businesses interact with customers, fans and B2B interactions. For a more in-depth look at impacts, expectations and strategies contact us for more information.
Links
https://www.sportspromedia.com/news/espn-nfl-tv-rights-mnf-cbs-nbc-fox-amazon-dazn
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