Money Smart Athlete Blog

The Coronavirus effect on Sport: Suspension of play and athlete contractual issues

Apr 1, 2020 | Economic Environment

By Andreas Themistocleous, APC Sports Consulting Ltd

At every hard stroke of fate, like the 9-11 attack or the 2008 financial crisis, sport competition (college and professional) has served as our depressurizing outlet and our turn-to pillar of support; unfortunately, not this time. The corona virus pandemic has caught the globe by surprise, let alone the sport industry and has caused unprecedented disruption, the likes of which has not been experienced since World War II. Despite the fact that people’s health is everyone’s top priority, we should not neglect the damaging financial impact, to follow, including that in the sport industry.

The suspension of play and practice even more importantly (hold this thought) is a highly effective tool for the protection of public health and the avoidance of further spread, but at the same time it is a forceful hit on the income of athletes, teams, professional leagues and college sport programs around the USA, not to mention the media involved with sport rights which are also in great danger of abolishing substantial third-party licensing revenue, advertising revenue and experience severe pressure from distributors, which is ultimately passed on to all stakeholders.  

We have already witnessed the suspension of play in all active professional and college leagues, but what makes the situation worse is the total cessation of practice sessions. Anyone who has played or managed sports will tell you that the plan to stop games and practice for a full month and then casually reconvene is almost utopic, unless you want players falling down injured, like birds falling from the sky during hunting season. I am one of the people that is fully convinced that active leagues will have a hard time completing their seasons, unless they seriously shorten them to allow time for training camps to take place all over again.

In light of the uncertainty, athletes should first know the facts and then make informed decisions, altering their short- and medium-term financial plans. The athletes anticipated to face the biggest problems are Olympic athletes and individual sport athletes. These athletes mostly generate revenues from competition and sponsorships alone. The Olympics have been postponed for a year, whereas individual competition such as tennis, golf tournaments and impact-sport competition are currently suspended. These athletes, therefore, have to understand that their revenues are already suffering from the lack of competition and should anticipate a further reduction of revenue from sponsorships and/or advertising channels.

The MLS is one of the professional Leagues with the lowest player salaries, thus the current suspension of games is definitely going to affect players who are earning normal-working-type salaries, if teams go ahead and reduce their pay.  NBA players are expected to forfeit 1.08% (1/92.6th) of their salary for every game missed, as stipulated by the NBA Collective Bargaining Agreement, even though the Players’ Association is pushing for full pay regardless. In Ice Hockey, there is no provision for reduction of salaries, however the League and team owners rely heavily on gate-receipts (instead of TV rights) and that is causing severe damage, which could potentially snowball down to affect the players. The MLB, due to start its season shortly, as well as the NFL starting its season in August, can and should suffer minimal damages, especially if alternate planning is successful, which in turn should allow players to avoid major financial setbacks.         

Truth be told, suspension or cancelation of games and tournaments are a major financial blow to the industry. Insurance policies, collective bargaining agreements, or provisions in personal contracts can only help so much. No games means no ticket sales and reduced media payments. No games means shifting of public attention, which leads to reduced following; if this hiatus endures longer than anticipated, then we could be discussing a serious blow to sport following, due to weakened and reduced fan association with the product or teams, reduced interest and TV audience, all of which could take at least 6-12 months to rebuild, with whatever financial effects this might incorporate.

Players should realize that in crisis management the most important aspect that defines winning policies is comradery and joint action. It’s no time to unionize the matter and go against owners or the Leagues and it’s definitely no time to put personal interest above everything else. This is not to say that players shouldn’t safeguard their financial interests, on the contrary they should demand the same contractual respect and adherence that they, in turn, are held against in other circumstances. 

However, at the end of the day, sharing a small part of the losses is not an unreasonable outcome, either, and players should be prepared for that, especially in cases of contractual stipulation. After all, sharing part of the loss could positively affect their long-term standing with owners and franchises, other team members, but above all with the community and the public in general. Acting responsibly, at a time of crisis, is generally recognized and usually later rewarded directly or indirectly, due to human nature mostly. A good way to do so, would be to agree in a so called “Solidarity Sport Fund”, where owners and players could collectively invest, in order to benefit lower-paid colleagues, or community services, underprivileged community members, vulnerable population groups and so on, which of course would be also treated differently in terms of taxation. 

For those players that have personal sponsorship deals, or access to advertising funds and channels, it would be a great opportunity to focus on corporate social responsibility, which would help their sponsors continue their targeted commercial operation and help themselves maintain the income. It’s obvious that media attention, social media especially, is heightened due to social isolation, thus the argument to continue business as usual is greatly enhanced.  

The bottom line, however, is that players should revisit and adjust their short-term financial plans. Given the uncertainty and the high probability of revenue losses, players should safeguard their liquidity, avoid investments, especially those associated with the stock exchange market and all in all approach their short-term financial plan in the same manner the Leagues are approaching competition; everything should be in hiatus. Even though market prices may drop, that doesn’t mean it’s a good time for large asset purchases, extravagant life-style expenses or new business opportunities. Given the instructions for self-isolation and practice of distancing, it should help athletes remain under control when it comes to expenses and therefore increase their rate of saving for the next couple of months.

Given that from every hardship rises an opportunity, one can argue that players should make this experience a learning point in life and take necessary steps to safeguard their future. Perhaps take up a personal insurance policy to safeguard earnings in time of a future crisis, or increase their savings for time of force majeure. For the more financially aggressive, this situation will reveal weaknesses, shortages and other necessities that in due time can become revenue-generating business opportunities that will help them make up for the current loss of income. All in good time, though.  

I close this article with some lyrics from the famous 1982 movie “Annie”.  I hope that everyone keeps safe and healthy. At the end of the day, there’s always “Tomorrow” so make sure you are patient.

“…The sun’ll come out, Tomorrow, so ya gotta hang on, ‘Til tomorrow, Come what may,

Tomorrow, tomorrow, I love ya tomorrow, You’re always A day Away…”