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Challenges faced by the global sports industry

The first organized athletic events took place in Greece in 776 (BC), with the advent of the ancient Olympic games. The Olympics featured running races, throwing contests, and other competitive events, with the greatest athletes from the Greek empire competing. Interest in sports diminished during the Middle Ages but sports for entertainment reemerged around 1200 in various European countries. In France, for example, teams played a hockey-like game called la soule. La soule was discouraged by authorities because it was thought to be too rough, but the sport generated an interest in other games like tennis, which became popular in the 1400s. In the United States, interest in sports grew during the 1800s. The English sport of rugby led to the development of American football, and in 1869, Rutgers and Princeton played the first intercollegiate football game. Many other sports soon followed.

The present global sports industry is worth around US$620 billion. This includes sports infrastructure, sporting goods, licensed products, live sports coverage etc. The sport business industry has experienced phenomenal growth in a relatively short period.

The country-by-country breakup shows that the global sports industry is growing much faster than Gross Domestic Products (GDP) around the world. The size and revenues of global sports value chain has significant growth prospects for future.

The sports market in North America was worth $60.5 billion in 2014. It is expected to reach $73.5 billion by 2019. The biggest reason for such growth is projected increases in revenue derived from media rights deals, which is predicted to surpass gate revenues as the sports industry’s largest segment.

Sports media rights are projected to go from $14.6 billion in 2014 to $20.6 billion by 2019, accounting for a compound annual rate increase of 7.2%. Over 35% of current local television rights deals with the National Basketball Association, National Hockey League and Major League Baseball are set to expire by 2019, which will contribute to the overall growth in the sector based on assumed lucrative new deals, but national rights deals truly drive the growth in this area.

Sports industry would continue to recognize higher than indexed growth of existing rights deals through the end of the period as rights owners continue to carve out or reserve in-demand digital assets and further monetize this inventory under new deals or through in-house ventures. Related initiatives involving a la carte and streaming media are allowing consumers to purchase specific content (i.e. media rights for a single game or season package for a specific team), watch games in a condensed format shortly after completion, and watch replays on league platforms before they are available through general media.

But not all sports disciplines are represented equally in these finances. Number one, worldwide, is — no surprise here — association football (soccer), with a 43% share of the global financial sports market. Football (American) is also on a distant second place, with 13%. Baseball (12%), Formula 1 (7%) and basketball (6%) are the only three sports also having an over 5% share in addition to the top two. They’re followed by hockey (4%), tennis (also 4%) and golf with a 3% total market share in terms of finances.

The battle between stadiums and television screens for the spectator’s attention continues to be a relevant topic. It has been projected that media rights will surpass gate revenues in the near future. Stadiums are attempting to bring in new technology, features and seating styles in an effort to win back the fan that may increasingly choose to stay home instead of attend a game in-person.

While revenues derived from media rights should eclipse those generated from ticket sales and game attendance, gate revenues are still forecast to increase from $17.7 billion in 2014 to a projected $18.3 billion in 2015 and $20.1 billion by 2019. In addition to enhancing in-stadium features, teams will need to better learn how to use dynamic price changing models along with more creative promotions in order to achieve further growth.

The categories of sponsorship and licensed merchandise are also expected to grow, with sponsorship having the most room for improvement.

Sponsorship money is anticipated to improve by 4.5% from longer term deals, higher renewal rates and enhanced inventory yields. That would cause sponsorship revenue to go from approximately $14.7 billion in 2014 to $15.3 billion in 2015 and $18.3 billion by 2019. There may also be a spike due to the creation of new facility naming rights deals — 40% of major North American professional sports teams either do not have a naming rights deal in placeor have deals that will expire within the next 5 years. Additional sponsorship inventory created by way of digital media rights, uniform rights and further in-venue signage opportunities could also add to the bottom line in the sponsorship space.

 

Merchandise should see a small boost in returns from an expansion in the female retail market, technology-driven retail enhancements and potential improvement in economic conditions throughout North America. It is anticipated that licensed merchandise sales will go from an estimated $13.5 billion in 2014 to $14.5 billion in 2019.

The spectator sports market is segmented by type into sports teams and clubs, and racing and individual sports. The sports teams and clubs market accounted for the largest share of the spectator sports market in 2018 at 72.5%. It is expected to grow the fastest going forward at a CAGR of 6.8%.

The participatory sports market is segmented by type into fitness and recreational sports centers, golf courses and country clubs, and others – participatory sports, marinas, bowling centers, and skiing facilities. The fitness and recreational sports centers market accounted for the largest share of the participatory sports market in 2018 at 39.8%. The others – participatory sports market is expected to grow the fastest going forward at a CAGR of 8.4%.

The sports market is also segmented by type of revenue source into gate revenue, media rights, sponsorship and merchandising. The sports market by media rights was the largest segment of the sports market in 2018 at 23.7%. The sports market by merchandising is expected to be the fastest-growing segment going forward at a CAGR of 7.0%.

North America was the largest market for the sports industry, accounting for 30.50% of the global market. It was followed by Western Europe, Asia-Pacific and then the other regions. Going forward, Asia-Pacific and the Middle East will be the fastest growing regions in this market, where growth will be at CAGRs of 9.04% and 6.2% respectively. These will be followed by North America and South America where the markets are expected to grow at CAGRs of 6.0% and 5.30% respectively.

The global recreation market, of which the sports market is a segment, reached a value of nearly $1,435.4 billion in 2018, having grown at 4.5% since 2014. It is expected to grow at a compound annual growth rate (CAGR) of 6.0% to nearly $1,809.8 billion by 2022. The sports market was the second largest segment in the global recreation market in 2018, accounting for 34.0% of the recreation market. The amusements market was the largest segment of the recreation market accounting for 35.6% of the recreation market, and was worth $511.3 billion globally, having grown at a CAGR of 4.5% during the historic period. It is expected to grow the fastest at a CAGR of 6.3% during the forecast period.

The top opportunities in the sports market will arise in participatory sports, which will gain $70.17 billion of global annual sales by 2022. The sports market size will gain the most in the USA at $31.83 billion. Market-trend-based strategies for the sports market include offering mobile ticketing facility to reduce costs associated with ticketing and facilitate faster access, providing virtual reality technology to enhance spectator experience at stadiums, expanding/establishing sports businesses in emerging markets. Players adopted strategies in the sports industry include expanding business by building new facilities in cities globally, increasing revenue sources by investing in infrastructure for training and other recreational purposes, increasing revenue by investing in new infrastructure and improving brand name and international presence, increasing revenue through increasing sponsor portfolios and merchandise sales.

To take advantage of the opportunities, The Business Research Companies recommends the sports companies to consider adopting mobile technologies at the supply and demand sides, adding elements of entertainment to sports events, combining different sports formats to keep customers entertained, expanding in emerging economies, offering competitive pricing, partnering with big brands, and offering goods and services to women among others.

The author, Nazir Ahmed Shaikh, is a freelance columnist and an academician by profession. Currently he is associated with SZABIST as Registrar and could be reached at  nazir.ahmed@szabist.edu.pk.

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