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Sports leagues are beginning to suffer as corporate sponsors are pulling dollars due to the slumping economy.  The NBA has already laid off 80 employees. MLB recently laid off 4 percent of its staff. The Arena Football League is planning on suspending its entire 2009 season due to financial hardships. The economy is hitting NASCAR especially hard as corporate sponsors such as GM are cutting back on advertising. Honda Motor Corp has pulled completely out of Formula One Racing. The PGA Tour has lost major sponsors. The NFL has just announced that it is cutting 150 jobs.

Let’s look at the NFL, king of all sports, to see just how the economy is impacting sports leagues. Over the past 10 years revenue and ticket prices for the NFL have risen to unprecedented amounts. According to Bloomberg, the NFL makes approximately 7 billion dollars in revenue annually from its television contracts, sponsorship agreements, ticket and merchandise sales. NFL television contracts have led to bidding wars between networks due to the NFL’s mass appeal. The average ticket price has risen 8% from the previous year. Sounds great. So, what’s the problem?

With the slumping economy, merchandise and ticket sales have slowed as fans have cut back on non essential spending. Corporations are cutting back on luxury box purchases and stadium naming right deals. Advertising sales are taking the biggest hit as automobile makers and financial service companies have been the largest sponsors of sports leagues. The problem for the NFL and other sports leagues is that all of these events will surely take a big chunk out of their revenue.

This may force sports leagues like the NFL to undertake dramatic steps to maintain revenue. I expect that leagues will be forced to cut ticket prices. The average price for a family of four to attend a football game is about $400. This is not realistic in a recessionary environment. Teams will have to cut prices in order to sell season tickets, merchandise and fill stadium seats. I expect leagues to make an attempt at reducing player salaries in upcoming labor agreements. The NFL is currently trying to renegotiate their labor contracts set to expire in 2010. The NFL is trying to reduce its largest fixed operating expense which is player salaries. Player salaries amount to 4.5 billion annually which accounts for 60% of all revenue. In a league of variable revenue decreasing fixed expenses is paramount.

The hit to the NFL’s revenue is particularly troubling because professional football is regarded as the one recession proof sport. Football is the most popular of the major sports. If the NFL is having these problems then other leagues must be faring even worse.

Finance labor strike, MLB, NBA, NFL, sports layoffs