How Professional Sports Could Fall Apart

Last week ESPN laid off 300 people, roughly 4% of their workforce. Why? As The Sports Business Daily points out:

“The cost of goods is going up and sales are going down,” one longtime industry executive observed. “That’s not a good trend.”

What do they mean by that? ESPN has repeatedly over the past few years shelled out hundreds of millions of dollars extra per year for the NFL, MLB, NBA, college football playoff, and more. From that same article:

“It’s been a total mismanagement of rights fees, starting with the NFL renewal,” said one former employee. “We overpaid significantly when it did not need to be that way, and it set the template to overpay for MLB and the NBA.”

At the same time, cable subscribers are decreasing as a part of the slow trend of cord cutting:

ESPN’s subscriber losses, which have seen it lose nearly 8.5 million homes in the last 4 1/2 years, according to Nielsen estimates, or down about 8 percent, are at a rate that is declining faster than the rest of the industry.

Where do sports leagues make their revenue from primarily? You got it, TV deals. The NBA salary cap will skyrocket next year when the new TV deal kicks in. Sure, tickets and merchandise and licensing generate revenue, but the real money is in the TV deals. In essence, the glut of profits in sports is looking less and less sustainable.

And what happens when the system no longer supports the TV deals? Your guess is as good as mine. Sports leagues probably don’t fold, but I bet they look completely different.

I’m not saying that this will necessarily happen. There are a lot of counter-moves that could prevent/minimize this (leagues charging consumers directly, for one). But it wouldn’t shock me if 15 years from now this happens and we look back on this period and think “duh, it should have been so obvious.”

2 comments on How Professional Sports Could Fall Apart

  1. Dallas says:

    I’ve pondered this same thing. The only reason I still have cable TV is to watch the Mets. I think the only reason a lot of people pay for cable is strictly for sports. There is simply too much other stuff you can watch with Netflix/Amazon/Hulu that you dont really need anything else. Honestly I think if they don’t come up with a new revenue stream then it means paycuts for players but things play on. Owners just simply wont hand out the contracts that they use to. Another interesting way to look at it is that less and less kids will be exposed to pro sports because their parents cable cut and less will grow up as fans. Sure the hardcore parents will always be there but the more casual fan parent will never really indoctrinate their kids into the sports

    • Adam McFarland says:

      Dallas,

      Great to hear from you. Great point about kids not growing up with as much exposure to sports. There’s so many more activities and sports these days that kids don’t necessarily need to get into baseball, football, or basketball. I’m much like you – if it wasn’t for the Mets I’d likely cut cable. There’s a few other things that I’d miss, but I think I’d be OK with it. I spend much more time watching Netflix and Amazon than I do TV.

      – Adam

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