Shropshire: “Sports will come out just fine.”

By Tim Hyland

Kenneth Shropshire, Wharton’s David W. Hauck Professor, Professor of Legal Studies and Business Ethics and director of the Wharton Sports Business Initiative, does not deny that these are challenging times for the sports world.

Corporate sponsorships are hard to find and ticket sales are down. As a result, so are revenues.

But even taking the bad news into account, Shropshire says the sports world can hang its hat on this: It’s in much better shape than most other sectors.

“Sports will come out just fine,” Shropshire says. “The longer this recession goes, you might see different [collective bargaining] formats. You may see a team or two go bankrupt, like a hockey team in Arizona—but with a situation like that, what do you expect? The teams on the fringes may have some problems, but for the most part, these leagues are pretty strong.”

During a conversation with Wharton Magazine late this summer, Shropshire shared his thoughts on how sports has fared in this difficult economy, why television networks are still pouring billions into the business and why technology, not the recession, may be the biggest threat to sports business in the years to come.

So what’s the biggest challenge for sports in this economy?

It’s more of [a concern about] the horizon for sponsorships, especially with companies having to report to shareholders who may ask, ‘Why are you going to make this sports investment now?’ Before, these deals may not have received a lot of scrutiny. But now shareholders really want to know, when things are so bad, what the actual return on investment for sponsoring any sports event might be. We’re seeing a lot of shuffling in that area. Companies are mostly complying with the deals that are already in place. It’s the future piece we don’t know about yet.

What other effects have you seen?

Ticket sales. I mean, is a family of four really going to go spend $400 to go to sporting event in this economy? There’s been some impact there. That’s not generally a problem in the major sports, where season-long [ticket] commitments stay in place. But the longer this goes on, the more likely we’re to see some impact on ticketing. What we haven’t seen yet, at least not publicly, is any team or owner successfully being able to tell their players, ‘We have no money, so we can’t give you a big contract.’ I’m sure that’s being used in team-player negotiations, but as soon as free agency opened up in baseball [last winter], we saw things were pretty much the same. There was no actual shortfall.

Are you hearing from agents that teams are using the economy against players during salary negotiations?

Well, I still think every [team] can pay, though it’s certainly a great strategy to say you can’t. You know when we’ll know that teams really do have problems? When we see the television rights and other media rights deals go down in value, when you see no new sponsorship deals being signed.

But yes, people are down on the economy—that much is true—and while it used to be said that sports was recession-proof, I think maybe we’ve decided that it’s not exactly recession-proof; rather, sports seems to be the last sector to be impacted directly. And if we really are going through some kind of recovery already, well, sports may not take a hit at all. People started saying that sports was ‘recession-proof’ back during World War II. The idea was that people needed some form of entertainment and escape. It made sense. Tickets were cheap and it was an easy way to escape and be entertained, to forget about the disasters going on in the world. There’s no dramatic economic model that makes the case that this is true. It’s more of a psychological model, I guess.

You just mentioned television revenues. In late July the Southeast Conference signed a $2 billion broadcast contract with ESPN to carry its college football games. What does that tell you?

It tells me [the money] is still coming. Just think about television and sports for a moment, and how important sports are for these networks. Fox is a good example. NBC, too. Part of what these networks do is use sports packages as part of their strategy, like Fox did with the NFL or like NBC did with the Olympics. It’s actually part of their branding now. So it gets harder and harder to claim that they ‘overpaid’ for the product. They have bigger strategies in mind.

$2 billion is an awful lot of money though, especially for a regional property like SEC football. Can networks really keep spending that kind of money on sports? What’s the end-game for television and sports?

I think [the question] is—and you kind of see it in the news already, with the rise of YouTube and what happened with Twitter in Iran—how long the leagues and various sporting events are going to be able to protect their broadcast rights from private individuals. There are places out there on the Web now saying, ‘If you want to watch, we’ll show it to you for free.’ That’s the evolution that everybody is trying to figure out. Sports has been able to protect those rights and monetize those rights over the years. But now it’s getting more and more difficult, especially because you don’t know what the next technology is going to be. –T.H

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