How will postponing sports impact sponsorships?

Throughout the world, sports are on a complete hiatus or taking place without fans. From the NBA and the NHL to the EPL and Serie A, there’s very little sports action taking place.

But it’s not just fans who are having a rough time at these trying times. Sports clubs and leagues are facing impending financial crises if we go a few more months before leagues resume.

Luckily, both sports fans and clubs are optimistic things will get better rather than later. But if the opposite happens, here’s what would happen financial wise:

Activating ‘Force Majeure’ clauses

A force majeure clause is a stipulation of what would happen to a contract if a sponsored company can’t fulfil its contractual agreement due to unforeseen circumstances.

In the sports world, this provision usually relates to natural disasters such as fires, floods or blackouts. In that case, a sports club could agree to advertise its sponsor’s products in the game free of charge.

Unfortunately, sports have been halted by a pandemic and not a natural disaster. So, what happens then? Responsible NBA, NHL and European football clubs might react in these ways:

  • Refund sponsors
  • Fulfil their contractual agreements when sports resume
  • Rollover money paid to next season

Of course, sports agreements are never the same. However, organized sports and leagues have the flexibility required to fulfil agreements instead of surrendering it back to sponsors.

Small clubs hardest hit

Some leagues and sports clubs don’t have permanent stadiums and long-term TV broadcast deals. Instead, they lease arenas on specific dates and work with short-term sponsors to enhance their finances.

Take eSports organizations as an example. The entire industry might be worth $1 billion but video game companies rely on independent stadiums for hosting games. Last year’s Fortnite World Cup Final—the largest event of its kind— took place at the Arthur Ashe Stadium in July.

The Overwatch League, on the flip side, takes place in small arenas weekly or monthly. But if the league can’t enforce its games due to lockdowns, it will suffer huge cancellation fees and the uncertainty of getting more arena space when it resumes.

Worse, small sports leagues and clubs tend to have short-term sponsors and not as much money as major sports clubs. Against that backdrop, indefinite cancellation will put their financial wellbeing in limbo tremendously.

Athletes to fulfill sponsorships online

Athletes are some of the hardest-hit people in the sports world presently. That’s because many of them are paid on a game by game basis. What’s more, these pacts have doomsday provisions that prevent their employers from paying them at such times.

Then there are individual sponsorship deals—the kind players fulfil by donning a brand’s products or endorsing a brand on TV. With sports cancelled, many companies will demand that players turn to social media to fulfil their agreements.

In essence, NBA, MLB and football players will now have to act as influencers, advocating for brands through Facebook, Instagram, YouTube, Twitch or Twitter.

Footballer Zlatan Ibrahimović, for example, could turn to Instagram to promote his betting partner: Bethard Casino. He’s been endorsing the iGaming brand since 2018 in a deal that has seen him appear on the home page of the casino’s website.

NCAA and Atlanta to lose out over $1 Billion

Unlike pro-leagues, college teams make most of their money during March Madness. Now March is almost over and there are no signs of things getting back to normal until later in the year.

And that’s worse for NCAA and Atlanta, the city scheduled to host the final four games of the tournament. For starters, college football teams are expected to lose out $800 million they would have earned from ticket sales and sponsorships.

The city of Atlanta was anticipating $100 million in money earned during the final four games of March Madness. But now, it might not hold the events in entirety.

Formula One to lose over $600 million

Formula One usually earn the largest chunk of its annual income from countries hosting circuits. But like all other major sports, it was forced to cancel events mid-March. From the Australian Grand Prix to Vietnam and Bahrain, F1 fans will have to wait until the pandemic is over before they can cherish the sport.

Analytical firm Statista estimates Formula One could lose out up to $602 million due to cancellation of events. And that’s just money from host countries. In the stocks market, the F1 Group has already lost over $5 billion, representing 45% of its stock value.

Japan to lose billions over Olympics cancellation

After weeks of silence, the IOC and Japan have confirmed the Olympics will be postponed until 2021. When you think about it, though, Japan might have had some valid concerns on why didn’t want to cancel the four-year event.

For starters, the country spent $277 million to develop the stadium picked to host the event. Then the country had a $13.4 billion geared toward organizing the event. A few billions of the money have already been spent.

But now all that money could be a costly investment Japan might take years to recover from if the Olympics are postponed. Of course, the health of athletes and fans come fast, hence why cancelling the events is called for.

Still, the amount of money Japan is anticipating to lose due to sports cancellation is beyond belief. The IOC has insurance against cancellations, meaning it won’t be expecting a lot of losses.

But the hosts have been anticipating billions of dollars in sponsorships—money they might not receive, at least this year.

UEFA to lose over €300 Million

Football clubs can roll over sponsorship pacts to next year. However, UEFA will have to bear losses worth up to €300 as costs for cancelling EURO 2020. Of course, it will recover some of the money when the tournament takes place next year.

However, the federation will have to spend more money to organize the event. And even though it might attract high-paying sponsors, it will still incur losses.

How will postponing sports impact sponsorships?

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