Sports teams seeking new corporate sponsorships in 2009 might find themselves disappointed by a lack of interest. We’re all used to seeing commercials, billboards, and other advertisements from corporate sponsors in the automotive and financial services industries, but the credit crunch is going to suppress their marketing budgets. The result could be the bursting of the sports bubble, Jordan S. Solomon of Gibbons P.C.
That seems pretty obvious, right? If companies are cutting back on their marketing budgets, sports teams will see less money than they’ve been used to in years past. True, baseball and football aren’t as directly reliant on corporate sponsorships as NASCAR, but if there are fewer marketing dollars flowing into our favorite sports, they’ll surely suffer.
We’re seeing signs of this changing tide in the Citi/Mets saga. We’ve long known that Citi would sponsor the Mets new stadium, CitiField. But when the credit crunch started hitting hard this past fall, Citi fell into some trouble. This caused a bit of an uproar about their sponsorship of the stadium. Congressman Dennis Kucinich thinks that the Treasury Department should “demand that Citigroup cancel its $400 million advertisement at the Mets field“. That would certainly have an adverse effect on the Mets ability to keep their payroll at the level it’s been the past few years.
Solomon also points to broadcasting as an area affected by these marketing cutbacks. Since many of these companies also advertise with broadcasters, we will see a cutback there, too. This means broadcasters will likely not pay as much for exclusive rights, as they have in the past. That’s another area which could deal a financial blow to our major sports.
What I do find strange, though, is the assumption Solomon makes at the very end of his article:
eams that are unable to offer the highest salaries will be unable to attract the best players and without the best players, teams will have difficulty winning. Losing teams will have a more difficult time attracting sponsors. It is a vicious cycle that is bound to have a lasting effect on how the sports industry has been operating during this sports bubble, which could be the next bubble to burst.
This is true, but only to an extent. As we’re seeing this winter, many teams aren’t willing to spend. This will drive the price down on free agents — it is a market, after all, and if there aren’t dollars flowing in a market prices will go down. Some teams, possibly of the small market persuasion, will get Adam Dunn and Bobby Abreu for a sweetheart price. Not only that, but the team with the biggest wallet has piles of money tied up in future salaries, thus taking them out of the bidding for many free agents, including, by default, those who play first and third base.
What I’m trying to say is that as baseball revenues fall, salaries will fall as well. The teams best positioned for this will be those with smaller and shorter term contracts on the books. If sponsorship and broadcasting rights get squeezed enough, the Yankees, the team with the huge wallet, might find themselves in a tough position because of their current salary commitments. A smaller market team with few long-term contracts, like, say, the Pirates, might find themselves better positioned in a slumping market.