Alcohol. Gambling. Smoking. All have been called "recession proof" or "recession resistant" industries, thriving in good times as well as bad. Rough patches or not, people will still want/need to drink, smoke, and gamble.
But will they always want/need to attend sporting events?
It's no secret that there's big money in professional sports these days--think about how much you had to spend on your last outing. Between the price of the ticket, the parking, the food--it all adds up pretty quickly. Are you still willing to shell out for that in a recession?
I think a safer answer would be that certain teams are recession-resistant--some would argue that Yankees and Red Sox are like that, as those ballparks are literally always packed and their merchandise sells year-round, big-time.
ESPN did som technical analysis and found that in the brief 1991 recession in this country, total MLB attendance dipped by only 1%, which was immediately erased in the following couple of seasons as the economy recovered. But in the 2001-2002 recession, attendance dropped by 6%--or was that just a function of fear of terrorist attacks? Either way, the evidence would seem inconclusive.
If sports are recession-proof, then how do we profit from it? Should there be a sports ETF based on ticket sales and revenue, by team? But if team performance and cash flow are positively correlated (as some would argue), wouldn't this amount to institutionalized gambling on sports with players competing not just to win...but knowing that they have to line investor pockets?
Is it bad teams that keep the fans (and the money) away, or is it the bad economy?
I would say that there is a huge difference between gate driven leagues like the NHL & NBA and leagues with massive long term TV deals like the NFL & MLB which smooth out league wide revenues. I find that in the US there is so much competition for sports dollars that with the exception of a few mega franchises most teams have to win to draw fans. Classic case is the Black Hawks in Chicago. They were terrible throughout the 2000's but once they started winning and won the Cup the fans came back and interest in the team is up.
I don't think you can arbitrarily compare time periods in sports. I don't know baseball very well, but perhaps in the early 90s there were great players that brought in fans vs 10 years later (wasn't 91 also before the baseball strike?). I'm sure the NBA did awesome in the mid-late 90s, and 98' still holds their highest ratings for finals. Junk teams profited by making consumers buy a 10 game pack rather than being able to just buy the single game when Chicago came to town. Obviously nothing to do with economic conditions, and everything to do with Michael Jordan.
The cubs suck, they always have, and their payroll is high - yet from my understanding they are one of the few teams that actually make money. Wrigley field is now a common thing for tourists and people from the surrounding area to go do on their visit to Chicago. In the late 80s and early 90s, the bleachers were basically empty, where as today they're always filled. Back then they even had two future hall of famers (Ryne Sandberg & Andre Dawson) on their roster today I don't think they have one. What changed? The surrounding area used to be a dump, but then the gays took over, made it nice, and now everyone loves the cubs and sales are high.
As for gambling, etc., there is a mutual fund out there called the Vice Fund, symbol I think is VICE. They only invest in "vices" and if I remember correctly defense as well. Last I checked the fund had been a dud for years, perhaps poor management.
^VICEX
that's it, thanks for the correction.
*Are sports recession-proof?
The NFL is definitely an exception, as it is arguably the most popular American past-time, at least in terms of people watching. Its revenue sharing system creates a certain amount of parity and equality between teams so that the same teams aren't winning the Super Bowl every year (since 2000, there have been 9 different teams to win). Plus with all the attention on fantasy football, I would say that the NFL is essentially recession-proof.
NBA, NHL, MLB all definitely have a few more problems and I would say that the recession has hit certain teams harder than others. Big market teams won't feel as much, but small market teams are getting clobbered. I would say that bad teams do drive away consumers, but there are fundamental problems with how these bad teams are financed relative to their successful peers (minus the NFL).
May want to check your reference on that--Patriots have won it three times during that time span and the Steelers did it twice.
Good analysis otherwise, though!
I think sports are becoming less recession-proof as technology improves. You can find every football game online for free. Not to mention the recession provides even more incentive for fans to just sit inside and watch events on their TV. Think about it, you have to travel for the game, pay for parking, tickets, concessions, and maybe a program or something from the team store. Or, you can just order pizza and wings and get a few friends together to watch the game on a 50-inch flat screen. Sure, the atmosphere and added experience from going to the game are big factors....but are these things something you'd pay a premium for every week of the season? My guess is no.
I was always under the impression that most things entertainment related were seemingly recession "proof". However I propose the question, are prison stocks recession proof?
Also, if you were to make an ETF how would you mirror the movements of the positive teams, it isnt exactly information that is easily privy to the public. It would just be speculation on network deals between certain teams I suppose.
Manchester United is working on issuing stock in Singapore.
Madison Square Garden is on the exchange and they seem to move with info based on the Knicks & the NBA.
I'll speak to the MLB since I've valued a couple of teams recently. Since the beginning of this economic slowdown, I identify this as 2001 since we have had artificially low interest rates since then, total MLB attendance has remained flat. Despite this lack of interest by the fans, TV contracts and team valuations have sky rocketed. The average revenue multiple is up nearly 50% over the past 10 years and revenue per fan is coming down. Is the MLB recession proof for you and I? Not a chance, but there will always be interest in the business of baseball by Mark Cuban and Nintendo. In fact, the most expensive deals in MLB have all been since the financial collapse.
Right because the only reason for their existence is because of the Knicks and the NBA, "...revenue at its sports business dropped 21.9% to $28.8 million."
http://www.nasdaq.com/aspx/company-news-story.aspx?storyid=201111041346…
With this year's lockout notwithstanding, I'd say the NFL is the single best run sports league in the world, or at least tied with the English Premiere League. The NFL has the best business model possible--salary caps maintain competitive balance and TV revenue is largely equally shared. The salary caps and shared TV revenue make for extraordinary competitive balance, which makes the NFL probably the best TV product in the world. And the NFL has national TV deals, unlike the MLB, for example, which has regional TV contracts. It makes it impossible for the Kansas City Royals to consistently compete with the NY Yankees. But the salary cap and shared national TV revenue make is very possible for the Kansas City Chiefs to compete with the NY Jets. This competitive balance draws TV viewers. The strong interest in the NFL generates enormous TV revenue. And the Washington Redskins can be mediocre for 2 decades running and be the most valuable sports franchise on the planet.
Frankly, why anyone would purchase an MLB franchise is beyond me--it must be for pure vanity. From what I recall, the NY Yankees aren't even a profitable franchise on an annual basis because of the obscene size of their payroll.
I agree with most of what is said here.
ESPN just extended their deal with the NFL for MNF. They are now going to pay an average of $1.8B PER YEAR to broadcast less than 20 games. There are a few teams that consistently risk local blackouts (Jacksonville) or who have less than ideal stadium situations (Minnesota), but those franchises are all still making money. Plus if any NFL owner will risk looking greedy to make more money he can pick up and move to LA.
I think that the NBA and MLB are very different. I think about 2/3 of NBA teams are losing money on a yearly basis. While most (if not all) MLB teams are profitable, they often need to keep their payroll so low to do so that they'll never be truly competitive.
To the guy who mentioned the Cubs, they are at a serious turning point. For the last 10+ years the Cubs sold out every game, tickets on the secondary market had 50%+ markups and people came to the games ready to have fun and spend money. That has changed the last year or two. Last year they were giving away (small amounts) tickets and there were a lot of no shows. The brokers, who really buy most Cubs tickets, got HOSED - on most weekday games you could buy a ticket on stubhub the day of the game for $1. They are changing just about everything in management because they desperately need their previous business model back.
Ovechkin - what you say about the Blackhawks is true. However, don't discount the fact that most people hated the old owner of the Hawks. He wouldn't put home games on TV in Chicago and was all-around not fan friendly. Once he passed, many of their policies changed. From Day 1 they had a lot more support in Chicago. I'm sure the quality of the team played a major role in the change of opinion on the Hawks, but that was definitely not the only factor.
ARE sports recession proof :P
i attended a conference about valuing sports franchises. the speaker said he formally viewed sports teams as recession proof (and even authored some articles saying that) but changed his opinion. the quick summary of his speech is that many owners started feeling pinched when their primary sources of income took big hits during the recession. they began to treat teams more as investments than expensive toys used to make their friends jealous. the prestige factor of owning a team is still there, but not as strong as it was earlier. previously, owners were content with annual losses because they got a nice pay day when they sold. owners are now looking to break even or make an annual profit. mlb was harder hit than nfl. the nfl revenue sharing and salary cap basically ensures you won't lose money. he said the reported price paid for the cubs was a bit of a mirage due to the structure of the deal.
Do you remember the name of the speaker? The Cubs transaction was done through a leveraged partnership that still blows me away, and thus should have probably been EV / (1-Capital Gains Tax). For anyone who missed it, just Google "Selling Chicago Cubs without Recognizing Any Taxable Gain" and you'll find a very good CPA article that discusses the transaction.
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