Is the Sports Business Recession-Proof?

March 5, 2009— -- With the country in the midst of the worst economic crisis since the Great Depression, most industries are struggling, most companies are cutting back and most people are losing money. But judging by the size of his new contract, it appears that Albert Haynesworth, the Washington Redskins and professional football are hardly feeling the effects of the nationwide downturn.

The Redskins have signed Haynesworth, an All-Pro defensive tackle, to a seven-year, $100 million contract that includes an NFL-record $41 million in guaranteed money.

The Redskins are not alone.

The New York Yankees recently dished out $430 million in contracts for three free-agent players -- all this at a time when the country is battling what President Obama called "an unprecedented crisis."

Banks too big to fail -- like Lehman Brothers -- have failed.

Newspapers that survived the Great Depression -- like the 150-year-old Rocky Mountain News -- have died.

But the professional sports world continues to churn out record-setting contracts.

"Are sports recession-proof? That is the question," said Christine Brennan, USA Today columnist and ABC News consultant. "I think the answer is no and we are seeing some evidence of that, but so far the answer seems to be yes and that is a real stunner."

'Appalling Contracts'

The Redskins' and the Yankees' big money moves have raised some eyebrows in a country that has recently grown accustomed to seeing more lay-offs and pay-cuts than nine-figure deals.

"It is stunning," Brennan said. "You could even say it's appalling."

Contracts like Haynesworth's seem even more stunning because they come as off-the-field layoffs permeate the pro sports world.

The Redskins laid off more than 20 employees earlier this year. The NFL recently announced it would cut about 169 jobs, about 15 percent of its staff. League commissioner Roger Goodell will also take a 20 -25 percent pay cut.

The NBA cut about 80 jobs last fall, 9 percent of its U.S. workforce. In February, the league said 12 teams had decided to borrow a total of $200 million from JP Morgan Chase and Bank of America.

Will Americans Hold on to Sports Tickets?

The amateur sports world is also ailing. The U.S. Olympic Committee announced this week that it will cut about 10-15 percent of its staff.

"The signs are all over the place and there's absolutely no question there's a major, major impact right now on the sports world," said Andrew Zimbalist, professor of economics at Smith College in Northampton, Mass.

The pro sports world depends on consumer spending, corporate sponsorships and media deals to survive, all of which are vulnerable in the current economic climate.

Consumer spending increased slightly in January but dropped in each of the past six months of last year. Even as people spend less, some analysts suspect that fans will continue to flock to the stadiums.

"When it all comes down to it, I'm wondering if the last thing to go for the sports fans of America will be their tickets?" Brennan said. "Is it going to be the case that Joe or Jane fan lose their homes, lose their jobs, find out they can't send their kids to college, but are still holding on with a firm grip to their season tickets? I don't know, but I think it's a real possibility that people are going to want to hang on to tickets and go to games as an escape.

"President Eisenhower talked about the military industrial complex," she said. "We have something to rival that and it's the sports entertainment complex. It is strong and it is vibrant and it seems almost recession-proof so far."

Some entertainment options do appear to be doing well despite the recession. Movie ticket sales have jumped 17.5 percent this year, according to box-office tracking company Media by Numbers.

But it is far cheaper to spend $10 on a movie ticket than to see a Redskins game in person. General admission ticket prices to watch the burgundy and gold on the FedEx Field gridiron range from $29 to $99.

The Chicago Bulls resorted to literally giving away tickets earlier this season, offering a buy-one-get-one-free deal.

"Ticket sales in the NBA are only sustaining themselves because there have been massive discounts on ticket prices," professor Zimbalist said.

'Very Interesting Priorities in Our Country'

Even in a recession, teams must find a way to get fans in the seats to succeed.

Zimbalist said that explains why a ball club like the Yankees, with a new stadium set to open this spring, elected to pay $430 million for three players.

"They've got to make that stadium work and the only way it's going to work is if they fill those seats up," he said.

Such an approach just might work. Some major sporting events such as the NCAA men's basketball Final Four, to be held this year at Detroit's Ford Field, have already sold out.

"People have lost their job, their house is in foreclosure, and they'll still want to go to the men's Final Four," Brennan said. "We have very interesting priorities in our country."

Sponsorships Disappearing

A decrease in corporate sponsorships may also pose more problems for the sports world.

"Sponsorships, naming rights, advertising deals are going way down or disappearing," Zimbalist said.

Two corporations involved in prominent sponsorships are AIG and Citigroup, both of whom have received billions in government bailout funds.

Citigroup, however, has withstood pressure to pull out of its deal to name the New York Mets' new ballpark Citi Field.

"This type of spending is indefensible and unacceptable to Citigroup's new partner and largest investor, the American taxpayer," Rep. Elijah Cummings, D-Md., of the Joint Economic Committee said in a recent statement about Citi's sponsorship.

Asked Brennan: "Shouldn't it be called Taxpayer Park? Shouldn't we step back and say how it's possible that Citigroup is able to have its name on a stadium?"

But other corporations like AIG have opted not to renew expiring contracts with sports organizations.

The insurance giant has already announced that it will let its sponsorship of English pro soccer team Manchester United run out as planned in May 2010.

And General Motors' Buick division last fall defended its nine-year sponsorship of Tiger Woods one year early, just months before GM received $13.4 billion in taxpayer funds. It asked for $16.6 billion more last month.

Television to the Rescue

"We'll see a lot more evidence of this recession when these contracts are up," Brennan predicted. "If companies are laying people off and having trouble paying their bills, how in the world can they sponsor an event, a team or a stadium?"

So how can teams such as the Redskins and Yankees continue to dole out record contracts?

"The only way the Yankees and the rest of the sports world is insulated is that they have a lot of long-term contracts, mostly in the media area, mostly long-term television contracts," professor Zimbalist said.

Sports television programming may turn out to be one winner in the current economic crisis. As Americans save more and more money, fans in need of their sports fix could turn to more affordable options such as watching games on TV.

"Americans want their entertainment and sports almost no matter what," Brennan said, predicting TV ratings will go up as fans buy fewer tickets.

But that is just one slimmer of good news at a scary time for the sports world. Some pro sports franchises, particularly in the NHL, will likely move and possibly even fold completely, Zimbalist predicted.

Wealthy team owners, he said, will have to be more cautious about signing contracts after their own portfolios were decimated when stocks plummeted on Wall Street during the past year.

But record-setting deals like Haynesworth's seem anything but cautious.

"It just boggles the mind," Brennan said. "It shows these owners have almost limitless resources."

Even Haynesworth himself was shocked by the size of the Redskins' offer.

"I was like, 'You said what?'" he said. "I was just astounded."

It's safe to say he wasn't the only one.