The Impact of Sports League Suspensions and Cancellations

We’ve all seen the barrage of league suspensions and cancellations today and they really couldn’t come at a worse time for NBA and NHL teams, in particular. This is the beginning of one of the most exciting times of the year in sports—Conference basketball tournaments, the NCAA tournament, play-off runs in the NHL and NBA and the beginning of the MLB season. It’s going to be very eerie watching it all go dark—and the financial impacts on teams and leagues are going to be significant and potentially long-lasting.  A partial list of some of the potential impacts:

Most broadcast/RSN deals have deliverable game targets—meaning that the team/league has to deliver a certain number of regular season games for distribution. In the event those games aren’t played and depending on where the targets are set, teams and leagues may have to pay back some portion of the rights fee. A number of NHL teams had to make multi-million dollar payments to media distributors like NBC Sports during the last NHL lock-out. And of course there are implications for broadcasters as well. Will this affect affiliate negotiations for RSN carriage and will there be an impact on the value of some of the big rights packages coming to market in 2020 and beyond?

Local ticket and sponsorship sales will be impacted. Depending on the exact language, teams may owe make-goods to sponsors for games that aren’t played and if games are played without fans in attendance, sponsors might still make the argument that they are owed make-goods because fewer fans saw the signage. Also, many teams are just ramping up their season ticket sales campaigns for next year and these suspensions may make convincing someone to buy 41 games worth of tickets much harder.

There will be an impact on player compensation and potentially, salary cap calculations. I don’t know if player salaries will be suspended along with league play. NBA and NHL players continue to be paid when injured and teams are able to make claims for insurance payments to cover a portion of the salary. If the players are going to be paid during the suspension, I wonder whether teams will be able to make those insurance claims—or whether those losses would even be covered. Both the NBA and the NHL salary caps are a function of team and league revenues—if the suspended games can’t be played and if that results in a substantial decline in revenue, there could be a concomitant and anomalous decline in the salary cap for upcoming seasons.

Sports betting operators will be hurt—its easy to see why: No games = No bets. There are potential impacts on team finances as well—most lenders establish performance ratios in connection with loans to teams. Revenue shortfalls, particular broadcast revenue shortfalls, if they aren’t somehow recouped, could well trigger technical defaults on some loans.

And of course, the big question is what are we going to watch on TV while we’re all self-isolated or quarantined or whatever? We are in uncharted waters and the follow-on impacts from the league suspensions will be substantial. The near-term financial impacts on team operators are likely to be significant and leagues may have to consider providing some kind of relief for teams or players—especially in the event that COVID-19 lingers and prevents the resumption of the 2019-20 seasons. Venue operators and concessions companies will be looking at darkened arenas and drastic revenue reductions. The more significant question is whether COVID-19 and the threat of future pandemics will force big adjustments to the way we view sports and the way those businesses are run? Perhaps the Spring of 2020 will mark the beginning of a post-attendance era for sports?