Earlier this month Silicon Valley Bank (SVB) closed its doors, prompting volatility and anxiety in both U.S. and international banking markets. Soon after U.S. lenders, Signature and Silvergate, and European Credit Suisse (CS) and First Republic Bank (FRB) failed.
This all underlines the economic fragility of a world just coming out of COVID-19 regulations—but it also presents a source of major anxiety for the sports tourism sector. The uncertainty is palpable.
The news isn’t all doom and gloom, thankfully. Last week financial analyst DBRS Morningstar released a brief report on the potential for these bank failures to affect sports events companies. Their verdict was the turmoil was “unlikely” to affect sports events and tourism, listing several factors behind this forecast.
Namely, the analysis noted smaller, regional financial institutions such as SVB, CS, or FRB “rarely comprise a material portion of an issuer’s sponsorship revenue.” Furthermore, sports events companies often have safety mechanisms in place incase a financial sponsor’s credit collapses. The implicit lesson there, of course, is an organization without any such financial safety measures should probably look into implementing them just in case.
The report also noted a historic trend which ought to allow most sports events stakeholders to breathe easy: the sports events sector has proved itself financially resilient time and time again.
The Morningstar report notes: “The contractual revenue streams from broadcasting and sponsorship segments, relatively stable attendance, and ticket price increases during the 2008–09 financial crisis provide comfort that revenues would only face modest pressure. Furthermore, because the bulk of a franchise’s costs, in the form of player salaries, are linked to revenues in most leagues, we expect that margins will remain relatively consistent.”
These factors also helped ease the industries struggle through the COVID-19 pandemic.
The situation, at least according to one forecast, offers some hope to sports events stakeholders. Still, it may be wise to remember an old adage: “Hope for the best, but plan for the worst.”
