Coronaviral Impact

Posted by on Friday, March 13, 2020 in Major League Baseball, National Basketball Association, National Football League, National Hockey League, Sports Econ Blog.

Interview with Wall Street Journal / Toronto Star / AFP

What sports and what teams do you think are most likely to be financially impacted by fans not attending, or not being allowed to attend games? Hockey? Baseball? Minor leagues? Major leagues? Which sports and teams’ revenue models make them most vulnerable to this type of situation?

Big 4 GRID / Big 4 Team ValuationsPer Game Splits / Big 4 TV  / Big 4 FCI / Packers Splits / NFL CBA NCAA Revenue (AP) (NYT) / PWC

Pro sports league revenues are much like an optimum investment portfolio where the risk exposure to market volatility depends on the diversified blend of equity and bonds. Team-specific equity risk is reflected in un-shared local revenues and the bond security is reflected in equally shared diversified league revenues. 

The perfectly negative correlation between wins = losses in a zero-sum sports leagues creates a perfect portfolio with maximum risk reduction via diversification. So the relative vulnerability of teams and leagues is reflected in the blend of team-specific local and equally shared national revenues.

The average local/league revenue ratios (equity/bond blends) are approximately 40/60 in the NFL, 50/50 in MLB, 60/40 in the NBA and about 80/20 in the NHL. (See attached GRID). The specific local/national ratios are much higher for large market clubs, but are offset by local team-specific risk being shifted to a greater proportion of season-ticket holders and corporate clients. The quasi-contractual season-ticket bases average 100 percent in the NFL and between 50 percent and 60 percent in the other leagues.

Based on this analysis the degree of vulnerability to revenue volatility is inversely related to the relative proportion of pool-shared national revenues (revenue pooled and divided evenly among teams). The $5 billion total revenue NHL is the most vulnerable (20 percent), followed by the $9 billion revenue NBA (40 percent), $11 billion revenue MLB (50 percent) and the $15 billion total revenue NFL (60 percent) is the least vulnerable. 

The national media share also serves as a measure of the degree of monopoly cartelization of these four North American sports leagues. In the NFL the League is virtually the firm, while in the NHL each team exists on an economic island. This clearly answers the tricky perennial legal question about whether the firm in a sports league is the individual club or the league. Its a matter of degree based on the proportion of revenue shared.

There is a strong inverse relationship between public venue subsidies and market size in all leagues. In this way the teams in smaller mid-markets are avoiding direct venue cost but also avoiding risk by shifting future bond funding to the general taxpayers in the event of a revenue shortfall.

Value in all sports leagues is the result of the relative certainty of expected net cash flow almost as much as the amount. Risk sharing/shifting by the monopoly league cartels is what drives the economic value and architecture of the new compact single-purpose venues.

Also, I would be very surprised if most leagues already have force majeure clauses in every contract (and insurance policy) that specifically protects them against revenue loss from an epidemic. There is such a clause in the NBA CBA that specifically shifts the loss from an highly unlikely epidemic like the coronavirus to the players for home games missed (1/92) due to force majeure. 

The NBA would lose an estimated $500 million if the rest of the now-suspended regular season (after Utah Jazz player tested positive for coronavirus) is cancelled…double that for a loss of the playoffs — so sooner or later, all games in all leagues must go on.


Current estimates now circulating from a reported league source put the loss at $300 million in gate revenue for rest of regular season with an additional loss of $166 million in gate revenue for missing the playoffs. This estimate is based on the NBA rule of thumb that average gate is $1.2 million per regular season game (1,230) and $2 million for each playoff game (83).  So if the NBA cancels the rest of the season with 259 regular season games and 83 playoff games remaining, it would amount to a total loss in gate revenue of $466 million alone.

The $500 million regular season loss I was referring to was the loss in BRI (Basketball Related Income) which includes gate but also includes un-shared venue revenue from concessions and merchandise and parking. So I doubled the regular season loss in BRI to get $1 billion total including postseason. BRI is the more inclusive revenue amount used to determine the salary cap base.

Big 4 Revenue Splits 2019 ($M)

Value Revenue Gate Players Profit
NFL League $91,365 $14,476 $2,241 $7,038 $3,268
Avg Team $2,855 $452.4 $70.0 $219.9 $102.1
/ Revenue 6.31 100.0% 15.5% 48.6% 22.6%
MLB League $53,280 $9,895 $2,838 $4,640 $1,188
Avg Team $1,776 $329.8 $94.6 $154.7 $39.6
/ Revenue 5.38 100.0% 28.7% 46.9% 12.0%
NBA League $63,690 $8,759 $1,935 $3,952 $2,100
Avg Team $2,123 $292.0 $64.5 $131.7 $70.0
/ Revenue 7.27 100.0% 22.1% 45.1% 24.0%
NHL League $20,670 $5,086 $1,863 $2,445 $778
Avg Team $667 $164.1 $60.1 $78.9 $25.1
/ Revenue 3.88 100.0% 36.6% 48.1% 15.3%
Source: John Vrooman/Vanderbilt and Forbes

MLB revenue loss estimates (140 game season separate-ticket double-headers, 330 games): 

MLB Gate: 330 games x $1.14 million = $376 million.

Total MLB revenue: 330 games x $2.027 million = $669 million.

MLB revenue loss estimates (season delayed until Memorial Day 5/25, 848 games): 

MLB Gate: 848 games x $1.14 million = $967 million.

Total MLB revenue: 848 games x $2.027 million = $1,719 million.

NBA revenue loss estimates (259 regular season and 82 playoff games):

NBA gate revenue: [(259 games x $1.42 million) = $366 million regular season] + [(82 games x $2.36 million) = $194 million playoffs] = $560 million total gate loss.

Total NBA revenue: [(259 games x $2.02 million) = $524 million total regular season] + [(82 games x $2.97 million) = $360 million playoffs] = $884 million total revenue loss.

NHL revenue loss estimates (189 regular season and 84 playoff games):

NHL gate revenue: [(189 games x $1.32 million) = $250 million regular season] + [(84 games x $2.2 million) = $185 million playoffs] = $435 million total gate loss.

Total NHL revenue: [(189 games x $1.85 million) = $350 million regular season] + [(84 games x $2.73 million) = $245 million playoffs] = $595 million total revenue loss.

Estimates of Big 4 Fan Revenue per Game 2019 ($M)

Gate Revenue (RSP x RSG + PSP x PSG) $2,838 $2,241 $1,935 $1,863
Regular Season Games (RSG) 2,430 256 1,230 1,271
Post-season Games  2018 (PSG) 34 11 82 84
Weighted PSG (PSG* = 1.67 x RSG) 57 18 137 140
Weighted total games (RSG + PSG*) 2,487 274 1,367 1,411
Gate per regular season game RSP $1.141 $8.169 $1.416 $1.320
Gate per playoff game PSP $1.903 $13.617 $2.360 $2.201
Venue spending % over Gate (FCI – Gate) 77.6% 32.0% 42.8% 40.1%
Variable venue revenue per game $0.886 $2.616 $0.606 $0.530
Revenue per regular season  game   $2.027 $10.785 $2.021 $1.850
Revenue per post-season  game $2.788 $16.234 $2.966 $2.731
RSP = regular season price, RSG = regular season games; PSP = postseason price; PSG = postseason games.
* Gate = RSP x RSG + PSP x PSG. If PSP = 1.67 x RSP then Gate = RSP x RSG + 1.67 RSP x PSG = (RSG + 1.67 PSG) RSP, and RSP = Gate/(RSG + 1.67 PSG). 
Sources: John Vrooman/Vanderbilt, Forbes and TMR (Fan Cost Index).


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