Organisations have been presented with an opportunity to rethink their current operations, strategy and how they interact with their stakeholders
Tom WilsonTom Wilson is a partner at UK accountancy firm haysmacintyre where he leads the firm's sports practice. He has worked in the sports industry for over 12 years and is a member of the Sport, Entertainment and Media committee at the ICAEW.
To say the impact on the sports world of the events of the last six months has been devastating is far from an understatement. For those of us who love sport, missing the high-quality schedule this year has been tough, but the financial and business consequences for sports organisations have been astronomical. The Olympic Games, soccer's Euro 2020 and English cricket's The Hundred are just a selection of the major events that have been cancelled or rescheduled, with ripple effects on the wider industry.
Despite the seemingly universal obstacles across the sector, a crisis like this exposes nuanced differences within the sporting world. The extent to which income has been disrupted can vary widely between different types of organisation, sport and level of play within the league pyramid and globally. For example, even within the Premier League the effects differ greatly - Crystal Palace source approximately 7 per cent of their revenue from matchday income, whereas the comparative figure at Arsenal is 24 per cent.
With this in mind, it is clear that empty stadiums will impact Arsenal more than Crystal Palace, and different decisions will have to be made to account for the situations at each club. The recent announcement of 55 redundancies at Arsenal appears to be a first step to address the shortfall.
Similarly, within the governing bodies world, several Olympic international federations are highly reliant on broadcast revenue that derives from the Olympics. By contrast, a UK federation in the same sport which is primarily funded by UK Sport or Sport England may have 80 to 90 per cent of its revenue guaranteed to the end of 2021. This means the challenges faced by different teams and organisations vary significantly.
In the early stages of the pandemic, all sports organisations had to forecast their own situations across a range of scenarios based on the potential impacts on their revenue streams. Good scenario planning allowed organisations to make the necessary quick decisions to get through the crisis.
Even if organisations were able to weather the worst of the storm, there are still countless variables. How will the broadcasting market and commercial income streams be affected in the short term? Will next season be a ’normal‘ season in the sense of being able to admit usual crowd numbers, and if not, for how long? What will budgets be for playing staff? All these questions must be considered and included in scenario planning.
During this period, as organisations begin to shift to forward thinking, there are seemingly infinite ways to save costs and become more sustainable in the long term. We have seen most organisations review their costs in detail. At the start of the crisis, this manifested as minimising all discretionary spend, but organisations have also been reviewing major planned capital spend. Barcelona, for example, recently announced further delays to the Camp Nou improvement project, citing Covid-19 and the need to prioritise cash flow.
The higher up the sporting food chain you are, the more important communication and reputation become
At the end of June, England's Football Association made 124 redundancies, nearly 15 per cent of its workforce, and in early July, the Rugby Football Union announced 139 potential job losses, around 24 per cent of its workforce. This is the unhappy reality of a sector which is heavily reliant on revenue from large events and the ‘matchday experience’.
Staff cuts are never a very palatable topic, but with the ongoing strain in the sector, it is one sports organisations should consider seriously. However, the higher up the sporting food chain you are, the more important communication and reputation become. The Arsenal example mentioned earlier caused some negative press, as did the initial recourse to the job retention scheme by Liverpool and Tottenham Hotspur, both of which subsequently performed u-turns.
Looking ahead, organisations have been presented with an opportunity to rethink their current operations, strategy and how they interact with their stakeholders. Investing in processes that create future cost savings through being a leaner and more modern organisation should be high up the agenda.
There have been some organisations, even prior to the current situation, which have invested in collaboration with other teams or even different sports. Manchester City is a prime example with teams around the globe and the ability to cost share amongst clubs. With the likelihood of more sustainability rules emerging because of the crisis, is this a strategic option for others? It is common in Europe to have multiple sports under the same brand – Barcelona, known for its iconic football club, also has basketball and handball teams.
On a smaller scale, within each organisation there will also be a shift in behaviour patterns, both from a work and leisure perspective. Most of my clients are considering a more agile and flexible way of working. As such, they are looking at their current IT and property needs and how they might evolve under the 'new normal'. Moving to a more virtual way of working may result in staffing efficiencies and consolidation of costs.
As people shift their way of life, communications must also change. I have recently spoken to many governing body clients who are currently consulting with their memberships over how they want to interact in the future. Sport is littered with tradition, but with behaviours changing and the need to engage with the next generation of fans and participators, investing in digital will become a necessity both from a revenue and cost perspective.
In May, English Football League chairman Rick Parry said that by September its member clubs could face a £200 million ($239 million) cash hole, while England and Wales Cricket Board chief executive Tom Harrison warned that his sport faced a £380 million revenue decrease if there was no play at all this summer.
I am hopeful that these projections will have been mitigated by the return of broadcast events (even without spectators in attendance), but both sports will take some time to recover from the shortfalls. We have seen salary caps introduced in EFL League One and Two and cost control mechanisms may give clubs greater ability to control wages and manage reserves and cash flow. With the postponement of The Hundred, sustainability will be a significant issue in cricket and there may be a need to look at the current model from a wider perspective as well.
Sustainability will be the big driver over the next few years. Whether organisations decide to make big structural changes or simply become more efficient in multiple ways, change is essential to their survival.