COVID-19 was a game changer, what now for the future of sport?

As such, we expect to continue to see increased use of technology, such as new or additional camera angles during broadcast games and microphones on the players. On the consumer side, positive changes may also stick — think of accelerating cashless stadium concessions, numerous ways that ticketing platforms can be used for enhanced safety monitoring, including building enhancements, filtration systems and even COVID-sniffing canines in the case of the NBA’s Miami Heat team.

Many leagues have had to raise capital to shore up their balance sheets. The involvement of private equity funds and other non-bank sources for both debt and equity infusions has accelerated. America’s National Hockey League tapped private markets for funding, issuing about $1 billion of new debt, allowing its teams to draw from a league-controlled central facility to meet pandemic-related short-term cash needs. Meanwhile, MLB borrowed an additional $420 million to support teams’ cash flow issues. And the NBA borrowed $900 million in the private market and transferred $30 million to each of its thirty teams. This transfer, together with an increase in its revolving credit facility from $650 million to $1.2 billion, ensured that all of its teams would be able to make it through the 2020-21 season. Also, FIFA sharply increased its disbursements to struggling members in the short-term, in many cases providing them with a financial lifeline.

Elsewhere, the NFL lifted the allowable debt level per team from $350 million to $500 million to ensure that individual teams did not suffer from cashflow issues. The NFL also increased its league debt facility to help the teams, as added insurance. However, the NFL did not have to make any significant adjustments or sacrifices to its 2020 season, thanks to the strong profitability of team ownership in typical years, the explosion of franchise values (according to Forbes the average NFL team is worth $3.11 billion), and the deep pockets of the 32 ownership groups.

Moreover, the losses suffered by individual NFL team owners over a multi-year period would be largely controlled, because players’ compensation is tied to a salary cap at roughly 48% of defined revenues. That meant players would take a salary reduction proportional to the league revenue reduction in the previous year.

Although the NBA also benefits from a salary cap that automatically reduces player compensation in proportion to its revenue, the league and the players still struggled over how this loss to the players would be spread over the coming years. We expect that player salaries, like revenues, will return to normal when the COVID-19 crisis abates.

In contrast, MLB does not have a salary cap, so it had to negotiate with the players’ union to decide what adjustment would be applied to players’ compensation. The agreement provided for players to be paid pro-rata for the 37% of games that were played.

In Europe, the largest expenditure for soccer clubs is player compensation which is not directly linked to revenues, as is often the case in the US through collective bargaining agreements. UEFA’s financial fair play rules, which limit clubs’ losses to €30m over a three-year period, are of course a step in this direction. But teams were given partial relief from those during the pandemic, to cover steeper losses.

In addition to making financial arrangements to cope with COVID-19, many leagues made public health adjustments. For its prime club competition, the Champions’ League, UEFA utilized a bubble format in Lisbon for the final eight teams. As the clubs involved came from multiple countries, this allowed UEFA to effectively deal with one set of health protocols for quarantining, testing and social distancing. The same was done for the Europa League, UEFA’s secondary competition.

Thus, UEFA was able to mitigate financial losses by completing these two competitions. The NBA, NHL and MLS also played part of their seasons and postseasons in a bubble, but this was not without its challenges. For instance, MLS needed approval from and coordination with governmental authorities, the players’ union, club owners, broadcast partners and a host venue. These difficulties mean the logistical changes are likely to end when the crisis abates. Competition rule changes may outlast the pandemic, however.

This could include everything from changing the length of competitions to modifications in the format of the competition, such as UEFA reviewing the possibility of a final eight or final four for its highly successful Champions League, because it was successful in the pandemic. Baseball, meanwhile, modified some of its playing rules to lessen the fatigue and exposure of its players. It expanded team rosters from 25 to 28 players, started extra innings with a man on second base, and expanded the number of teams in the postseason.

Governing bodies across the world will have to balance the interests of various stakeholders — media partners, sponsors, athletes, fans and others — when deciding which of these changes will continue beyond the 2020-21 period. But some of the changes in sports leagues may have improved the game, and are financially viable as well as popular with fans. These changes include the introduction of a designated hitter in US National League baseball games, which could create more scoring opportunities. Some of these changes were new and others were simply the development of incipient activities, such as the explosion of sports betting in the US. COVID-19 also offered the opportunity for owners and players to improve communication and cooperation to confront an external enemy. Yet others, fighting over the reduced revenue pie, experienced a deterioration in the owner-player relationship, which could lead to bad blood and, potentially, temporary disruption via a strike or a lockout.

While the financial and other effects of COVID-19 on the sports industry have been enormous, it’s too early to know which of these impacts, if any, have caused long-term damage. Will European soccer transfer spending decline over the medium term as it did this past year or will spending quickly ramp up as fans return and media partners continue to pay huge sums for live content? The answer to these and many other questions is dependent on matters outside of the sports realm, namely how quickly national economies recover.

What is clear is that coronavirus has highlighted the long-term problems for global sport (a dependency on narrow revenue streams such as live events and television broadcast income) and has sparked new solutions to diversify income and control costs (player salary caps, digital fan engagement, mobile sports betting). While it’s too early to tell whether the sports industry will reverse the damage of 2020, the quick actions of leagues and other stakeholders (tapping the capital markets, improving cash flow and changing competition structures and rules) have at least drawn up a blueprint for a more sustainable future for the industry. Clearly, many sports leagues were in a bubble, and COVID-19 burst it wide open. Now there is an opportunity to build the industry back up, better.