Over the last several weeks, there have been several sports-centric consumer-spending stories in the news. UFC 251 was the mixed martial arts promotion’s most bought PPV event that didn’t feature Conor McGregor since 2011 (The Athletic reported the card did around 1.3 million buys including 900,000 domestically). The Seattle Kraken became the best-selling expansion team in NHL history (Fanatics reported the club surpassed the previous record for total merchandise sales by more than 50%). And NASCAR experienced YoY per cap increases on merchandising spend at both Bristol (+20% YoY) and Texas Motor Speedway (+100% YoY).
One wouldn’t expect to be reading about strong sales figures with more than 30 million Americans out of work and the U.S. economy in the midst of a depression, but both Jack Ablin (CIO, Cresset Capital) and Shai Akabas (Director of Economic Policy at Bipartisan Policy Center) say the outsized top-line figures are the result of sports fans reallocating resources—not an increase in discretionary spending. Akabas explained, “Most people’s budgets (in terms of what they’re willing to spend on entertainment) hasn’t changed. [However, because] there are a lot of things that they can’t spend money on (like going to sporting events), [fans] are shifting that money around.” It’s worth mentioning that this COVID-19 driven shift is really a microcosm of changing consumer demand across the economy (see: the home fitness boom or increased supermarket sales).
Our Take: Congress implemented the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) to support a struggling economy. The legislation included $600 in additional weekly unemployment benefits (i.e. on top of the standard state issued benefits) in an effort to bring displaced workers “up to median income.” For the most part, it worked. But, Ablin says, “what [Congress] didn’t take into account was that [the bulk] of those laid off were in food service and hospitality; industries that pay salaries below median [to begin with].” As a result, “by supplementing [standard benefits] with $600 per week [across the board], it actually boosted a fair number of [those unemployed]—at least one-third of them—to wages higher than [what they received while employed]. From that perspective, it’s entirely possible people have had extra spending money.”
On the surface it might seem as if the ‘extra spending money’ is propping up the sports industry, but Ablin says that’s likely not the case. “Quite honestly, the people who are getting more in wages than they normally do are saving that money because they realize it’s going to run out,” he said. “The other, bigger factor is that anyone who wants to spend on entertainment right now really can’t.” Few sports teams are welcoming fans to venues.
With COVID-19 still running rampant across the country, Ablin says Americans are shifting away from spending on “‘high density’ discretionary activities (like sporting events) towards ‘lower density’ ones” (like recreational sports). That should help explain why stores selling sporting goods, musical instruments and books have seen revenues climb 20.6% YoY.
It reasons that the U.S. consumer will continue to favor ‘low-density’ activities for the near future, but as consumer confidence in the ability to attend mass gatherings safely rises, look for spending trends to shift back towards ‘high density’ activities. Akabas explained that with people spending “more on what they typically spend on when it comes to leisure, entertainment and sports in particular,” there would likely be “some pullback in the areas that have spiked” (think: PPV, merch).
A decline in ‘low-density’ activities does not mean there will be a further drop off in overall sports spending. In fact, as pro sports teams reopen their doors to fans, ticket sales—which are near non-existent right now—will ramp up again. Of course, the longer it takes the country to get Coronavirus under control and for the economy to bounce back, the tougher time the big four leagues will have capturing those revenues. As Ablin noted, the majority of laid-off workers are not exactly the ticket-buying demo. But Akabas said he believes “we’re likely to enter a second phase of this recession that is more typical of the economic slowdown that comes from a slump in demand and a lack of economic growth and investment (as opposed to a complete shutdown mandated by shelter-in-place orders). Some of those effects are going to have more of an impact on the higher end of the income distribution and [that could eventually result in] less overall demand for entertainment and sports expenditures than there would be in a strong economy.”
Market Snapshot:
JohnWallStreet Index: 3,308.44 (-0.57%)
NASDAQ: 10,402.09 (-1.27%)
S&P: 3,218.44 (-0.65%)
DJI: 26,379.28 (-0.77%)