Full Buildings Drive Everything

Success carries within it the seed of failure. The things that make something strong also make it vulnerable to future decline.

The sports industry has a problem, and I feel obligated to point it out. Just as a few years ago, I identified some problems that the NFL was about to experience. I see structural problems for all major sports developing.

On the one hand, things have never been better. The money and attention have never been greater. The NBA is about to sign a new television rights deal that’s going to bring in an extra billion dollars a year for, essentially, the same thing as it’s selling today for much less money. There are more TV channels and more coverage and more ways to “monetize” a player’s “brand.” In fact, when I spend time around sports people, that’s what I hear the most: excitement about TV and sponsorships. No wonder. That’s the easy money. It’s glamorous and fun to figure out which beverage brand to get Kevin Durant to sponsor.

Go to a sports conference sometime though and watch what happens to the audience during a panel about the live experience. The panel could be about selling tickets on the in-stadium experience. What I have seen recently is that it gets a lot easier to get a seat right at the front, even if big-time names are on the stage.

My first reaction to seeing this was to say that nobody cares about the in-person experience. It’s old-fashioned. It’s easier to stay home and watch it on TV. The revenue from TV is bigger. Yes, of course, all those things are true. But then it occurred to me: If no one cared, why are organizations spending so much money on it? Why put $1.3 billion (yes more than the TV windfall for the NBA) into a building if no one cares, and it no longer matters? If it’s unimportant, why rebuild an entire downtown area in a major metropolitan area just to support it?

Why not just build a studio to play the games in and be done with it?

Because those things DO matter. In fact, at the Bloomberg Sports Business Summit I recently went to I asked a question of a panel about why it was important that people show up at all, and one of the panelists gave a great answer. He said, “Full bulidings drive everything.” In other words, all the “easy,” “glamorous” stuff that gets so much attention from people in the business is possible because of healthy interest in a team and attendance at the actual game.

Let’s say attendance drops off dramatically. How do you think future TV deals are going to look? How much are sponsorships worth when your banner is in front of a section full of empty seats? How much does a refreshing sports beverage company want to pay to sponsor a player that nobody can be bothered to go and see? For that matter, how excited do you expect a young kid watching at home to feel about becoming a lifelong supporter (and financial resource) of the team?

The answer to all these questions is: less.

Not today. The size of those kinds of dollars are driven by what happened yesterday, not what’s happening today.

What’s happening today, in my view, is that some in the sports business have lost sight of that a bit. Not everybody and not all the time, but attendance at major sports events is shaky right now. Don’t be fooled by “paid attendance” numbers, either. Those numbers are widely propped up by brokers buying large chunks of inventory. Take a look at the stands.

Full buildings drive everything. It’s hard work to fill them, and it doesn’t feel like easy money, but it’s the turtle at the bottom of the pile.

And if something happens to him …

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