T'S springtime, and the professional sports world seems to be in clover. After a season of record attendance, National Football League teams are spending much of what they took in, signing new players in the college draft this weekend. In the National Hockey League, where teams are dueling in playoffs, games also drew an unprecedented number of fans this year. Major League Baseball is bragging that corporate sponsorships are up 30 percent, and despite the worst advertising market in 30 years, the National Basketball Association signed a record $4.6 billion, six-year television contract in January.
But other signs suggest that the four major league sports may, in fact, be wilting.
In recent months, advertisers, networks, cable operators and governments have started to balk at spending unlimited amounts on sports. The stadium building cycle is over. Team expansion has halted, and baseball may shrink by two teams. High ticket prices and labor unrest — baseball players may well strike again this season — have damaged the relationship with the public and led to an erosion of the fan base. And many in the younger generation seem more interested in spending their time and dollars in other pursuits — sometimes playing video games about sports — than in watching what happens on the field.
"It was an oversaturated, mature market in a growth economy," said Rick Burton, the director of the Warsaw Sports Marketing Center at the University of Oregon. "It has taken this hiccup in the economy to recognize the saturation and maturity."
The April 8 bankruptcy filing by KirchMedia of Germany, attributable in part to its heavy spending on TV sports rights, raised only more worries — perhaps dampening the willingness to spend money on sports in the United States.
"We have to market like we are under attack, which in reality we are," said Mark Cuban, the owner of the Dallas Mavericks basketball team and an Internet radio billionaire. "Every media and out-of-home entertainment business wants our customers."
Professional sports has repeatedly shown a Michael Jordan-like ability to defy economic gravity — the average resale value of major league teams in the last decade has nearly quintupled in football, tripled in hockey and baseball and more than doubled in basketball, says Moag & Company, a Baltimore investment bank that focuses on sports. Yet, like its famous player, the industry may now have to make some concessions to age.
Teams can no longer rely on network television contracts that will routinely double, or on average ticket price increases that have outpaced the Consumer Price Index.
Much of the dazzling growth in sports team revenue over the last two decades has come from the television networks' heavy spending on broadcast rights. In 1986, the four sports took in an average of $744 million in broadcast rights fees, according to Moag. That grew to $1.5 billion in 1991 and $3.5 billion last year.
But the networks are now an uncertain source of revenue.
These days, even Rupert Murdoch — a man who used an N.F.L. contract to build a fledgling Fox into the fourth network in 1994 — is sounding a different note. After writing off $909 million in sports contracts in February, Mr. Murdoch, chairman of the News Corporation, which owns Fox, cautioned that rights fees "have gone beyond an economic level."
A recent Morgan Stanley report called potential total losses from sports "staggering" and predicted that ABC, CBS and Fox would each lose up to $1.3 billion on sports rights over the next four years. It expects the three to lose $2.5 billion to $2.6 billion over the life of their eight-year, $18.3 billion N.F.L. contract rights. NBC, a unit of General Electric, has backed away from bidding on sports rights contracts because of their cost; For NBC, Morgan projects a deficit from sports, excluding the Olympics, of $351 million. The networks declined to comment on those estimates, but Viacom's CBS, for one, has said it is not losing money from sports.
O far, the leagues remain confident. "That note has been sounded before: The rights fees will never go higher," said Greg Aiello, a spokesman for the N.F.L., "and they go higher."
History, of course, backs him up. As Yogi Berra might say, TV sports contracts are such a bad deal, there always seems to be someone who wants them.
Paul Tagliabue, the N.F.L. commissioner, said he expected that the league would keep "the mass" of games on broadcast television when the next contract comes up in 2006.
But whether the league can do so, and get anywhere near the 100 percent increase it received last time, is unclear at best. The N.B.A.'s new contract with ESPN and ABC of Walt Disney and with Turner Sports of AOL Time Warner may be a harbinger. The rights increase was more modest — 25 percent — and will put 127 games on basic cable next year, compared with 79 this year. The N.B.A. will also put 96 games on a planned N.B.A.-AOL cable channel. The games broadcast on network television will drop to 15 from 30.
Though cable's combination of subscriber fees and advertising may provide a more lucrative and reliable revenue stream than broadcast TV rights fees, it has presented sports with a new risk — fewer people may watch, particularly if they have to pay. "The economic underpinning of pro sports has been free television," said a longtime sports executive who spoke on condition of anonymity. Sports team owners, he said, "risk marginalizing the sport by moving it off broadcast."
David Stern, the N.B.A. commissioner, is not worried about the shift to cable because many people already get their sports that way. He points out that 84 percent of Americans have cable or satellite service. "We understand that the viewing habits of our fans have changed dramatically," he said.
But how much cable subscribers will be willing to pay for sports is unknown, as seen in a battle royal in New York in the past few months between Cablevision Systems, the largest cable operator in the metropolitan area, and the New York Yankees. Cablevision has refused to pay the team's new Yankees Entertainment and Sports Network, or YES, $72 million — or $2 a subscriber a month — and include it in the basic package. The fight may foreshadow more such disputes.
"I think we could be getting to the breaking point," said Jerald L. Kent, co-founder and former chief executive of Charter Communications, a cable operator. He said that if cable companies included such costs in the monthly bill, "consumers are not going to continue to pay, particularly those who aren't watching sports."
Cablevision has offered to sell YES, which is carrying 130 Yankee games this season, only to subscribers who want it, the way it markets HBO and other premium channels.
But questions about a pay-TV future for sports have also been raised by recent events abroad.
KirchMedia just defaulted on its $329 million annual rights fee to the Bundesliga soccer league in Germany because it could not sign up enough customers to cover the contracts. In Britain, ITV Digital, a pay-television venture owned by Granada and Carlton Communications, could not pay a $450 million soccer contract. In South America, the Pan American Sports Network filed for bankruptcy protection March 1 for similar reasons.
The fallout from the YES-Cablevision confrontation, however, has also underscored the strength of sports as programming. In areas where the Yankees have been blacked out, DirecTV satellite service sales have risen more than 20 percent, said Bob Marsocci, a DirecTV spokesman. "Sports fans are our most loyal customers," he said.
Sports industry leaders, meanwhile, point out that sports content helped launch some of the country's first cable systems and is a major reason consumers buy satellite service. "The one thing we have learned is that sports drives new technology," said Mark Lazarus, president of Turner Sports. "That trend will continue given its live nature and the fanaticism of viewers. Their appetite will lead the way. Is it Internet? Pay per view? We don't know. But sports will be the driver."
HE changes in sports distribution, however, have not been lost on advertisers. Many are taking a hard look at how much they will pay to pitch products in a more splintered marketplace.
According to Anheuser-Busch, the biggest spender on sports advertising, the leagues and networks have not fully adjusted their expectations on advertising, thinking they deserve the same premium even if ratings are falling. "We are concerned with the cost relative to the return that we get from sports," said Tony Ponturo, Anheuser-Busch's vice president for global media and sports marketing. "We are telling the leagues and networks we won't automatically underwrite you as you drive up the costs. We're only going to pay what you deliver."
Viewership for all four sports has droped — the N.F.L., the highest-rated TV sport, has suffered a 13 percent drop in ratings over the last five years, according to Nielsen Media Research. ESPN is profitable, but Nielsen says that the percentage of homes watching it has fallen to 1.9 percent of those with access, from 2.6 percent 10 years ago.
Despite the falling ratings, league officials say the multichannel landscape makes sports more valuable for advertising, particularly because sports attracts the young male audience many advertisers desire. "Sports is unique," said Tim Brosnan, executive vice president for business at Major League Baseball. "It's the only place that aggregates viewers. Everything else is a one-trick pony."
To Ted Leonsis, an owner of the Washington Wizards basketball team and Washington Capitals hockey team, sports programming is also the best defense against technology that lets viewers screen out ads and watch what they want whenever they want: "In a world with 900 channels and TiVo, no one wanted to tape the Super Bowl," he said. "They wanted to watch it live."
But in a sign that the sports business is worried about alienating advertisers, it is giving them more ways to advertise. "Sponsors are pushing harder," said John Galloway, Pepsi's sports marketing director. "And leagues are working harder to add value and measurable results." Major League Baseball, for example, let Pepsi sponsor the first pitch of each World Series game last year. Team sports may thus move closer to a European sponsorship model, where commercials are everywhere — corporate logos on team uniforms, for example.
Other affiliations, like stadium naming, are going through an overdue market correction, said David M. Carter, the founder and principal of the Sports Business Group, a consulting firm in Los Angeles. Enron Field, the TWA Dome and PsiNet Stadium are a few examples of questionable spending by financially troubled businesses. And some arenas cannot find sponsors with deep pockets. The Louisiana Superdome in New Orleans, for example, which has been trying to sell naming rights for $3 million to $5 million, just cut the price to $2 million to $2.5 million. "This shakeout is forcing business to qualify and quantify why they are in sports," he said. "Companies were not applying the same rational business decision-making process."
The sports industry will have to do without the sizzle and revenue spike of new stadiums themselves, which have been a growth engine the past two decades. Almost three-fourths of major professional teams already have a new home or one in the pipeline, said John A. Moag Jr., the chief executive of Moag & Company. In New York, Mayor Michael R. Bloomberg's decision to delay indefinitely development of two new baseball stadiums underscores the public sector's reluctance to finance any more.
That means teams will have to find ways to squeeze new revenue from existing facilities. For example, the Southwest Sports Group, the Dallas sports and entertainment company that owns the Texas Rangers, and the Anschutz Entertainment Group, owner of the Los Angeles Kings, are planning to use their arenas as anchors for major real estate and entertainment developments.
Another part of the sports boom — expansion within leagues — has also run its course. After the new Houston Texans kick off this fall in the N.F.L., no major league sport plans to open new franchises in the United States anytime soon.
An underlying problem is that customers are just less interested; many are alienated by the huge salaries and boorish behavior of some players. The ESPN Sports Poll, a periodic fan survey, has found that over the last five years, the fan base of all four major team sports has dropped at least 5 percent and that significantly fewer fans describe themselves as "avid." Further, sports' share of the licensing products business slipped to 16 percent from 19 percent from 1996 to 2000, according to the Sporting Goods Manufacturers Association.
Stemming the erosion is particularly important among the younger crowd, which has many more recreation choices — from X Games to Xbox. "A whole generation is having more fun playing John Madden electronically than watching him on television," said Mr. Burton at the University of Oregon.
Richard Luker, president of the Leisure Intelligence Group, a sports consulting firm in East Lansing, Mich., called the failure to attract young new fans a "demographic crisis for the sports business."
Teams hope technological innovations will add to enthusiasm. For example, Gary Bettman, the N.H.L. commissioner, said high-definition television would provide a better view of hockey's fast action.
Many in the business are also concerned about the economic demographics of fans who attend games. "If the prices only allow 5 percent of the public to have that live experience, aren't you going to lose the other 95 percent?" asked Timothy J. Leiweke, the president of the Anschutz Entertainment Group. "That's very, very dangerous for sports."
Since 1997, each of the major sports has lost more than 7 percent of its fan base earning $30,000 or less, according to ESPN, while the number of fans earning at least $100,000 is up at least 30 percent.
Ticket price inflation has slowed — and in basketball this year, the average ticket price fell 2.3 percent, according to the Team Marketing Report, a research group in Chicago. But to Mr. Leiweke, a more fundamental change may be needed. "The owners and players are going to have to sit down and figure out how to solve this," he said.
That means, for one, that management and labor must agree on a cost structure that keeps the playing field profitable for teams and level for the leagues. Collective bargaining agreements that link labor costs to revenue explain why N.F.L. franchises are largely in the black, and why the N.B.A. will break even this year after several years of losses. Yet, despite record revenue, the hockey and baseball leagues lack such links and many teams are losing money.
Jay Cross, the president of the New York Jets, said: "Sports may have to make a significant change in the model. And since so many people have to buy into the change, it might not be that easy."
TEAM sports is the rare industry where the stronger businesses require healthy competitors, but maintaining that balance is hard when owners have different financial capacities and expectations.
Robert J. Tilliss, head of the global sports advisory group at J. P. Morgan Chase, says he is bullish on the industry because it attracts successful entrepreneurs like Mr. Cuban and Mr. Leonsis. But their aggressiveness has another side. "It is a fundamental problem that the best interest of individual owners is not always in the best interest of the league," Mr. Tilliss said.
Even in the N.F.L., viewed as the model of revenue sharing among teams, Robert Tisch, a co-owner of the New York Giants, has expressed concern that the Washington Redskins' nonshared cash flow from their new stadium puts his team at a competitive disadvantage. Financial balance among the teams gives all teams an equal chance to win. That has helped create football's connection with the public and has ultimately made the business successful.
As Jerry Jones, owner of the Dallas Cowboys, said at a recent conference: "They only throw ticker-tape parades for war heroes, astronauts and people who win ballgames."
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