The US sports blackout because of the pandemic has left at least a $12 billion crater in the national economy. And even if stadiums and arenas light up anew soon, they won’t look the same.
An Olin sports-business expert doesn’t expect the NBA, NHL and Major League Baseball to welcome fans if/when they return in 2020, for example. Football, however, likely will allow a limited number.
Patrick Rishe, director of the sports business program at Olin, estimates the shutdown of professional, college, scholastic, community and recreational sports across America has impacted the sports industry by $12 billion.
“And that number could more than double,” Rishe said.
“From restaurants, hotels, production crews for local/regional sports programming, vending machine and game operators and more, when sports don’t happen, it has a trickle-down effect on the entire economy,” he said.
Rishe did a deep dive into data for ESPN. His analysis shows the sudden disappearance of sports will erase at least those billions in revenue and hundreds of thousands of jobs, “an economic catastrophe that will more than double if the college football and NFL schedules are wiped out this fall” by the pandemic.
Rishe analyzed the impact of a lack of fan spending, using Fan Cost Index data from Team Marketing Reports and attendance estimates, which are publicly available.
College football and MLB
Rishe calculates that a cancellation of the college football season would collectively cost the 65 Power 5 schools more than $4 billion.
Ditto for America’s favorite pastime. Forty percent of Major League Baseball revenue is derived from fan spending on tickets and game-day spending at ballparks, Rishe pointed out.
“These losses will likely exceed $4 billion alone this year,” he said. “I don’t see any scenario at present where fans are back this year—not unless teams or leagues invest heavily in testing for fans. And I don’t see that happening this year because they already have to exhaust quite an effort to ensure players and staff are tested.”
Rishe does foresee pro basketball and hockey returning to play.
“But with no fans,” he said. “Both will likely select just a few cities where they will complete their season in an atypical way never before seen.”
The NFL and college football seem headed for some seats filled for games.
“I do believe we will see a small percentage of fans allowed back,” Rishe said. “The challenge for teams and athletic departments — aside from allowing a small percentage of fans in — is to decide which fans will be allowed in. Your biggest college donors are likely to be given priority, but will they be willing not to attend all games so that some of the other season ticket holders and students can attend games?”
It’s not just the absence of professional and college sports causing economic pain.
In 2019, the youth sports industry was pegged at $19.2 billion. Rishe estimates the loss to youth sports to be at least $2.4 billion, and he said he believes his estimate is “conservative.”
“There are many communities all over the country that historically have hosted youth sports tournaments fielding nonlocal teams, which fuels local tax dollars from visitor spending at hotels and restaurants,” he said.
“Not this year. It’s yet another example of this trickle-down effect hitting multiplex sports facilities in mid-sized and small towns across America quite hard.”
Think about it. No buses rented. No concessions or tickets. No meals or festivities surrounding sports. Imagine how many vending machines in elementary, middle and high schools, and at community fields aren’t netting a single quarter for months on end.
The coronavirus pandemic has shattered and shuttered businesses. Here, three Olin experts offer insights into potential opportunities as businesses struggle to emerge from the economic storm.
“The biggest question businesses are learning to ask themselves is, ‘Are we essential?’” said Doug Villhard, professor of practice in entrepreneurship and academic director for entrepreneurship. “If that answer was recently proven to be ‘no,’ then now is the time to form strategies to make your organization ‘essential’ in the future.”
How will businesses change because of the pandemic?
Minyuan Zhao, associate professor of strategy: “Businesses may have to rethink their value propositions. Before the pandemic, a nail salon was there just because women were ‘supposed’ to have their nails done, a florist was in business because flowers were ‘supposed’ to be at various events, and retailers invested in second-day delivery because consumers were ‘supposed’ to like fast delivery. The crisis will change all this. Collectively, we will redefine what is truly essential to our lives, and what we can do without.”
Peter Boumgarden, professor of practice in strategy and organization: “It’s important for businesses to think hard about the ways in which their short-term demand is impacted both by general consumer confidence, which is likely to be down in the short-run, and the social proximity people need to receive your products or services, which is potentially impacted due to changing social norms around public gathering.
“Think of a concert venue or a restaurant. They might want to creatively plan for some kind of viable model of reduced operations.”
What opportunities could exist as we emerge from the crisis?
Villhard: “Look for ways to solve the biggest problems you
and your customers are now facing. It will be one of two things: supply or
demand. Work quickly to become essential in one of these areas.”
Boumgarden: “Organizations should think hard about how to
develop the flexibility to ramp up or down operations more quickly and seamlessly
if a second wave of the virus forces a similar social distancing. Think of a
hospital system that is opening up for elective services but also wants to be
ready to move back to a COVID-19 response set-up. I can see new opportunities
for those who can help organizations do this transition planning more
Zhao: “The most obvious opportunity is the online businesses:
virtual meetings, virtual classes, virtual concerts, virtual tourism, etc. But
I think the opposite is also true: street corner coffee shops where you can say
hi to the neighbors and connect with the offline world.
“The new business models
also create demand for robust infrastructure, especially the digital
infrastructure in data storage, transfer and security.”
What can businesses do to position themselves for opportunity?
Zhao: “It’s probably too early to make costly strategic moves, but
businesses can start to reassess their business models and all the assumptions
that support their business models. It’s shocking how many assumptions are now
Villhard: “Re-read your website and marketing
materials. You’ll immediately be able to tell if those concepts are
suddenly ‘dated’ in light of the crisis. Revise them to speak to the new
challenges your customers now face. The world changed overnight. Your
organization needs to adapt as well, and you need to show you are a
thought-leader in the new world.”
Boumgarden: “I would encourage business
leaders to find ways to run mini-experiments during this time. Use these as an
opportunity to tease out creative hypotheses with your customers that you might
not have done previously. If you can do this in inexpensive ways now, this is a
great opportunity to learn.”
Villhard: “In entrepreneurship we teach to ‘start with empathy.’ Put
yourself in the mindset of the problems your customers are now facing. If you
do so, an unprecedented number of new ideas will immediately emerge for you.”
Do some businesses currently have an advantage over others?
Villhard: “If your solutions are both domestic and/or virtual/digital you are extremely well-suited. And if they are not, work quickly to get them there.”
Boumgarden: “I see leaders having to wrestle with new types of problems. Imagine trying to figure out the Paycheck Protection Program as you consider whether or not your loan will be forgiven. Or trying to predict the likelihood of viral reoccurrence and its impact on your supply chain. Many organizations do not have this expertise internally and have to look outside for support. Organizations and individuals with strong social networks can tap into new forms of expertise outside their own walls.”
Anything you recommend for business owners/managers to read?
Villhard: “Refresh on the classic book Innovators Dilemma. If you are an established company, you are about to be attacked by dozens of startups. And many of them will now be run by recently laid-off workers who have been sitting on an innovative idea in your industry for years and now find themselves in a perfect opportunity to strike against the establishment.”
Boumgarden: “I’m really enjoying a new rhythm of a weekly reading of The Economist. This is for two reasons. First, I find that a daily newspaper (like the New York Times or Wall Street Journal) makes me too attuned to the ups and downs of the news. A weekly is more emotionally digestible. Second, I find that in offering stories from around the globe, The Economist expands my understanding of the interconnectedness of our global economy.”
Zhao: “I’ve found it very helpful to look back into history and
reflect on the big picture—how we came to where we are. More to that point, I
find it helpful to write in addition to read. Write about how we see the world,
and sometimes you’ll be surprised by what’s on your mind.”
She recommends the following: The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931, by Adam Tooze; The Last Kingdom, by Bernard Cornwell; The Great Influenza: The Epic Story of the Deadliest Plague in History, by John M. Barry; and The Silk Roads: A New History of the World, by Peter Frankopan.
The $2 trillion plan to prop up the US economy is expected to pass the House of Representatives on March 27. It’s intended to respond to the coronavirus pandemic and provide direct payments and jobless benefits for individuals, money for states and a huge bailout fund for businesses. Olin experts weigh in on whether it is sufficient as the economy reels.
Other economic steps ‘would be better’
“While much of the country—including President Trump—is looking forward to when this coronavirus crisis will end, I think it is important for everyone to realize that the coronavirus crisis has not really begun yet in the United States.
“The $2T package is likely to be a first step, especially since the federal government does not seem willing to implement the type of nationwide shelter in place order that would be needed for us to quickly contain the outbreak. The longer this goes on, the harder it will be for companies to keep employing its workforce, and the more lost economic value there will be.
Are we able to keep spending this type of money every two to three months? I am unsure about that.
“I also hope that it is well run. If the money does not get spent right, we may end up losing the jobs we are trying to save.
“I would propose some other economic steps that I think would be better. I would suspend rent, mortgage and loan payments through the national emergency. (By suspending them, I wouldn’t change the amount of money paid back, but effectively the national emergency would become a time when loans and housing assets would temporarily earn a zero rate of return.) This has been done in parts of Europe, so it is a doable thing to do.
“I do think actions giving households in need cash is valuable, although people probably need less cash if they do not have to pay their rent or loans, allowing us to stretch out the federal spending to get more bang for their buck. We would also have to help make sure that businesses do not go out of business, but by taking away rent and borrowing costs, that should help a lot of businesses get through their time being shuttered.”
“China’s economy is slated to slow from 6.1% growth to 2.4% growth, rather than contract, so the estimate of a 24% contraction in the economy seems extreme—unless we don’t take containment seriously. If we can contain it, $2 trillion seems excessive—it’s 10% of GDP, and greater than revenue from income tax last year. Having said that, if we are asking businesses to close, then we need to compensate them and their employees for the closure.
we should behave like venture capitalists and authorize money weekly or
bi-weekly, rather than committing to a package for a program whose duration and
severity is completely unknown — but forecastable if we behave like China and
“It is ridiculous for this to be a stimulus bill.
“You can’t stimulate an economy when there is no way for people to spend money.
Anne Marie Knott
“As Phil Dybvig [Boatmen’s Bancshares Professor of Banking and Finance] says, this is a recipe for inflation. Accordingly, we shouldn’t be writing checks to everyone, we should only be writing checks to people who are furloughed due to business closures.”
Anne Marie Knott, Robert and Barbara Frick Professor of Business, Olin Business School
Will people spend or save?
“Consumers with stable jobs will likely treat the direct payments from this bill somewhat similarly to how they treat tax refunds. Consumers frequently spend a chunk of tax refunds, but notably, they actually save a higher percentage of their tax refunds than they do of their standard income. In this time of uncertainty, these consumers are likely to save an even greater chunk of the direct payments from this bill than they do of typical tax refunds.
“But of course, consumers without stable employment will use these direct payments as a financial lifeline. They will likely need to spend the funds to cover the costs of necessities.”
There is no net stimulus, although there is a transfer of resources from taxpayers to those who receive the checks. The same applies to business bailouts, low-interest loans, etc. It’s a fact the we have a problem at the moment, and many of us are going to feel the effects of that, whether it be directly through being ill, or less directly by having to work less or differently. Checks from the government will help some of those who feel those effects, but at the expense of others. There is no overall economic benefit, although there might be political advantages.
“The only way for the government to stimulate the economy is by doing something that creates new economic value, or reduces wasted value, not just rearranging the value we already have.
“This is why the government’s attention should be solely directed towards funding serious attempts to develop vaccines, streamlining approval processes, developing ways to protect health care workers, expanding short term hospital capacity, … That is, attack the problem instead of engaging in pointless and ineffective attempts to ‘do something.'”
Glenn MacDonald, John M. Olin Distinguished Professor of Economics and Strategy
As long as the health crisis is ongoing
don’t think any amount of stimulus payment will make households spend more as
long as the health crisis is ongoing. The same goes for business investment.
the other hand, the stimulus payments to households will enable them to not
fall behind on payment of fixed obligations and hence aid in quick recovery
once the health crisis passes. The extension of unemployment benefits will
achieve the same objective.
“As far as the payment to business goes, while the stimulus is unlikely to encourage business investment, it will avoid business failure and bankruptcy.
“As far as layoffs go, I am not sure if the stimulus has some special provision encouraging firms to avoid or minimize layoffs. Based on the experience in Germany during the great recession, the most effective provision is for the government to subsidize some part of employee wages. Stipulating conditions to business aid such as no layoffs may not work as that will only make firms reluctant to avail of government aid.”
Radhakrishnan Gopalan, professor of finance and academic director of the IIT-Bombay-Washington University Executive MBA Program
Pandemic Unemployment Insurance
“The most interesting part of this
bill for me is that it offers 26 weeks of unemployment payments to self-employed
workers and contract workers (e.g., Uber drivers), through a new program
called Pandemic Unemployment Insurance.
“Previously, unemployment payments
were only available to workers who received wages that are reported on a W-2. It
is not entirely clear yet how the government will determine which
self-employed workers and contract workers are eligible for these payments.
“I am very interested to see if unemployment assistance for self-employed workers and contract workers becomes a permanent feature of our social safety net.
“There has been a
growing discussion about how the emerging class of gig economy workers, like
Uber drivers, should be viewed from a legal perspective. Are they employees? Contractors?
previously fought hard to keep their drivers classified as contractors, as
this allows Uber to avoid paying certain benefits. But Uber lobbied hard for this new Pandemic Unemployment Assistance program
for their drivers.
“Now that the government
is using public funds to support Uber drivers (and hence making it more attractive
to be an Uber driver now and in the future), it seems reasonable to predict
that the government might ask Uber to, in turn, do more for its drivers.
Especially if unemployment insurance for gig workers becomes a permanent
feature of our social safety net.”
“The $75 billion industry-specific loans included in the stimulus package is welcome news for the intended industries: hotels, restaurants and airlines, as is the $17 billion for Boeing and defense-related companies. The loans will allow companies in those industries to meet their short-term obligations and cash flow needs, and prevent them from aggressively cutting capacity and laying off employees.
“Not only will it help the industries through the next few months of nearly stopped economy, it might also help ramp up resources in the early part of the recovery when the virus spread slows and people return to work. Companies in these industries will need working capital to bring up their capacity to support normal demand.
“However, I worry that the package does not go far enough to drive a fast recovery. While the stimulus package seems to reflect, always on the lower side, estimated impact in any one of the intended-to-protect sectors, it fails to understand the disaster propagation across sectors and the corporate-inertia behavior in slowing down or ramping up in the face of unprecedented uncertainty. When demand for airline services suddenly dropped 60% to 80%, the airlines were not able to immediately adjust capacity (i.e., number of flights). They are still carrying more aircraft contracts, employees and other supporting contract services than what will be needed to meet the projected demand for the next six to nine months, or even a year.
“Inertia in decisions is common in situations that are hard to forecast and requires high working capital needs not supported by revenue streams. This is where the stimulus plan loans will be most helpful.
“As airlines exhibit inertia in adjusting down capacity, they will exhibit similar inertia in slowly adjusting their capacity up. Their future planning will always be more pessimistic in their plans for planes and other supporting supply chain services.
“This will affect all suppliers to the airline industry but in particular our major plane manufacturer, Boeing. It will be affected not only in terms of delayed or canceled plane purchases this year, but less aggressive plane purchases in the next four to five years. Future corporate resilience on the part of the airlines will require not forgetting the ‘black swan’ event you experienced vividly.
“Finally, Boeing’s market value has already been hit hard by the pandemic crisis. On the commercial plane side, 737 MAX orders are already in question, and there will be canceled orders and fewer future orders by a hammered airline industry.
“The defense side will inevitably be hit, too, as the government puts its emergency resources into public health, health care management, fighting market stagnation and unemployment, and might be less inclined to accelerate defense programs or purchases of the current weapon systems.
“In a serious interconnected supplier system in the aerospace and defense industries, the pandemic disaster has just started and its magnitude might not be fully accounted in this cash flow maintenance and short-term continuity risk management package.”
Panos Kouvelis, director of the Boeing Center for Supply Chain Innovation, Olin Business School
WashU Senior News Director Sara Savat contributed to this report.
In less than a week, companies around the country have scrambled to transition their operations from traditional offices to — in some cases — entirely remote-based workforces. That swift transition coupled with the chaos of a global pandemic can wreak havoc on workflow and productivity.
“Businesses should expect a period of adjustment as people develop new routines, norms and shared understandings about how work will progress through a new medium,” said Andrew Knight, professor of organizational behavior at Olin Business School at Washington University in St. Louis. He offered the following advice for managers and employees for working through this unprecedented time.
What should businesses expect from their employees during this time?
AK: Although many people have worked remotely intermittently — or at least dealt with the intrusion of work into the home — this large-scale shift to remote work will disrupt organizational practices and shared habits. Employers must be open to questioning old ways of doing things given the new situation.
What are some best practices that managers can implement to support their employees and encourage productivity?
AK: The most important best practice would be having a means for gathering and sharing new best practices that employees are learning. Rather than presuming that they know what will work best, managers should instead structure a mechanism (such as a brief morning briefing or an online community) for people to share with one another what’s working, what’s not working and what needs changed. This type of “bottom-up” adaptation will be most effective because this is an unprecedented situation.
A good example of this is the Army Center for Lessons Learned, which emerged as a way for soldiers to share with one another their knowledge and experience as the “boots on the ground.” Managers should similarly defer to the experts — the employees — on how to be most productive.
What recommendations do you have for leaders to support communication and collaboration during this time?
AK: Zoom is a wonderful technology for getting people together for a shared experience. Teams can use this technology to continue to coordinate. However — and, frankly, this advice would apply to in-person meetings as well — managers should be reticent to overschedule synchronous meetings. These often are not productive uses of people’s time. This is particularly the case for web-based meetings.
When using synchronous meetings, leaders should adhere to a set of principles, such as the ones that Google uses:
Meetings should have a single decision-maker/owner … “someone whose butt is on the line.”
The decision-maker should be hands on (e.g., set objectives, determine participants, send agenda)
Meetings should be easy to kill — if it’s not useful, kill it.
Meetings should be manageable in size — no more than eight people.
Attendance isn’t a badge of importance — if you aren’t needed, leave or excuse yourself ahead of time.
Timekeeping matters — respect biological needs, leave enough time to summarize actions, and end on time.
If you attend a meeting, attend the meeting — multi-tasking doesn’t work.
When coordinated work can be accomplished without a meeting, it should be. This is facilitated through file sharing (Box, Dropbox) and shared documents (Google Docs). For leaders to support communication and collaboration, they have to ride the line between giving sufficient information and overloading people with email blasts. Having a rhythm to communications is important: a Monday brief, a morning brief … depending on the rhythm of people’s work.
What are some best practices for employees to work successfully from home?
AK: The most important practice for people who haven’t worked remotely is to experiment with different approaches, take stock in a systematic way and adjust as needed. Applications like Rescue Time can help people figure out whether they need to be physically isolated to be productive or whether working from the living room couch with a partner or child in the room can work.
The important thing to remember is that people differ in their preferences for whether to integrate their home life with their work life. Some people are “segmenters” who prefer having work and life separate. For these folks, having a defined space and time in their home will be preferable. Others are “integrators” who are comfortable with and even enjoy bringing these two spheres of life together. These folks may be most productive with work and life activities coming together.
How do you think this experience will impact businesses going forward? Will we return to “business as usual”?
AK: This is a tragic event with respect to health outcomes. At the same time, as it is forcing people to work and live in new ways, it can also provide a stimulus for development, learning and growth.
I hope that employees, employers and society take this situation as a way to get better — as a way to work and live in more productive and meaningful ways. I’m not sure what we’ll learn; however, I suspect that we’ll learn (a) we’re resilient; (b) some aspects of work or ways of working aren’t as “critical” as we thought; and (c) we need social connection to thrive.