WILMETT, Illinois — The end of the year is almost here. Here the racing industry reviews the past few months and the coming season.
On-track performance is measured through championships, trophies and driver ratings. Outside the venue, financial transactions are valued by the balance in the check book.
The economy has come under pressure due to the ongoing impact of the pandemic. Shutdowns, supply chain issues and reduced fan capacity have had an impact.
It is thanks to her that the sports industry flipped around and made adjustments to find a new level of normalcy. There were declines in revenue, but the financial support program and deep-pocketed leagues and owners made up for the deficit in meeting the challenges.
Sport is a unique business that exists in a protective bubble. Even in tough times, fans could be counted on to buy tickets and keep TV ratings strong, earning top dollar for advertisers.
Parts of the current economic environment appear to be bursting part of the bubble. Ad revenue is strained, corporate boxes and season packs are down.
This begs the question of whether the economics of the sports industry are changing or whether they can be immune to a tipping landscape. It’s hard to imagine that they would suffer like conventional industries.
The growth of the sport was real. Increasing team values, extensive media deals and higher salaries are key indicators. These fortunes are closely associated with corporations and wealthy individuals who have the ability to pay.
Companies get involved primarily through advertising and sponsorship. They see this as an opportunity to increase brand awareness and differentiate themselves from the competition. The sports industry is the ultimate competition.
The rise of the digital enterprise in esports has been meteoric. This asset class saw esports as a key to raising awareness and a pillar of legitimacy.
Digital opportunities have brought many positive aspects. It allows fans to connect in a socially distant world and engage with collectible memorabilia like non-fungible tokens (NFTs).
Although few in number, we are beginning to see business failures and bankruptcies entering the sports industry.
When a company is under financial pressure and unable to pay its debts, it can file a Chapter 11 petition for bankruptcy protection in the bankruptcy court. This will give a solid time to reorganize and develop a plan that will continue to work well into the future.
When a company files for bankruptcy, it has the option to stop sponsorship and advertising payments. Sports properties that have entered into these agreements have various legal remedies, but the process is lengthy and the chance of repayment is almost non-existent.
Digital sports sponsorship was a huge success. Sports properties such as leagues, teams, players, venues and events were recipients.
For some, all good things must come to an end. This is far too familiar in sectors of the digital space. Volatility is almost normal. The declining stock market and rising interest rates have exacerbated the situation.
The dramatic drop in cryptocurrency exchange FTX is the most recent example. The organization could not find a buyer, ran into liquidity problems and filed for bankruptcy protection. Others who ended up in the same boat were Crypto.com and Voyer Digital.
FTX spent heavily on sports sponsorships, including arena naming rights, league and team jersey patches, and digital fundraising partnerships. In motorsport you had deals with Formula 1 and the Mercedes team. The branding was immediately removed from the car.
Despite the exploding interest in digital assets, the sport must remain aware of the risks that each new technology brings.
The value of digital assets can be volatile, and despite phenomenal growth and decline, the legal and regulatory landscape is still uncertain.
The lack of stability in this area will force the sport to adopt what constitutes a backup or contingency plan.
This story appeared in the December 28 issue of SPEED SPORT Insider.
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