The word ‘crisis’ in the UK’s ‘Cost-of-Living Crisis’ is not hyperbole.
Last week, the Bank of England put its base rate up to 4.5% – a move that’ll cost UK mortgage holders an estimated £12bn in extra payments – while last month the UK Office for National Statistics showed that in the year to February 2023, food prices rose by 18.2%, their fastest rate in more than 45 years.
More than half of adults said they were buying less food than just two weeks ago, while one in four said they were short on essential food. That’s in addition to the price of electricity rising by 66.7% in the 12 months to March 2023, and gas by 129.4%.
People simply have less money to spend. Without being flippant about the wide-ranging negative impacts on mental and physical well-being this is causing, it is also obviously a major problem for the business world.
And sport – whose commercial model revolves around people buying tickets, shirts and TV subscriptions – faces the same challenges as any other business sector, as consumers are forced to make tough choices about what they buy and how they spend their time.
Nearly one in two say this is coming by reducing spend on “big occasions”, with a third cutting back on socialising, and a quarter cancelling entertainment subscriptions.
In sport, we’re seeing red commercial indicators already. The UK Intellectual Property Office estimates 3.9m people in the UK are watching illegal sports content in one way or another, with 15% of fans using only illegal sources, up from 10% in 2019. The number of paid-for video streaming subscriptions – many of which show sport – fell from 30.5m at the end of 2021 to 28.5m at the end of 2022.
Given media rights represent the main revenue stream for sport globally, the Cost-of-Living Crisis is biting.
But something is not right. In the January 2023 transfer window, Premier League teams spent a record £815m in player transfer fees. At the same time as their operating costs were rising more than at any time in living memory due to inflation. Simple economics tells you that it’s probably not wise to increase your spending if your costs are rising and income is being challenged.
The Cost-of-Living Crisis has come at a time when technological innovation continues at pace, and post-pandemic behavioural change begins to show in the habits of sports fans.
Sport’s model is under pressure more than it has ever been. And sport’s model hasn’t been fit for purpose ever since the internet became widely adopted two decades ago.
Since the dawn of the sports industry, the rights-holders (clubs, leagues, tournaments) at its heart have made money by selling tickets to events; televising those events for broadcasters to show; and selling advertising around the eyeballs watching live or on TV. In that order.
Covid exposed this model when events couldn’t be held for the first time in living memory – decimating ticketing and hospitality revenue almost overnight. And with the pay-TV model challenged by cord-cutting and piracy – and shift-to-digital making sponsorship harder to sell than ever – more and more organisations are realising they cannot continue with the long-standing commercial model and expect to see massive uplifts in commercial return.
And which Premier League CEO wants to tell fans their team aren’t able to make new signings to cut costs when their rivals are continuing to splash the cash?
It’s time sport’s commercial model is given a rethink. Critically, we believe this comes by transitioning event businesses into digital media businesses.
Rather than build a business around live events – limited by number and venue capacity – to drive the business, rights-holders should have the large audiences serviced every day of the year (primarily online) drive the business, with events being just one of a wide, diverse menu of options for how the audience can be monetised and have their fandom deepened.
Ending the reliance on the old ways of monetising sports fandom which, let’s face it, have been out of date for two decades now.
In embracing this mindset shift from an event business to a media business, we believe all rights-holders operating in the sport and live entertainment sectors can grow profitability in the face of the enduring Cost-of-Living Crisis. And those that don’t, we believe, will be staring down the barrel, if they’re not already.
After all, economists predict the Cost-of-Living Crisis will last possibly until 2028.
Over the next few months we’ll be showcasing exactly how this shift can take place, with best practice case studies from across the PTI client portfolio.
For more information please contact firstname.lastname@example.org
NOTES FOR EDITORS/FURTHER INFO
PTI is a strategy and technology consultancy specialising in sports and entertainment. Its Digital Transformation Pyramid is unique in the industry, providing an end-to-end approach from strategy to execution across the entire technology stack. In focussing on driving long-term cost efficiencies and revenue generation we aim to enable our clients to create more sustainable, more profitable businesses.