FINANCIAL WOES? AT LEAST WE’RE NOT ALONE
Monday, March 23rd, 2009The 2009 Triple Crown marks the fourth consecutive year the sport’s three premier races – the Kentucky Derby, Preakness and Belmont — will be run without the benefit of a title sponsor, and the Breeders’ Cup championships will be without some of their longtime corporate partners when it is held for the 26th time later this year. Wagering on Thoroughbred racing is at its lowest level in more than a decade, and the bankruptcy of major racetrack owner Magna Entertainment has put the sport in peril in some areas.
The good news? At least we’re not alone.
The gambling industry is suffering through some very difficult times now, thanks to the international economic crisis. One victim is the “Folies Bergere,” the longest-running show in gambling mecca Las Vegas, which will have its final curtain call on Saturday after nearly 50 years at the Tropicana Hotel. Spending on travel and tourism dropped in 2008, and this year figures to be worse. The gambling industry used to be considered recession-proof, but not any longer. Las Vegas gambling revenues dropped 16% in January, and conventions and groups are cancelling in droves.
Crushing losses in the corporate world – particularly in the automotive and finance sectors – have also had an immediate impact on professional and amateur sports. Sponsorships have been lost, teams in many leagues are struggling to fill seats, and luxury suites are increasingly sitting empty at different venues. The New York Times reported that the National Basketball Association has cut 10% of its staff, NASCAR teams have laid off hundreds of workers, ESPN has decided not to fill 200 job vacancies, and the LPGA has eliminated four tournaments after losing title sponsors. Even the mighty National Football League is feeling the effect: its commissioner has taken a 20% reduction in salary.
Two of the worst-hit industries, automakers and financial institutions, have traditionally been major participants in sports sponsorships, in large part because of the hospitality and entertainment options they provide their customers and employees. Chrysler was the original sponsor of the Triple Crown Challenge from 1986-95, and Dodge sponsored the Breeders’ Cup Classic for five years, beginning in 2003. The credit card company VISA took over from Chrysler as Triple Crown sponsor in 1996. When its contract expired, it continued as a marketing partner of the Kentucky Derby, a deal that ends next year.
But pity the PGA Tour, where fully 40% of its tournaments are hooked to the financial and auto industries. Government officials are insisting on cutbacks in spending by financial and auto companies that have received federal bailout money. Chrysler, the longtime sponsor of the Bob Hope Desert Classic, was missing in action when the tournament was held earlier this year. The Northern Trust bank was raked over the coals by Congressman Barney Frank and others after its executives partied to the music of Sheryl Crow and entertained clients and employees at the PGA Tour’s Los Angeles tournament that it sponsors. Buick, a brand in the nearly bankrupt General Motors, dropped its endorsement agreement with Tiger Woods.
The NBA and NHL are struggling like never before as corporations cut back on promotional and entertainment budgets, and families reduce their discretionary spending. The NBA has issues unrelated to the economy, namely a labor contract that many think will lead to a lockout by owners in 2011, but the question many sports observers are asking is how many teams will be forced to be sold, move or seek financial help from the league before then, simply because they are losing money (the New York Times reports that 15 NBA teams are operating in the red). The future of a number of NHL franchises is also in jeopardy as teams cut ticket prices and offer package deals to fill seats. Many corporations are either not renewing luxury suite rentals or cutting their losses by letting them sit empty rather than add mandatory food and beverage expenses each time they are used.
Most Major League Baseball teams are maintaining their ticket prices at 2008 levels, something Churchill Downs did with a majority of its seats for the 2009 Kentucky Oaks and Derby. The Breeders’ Cup, which significantly increased ticket prices to the 2008 two-day championships (and, like Churchill Downs does for the Oaks and Derby, required buyers to purchase tickets for both days), acknowledged the increases were a mistake. It hasn’t announced its pricing structure for the 2009 Breeders’ Cup, but many people will be disappointed if there isn’t a serious rollback.
Sponsors are more difficult than ever to find. When VISA dropped its Triple Crown sponsorship, Ed Seigenfeld, executive director of Triple Crown Productions, said, “We’re not going to let the grass grow under our feet” in the search for a replacement. That was in 2005, when business was booming. What are the odds of getting a Triple Crown title sponsor in the current climate, one that promotes the series the way VISA did?
Carter Carnegie, the senior vice president of sales for Breeders’ Cup, acknowledged the difficulty of replacing companies like Dodge and Bessemer Trust (the latter is controlled by the Phipps family, which has been involved in horse racing and breeding for generations). “Like NASCAR, the PGA Tour, NHL and MLB, horse racing also faces a challenging time for retaining and attracting sponsors,” he said. Carnegie said the “silver lining” for horse racing, compared with other sports, is that “corporate partnerships do not play as significant a role in terms of being a core revenue generator needed to maintain the day to day operation of the game.”
The Breeders’ Cup has some long-term deals in place and some new prospects in the pipeline, Carnegie said. “I think it helps that our price tag is much less than other sports, and over the last few years, we have been able to make a compelling case that we deliver a certain demographic that is hard to reach through traditional forms of media.”
Still, he acknowledged that some of the existing sponsors are struggling. “We have worked with some of our partners during these challenging times on ways to reduce or restructure their terms and fees and, in some cases, have looked at extracting more value for them by developing some new ways to increase their exposure.”
One company I’m guessing won’t be back is the insurance giant American International Group, better known as AIG, which partnered with the Breeders’ Cup in 2007 and 2008, sponsoring a “ride of the day” feature during the ESPN and ABC telecasts. AIG, of course, was on the cutting edge of the financial meltdown and in the news recently for wasteful executive bonuses after getting bailed out by taxpayers.
Breeders’ Cup is in the middle of a long-term strategic planning process that we’ll be telling you more about in the coming weeks. This work couldn’t come at a better time, because the organization is widely acknowledged as one of the few bright spots on the racing landscape over the last quarter century. With so much bad news throughout the industry, it’s critically important for the Breeders’ Cup to weather this economic storm and emerge as a beacon of hope for the entire sport.
Copyright © 2009, The Paulick Report
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