Despite the ongoing troubling economic climate, the sports industry has continued to thrive with many major sporting events proving to be more popular than ever. The popularity of these major events is supported by on-going improvements in broadcasting and technology which is allowing better quality coverage than seen before. At the same time, television companies, sports clubs, governing bodies and even the sports stars themselves, are embracing social media to engage with fans and deliver a greater intensity of experience. Sponsors remain eager and keen to use sponsorship of sports events and teams as part of their marketing mix, and are now using increasingly sophisticated data mining tools to gain greater levels of intelligence and insight into their target markets and help them demonstrate the returns on their investments.
PwC’s second outlook for the global sports market “Changing the game: the Outlook for the Global Sports Market to 2015” provides revenue forecasts at a global and regional level over the five years to 2015. The report also drills down with projections in four key segments: gate revenues, sponsorship, media rights and merchandising.
North America will remain the largest market throughout our forecasts to 2015 followed by Europe Middle East and Africa (EMEA), and then the Asian market. Latin America will remain the smallest market.
What has been clear through this era of economic uncertainty is that the balance of global economic power is shifting to the East and this will help maintain the internationalisation as sports seek new revenues from the growing middle classes in the emerging nations.
Improving economic conditions stimulate growth
Over the next five years to 2015, global sports revenues will grow to US$145.3 billion at an annual compound growth rate (CAGR) of 3.7 per cent due to an improved economy, a rebound in TV advertising, the on-going migration of sports to pay TV and the resurgence of financial services and automobile companies to sponsorship.
Growth in the sports market in the BRIC countries (Brazil, Russia, India and China) strongly outpaced the overall global market during 2006 to 2010, but during the next five years this gap will narrow.
Julie Clark, Head of UK Sports practice, PwC and Editor-in-Chief of the report said:
“North America is still the largest market and growth rates will significantly outpace Asia Pacific and EMEA. While the balance of power is shifting to some emerging markets which are hosting mega sports events over the next few years, the growth opportunities in the traditional developed markets are far from over.”
Latin America is projected to have the highest growth rate at 4.9 per cent CAGR, partly due to them hosting of the FIFA World Cup in Brazil in 2014, followed closely by North America at 4.0 per cent CAGR. EMEA is projected to have the slowest growth rate at 2.9 per cent, which partly reflects underlying economic conditions, but there are some significant upward swings in 2012 when London will host The Olympics, Ukraine and Poland host the football European Championships and in 2014 when the impact of the Olympics and Paralympic Winter Games in Sochi 2014 and the Commonwealth Games in Glasgow shows through.
The Sports industry by market segments
Gate Revenues: Gate revenues will remain the biggest component of the global sports market accounting for 32.6 per cent of the total sports market (US$44.7 billion in 2015) and are a key source of income in the regions where live sports events are part of the culture. However, this mature market will see the lowest growth across all segments of the sports market at just 2.5 per cent CAGR from 2011-2015. While fans’ appetite for live experiences continues to grow and many major events are often completely sold out, there are concerns over the balance between competitive sport and mass entertainment and there have been challenges around pricing, particularly where the price of tickets effectively excludes all but the affluent middle and upper classes from attending these sporting fixtures.
One unlikely area which could stimulate growth is regulation. In European football UEFA’s financial fair play rules, which require a focus on defining value, are forcing clubs to try to boost their football revenues and are providing an extra impetus for new stadia development. Changing the format of sporting events is also something which has been tried to make events more exciting and appeal to new audiences. This was seen by the growth of rugby sevens in African countries and cricket with its highly successful venture into T20. Governments, aware of the attractiveness of major sporting events, are keen to host these events which raise the profile of their countries and draw the fans, which in turn boost tourism in these countries.
Sponsorship: Accounting for 28.8 per cent of the total sports markets, sponsorship will see an average growth rate of 5.3 per cent to 2015 generating global revenues of $45.3 billion which are split evenly across all regions. Marketing departments still see sponsorship as a major opportunity to reach their target audiences. We’ve seen the return of sponsors from the financial services sector, and the lifting of regulations in the US has seen substantial sponsorship deals between alcohol companies and sports clubs. But the structure of sponsorship deals has changed. It’s no longer just about brand visibility and awareness but now it’s about gaining deeper and more emotional engagement with fans and staff, something which the new digital technologies are enabling to happen. Advertisers and sponsors are integrating social media into their sports involvement and through social media and smart data mining, they are able to target their messages and content so that it’s relevant to each consumer segment and appropriate for each platform and delivery device. The challenge is to accurately measure the return on their investment.
Media Rights: Media rights is the third largest category of revenue and accounts for 24.1 per cent of the total market and is the second fastest growing sector at 3.8 per cent CAGR. Revenues from media rights will see fairly healthy growth from $29.2 billion in 2010 to $35.2 billion in 2015. However, these figures mask large year-on-year swings which reflect the traditionally dramatic impact of major global events held in “even” years such as the Olympics and FIFA World Cups.
Broadcasting still generates the majority of income from media rights, but engagement through different media platforms such as the Internet and mobile phones can enhance and expand the fan’s experience. Smart use of social networking can add further value for both themselves and the user and many TV companies have, themselves, invested in interactive portals. This enables them to combine online TV screening with social media which complements their offering to the market.
The use and impact of technology is also echoing a challenge faced by the media industry – that consumers expect to access sport generally for free on their TV or internet, though they are prepared to pay for access to exclusive sports content. This leaves the sports rights holders in a fairly strong position at the moment. But in this increasingly digital world, rights holders are also struggling to keep control over where, and by whom sports content is consumed
Merchandising: Merchandising remains the smallest category of revenue accounting for 14.5 per cent of total global revenue. However, it accounts for just over a quarter of all revenue in North America. Growth in merchandising revenue is closely linked with consumer spending patterns and overall growth is similar to gate revenues at 2.6 per cent CAGR generating revenues of US$20.1 billion in 2015, up from US$17.6 billion in 2010.
The global economic downturn has had a dramatic reduction in sports merchandising spend as consumers have tightened their discretionary spending. Sports clubs are also seeing a larger proportion of their merchandise transactions moving online which allows them to engage and interact with fans who can’t attend matches, including those living in other countries. This engagement helps to both monetise sports brands in those regions and markets, while also building demand for media coverage of the clubs involved. Experience has also shown that increased engagement among consumers leads to higher spending on merchandising and, yet again, social media is fueling this interaction as fans discuss their latest purchases on social networking sites such as Facebook.
Pointing to the future
Looking at what the future might look like for the sports market in world of increasing economic and political uncertainty, we see:
o Growth will come from the emerging sports markets in the BRIC countries and the Middle East who will continue to offer scope for the development of new commercial opportunities both in domestic and international sports events.
o Sponsors will demand more sophisticated measurement techniques to demonstrate the returns on their investment.
o Sports bodies and associations must, and will, introduce new regulations to control the cost base and levels of debt in their sports to leave a sustainable business model for future generations.
o Sports bodies must balance the increased commercial demands of their sports with the need to maintain the integrity and unpredictability that make sporting competitions so exciting and appealing to their supporters.
“Across the world we’re seeing ever closer convergence between the sport and entertainment industries as both sectors rise to the challenges brought by digital technologies which are changing and shaping the way we spend our leisure time. And this new digital environment is significantly contributing to the globalisation of both the industry and specific sports.”
For the purpose of this report, the sports market consists of:
o Gate revenues for live sporting events
o Media rights fees paid to show sports on broadcast and cable television networks, television stations, terrestrial radio, satellite radio, the internet and on mobile devices.
o Sponsorships, which include payments to have a product associated with a team, league or event sponsorships, as well as naming rights.
o Merchandising includes the selling of licensed products with team or league logos, player likenesses, or other intellectual property. Food concession revenues are not included.
For clarity Association Football (soccer) is referred to in this report as football, while American Football, as played in the NFL, is referred to by its full name.
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