The Influence of Sports on Local Economies
The Role of Sports Teams in Economic Stability
Sports have been a major booster for the local ecosystems in a lot of cities. Both larger and smaller business’s often alike their plans for major sporting events, it does not only attract visitors but also boosts the local business’s such as transportation, hotels, restaurants. Cities and countries that host like events experience a swell in tourism which leads to increased spending and economic growth.
A key factor to this is the simple presence of fans, whether it may be from spending on food, increased foot traffic or filling up stadiums and arenas just to watch their favorite team play can lead to a surge in the local economies. Consumers who have an emotional connection with a brand offer a 36% higher lifetime value to the brand.
People also don’t become sports fans as the way they become consumers of a brand, they often join social circles with similar interests.
Case Study 1: Cleveland and the Impact of the Cavaliers
An example of the impact of sports on local economies can be shown in a city called Cleveland, Ohio. A city home to the Cleveland cavaliers, an NBA team. During a successful run in 2015 to their eventual championship in 2016, the local ecosystem downtown experienced a surge in economic activity.
Restaurants, motels, bars surrounding Rocket Mortgage fieldhouse (Cleveland cavaliers home arena) saw a striking increase in philanthropy. Bars were full, reservations at nearby restaurants skyrocketed. Hotels also had people booking rooms during the playoff season, visiting fans from other cities flooded Cleveland to watch their favorite team play. During 2016, When the cavs finally won the championship, A study found that each playoff game at home contributed to an economic surge of $3.6 million, according to Emily Lauer, a senior director of public relations for Cleveland.
Cleveland hosted about 3 final home games which generated an economic impact of $10 million. Businesses grew about 4 times than its original size.
Another striking example can be showcased through a very-well known player known as Lebron James, the king of basketball. After failing to win a championship in 2010, James left the cavaliers as a free agent and joined the NBA franchise, Miami Heat. This was known to be the most controversial move among the free agency moves in sports history.
Whichever city King James played for had seen a significant boost in its economic impact. Restaurants, bars, hotels within a mile of the stadium rose by a clump of 13% with the total employment risen by 23.5%. A Harvard Kennedy study found that whichever team James played for experienced a surge whilst whichever team he left experienced a fall economically.
When Lebron returned to the cavaliers in 2015, restaurants, bars, hotels nearby experienced a boost in the local ecosystem. Game attendances skyrocketed through the roof whilst the average ticket price had gone up in value, from $60 to $107. Lebron led the cavs to their eventual championship in 2016, the city experienced an economic boom.
It's been clear to see that James means a lot to the city of Cleveland, a city that has been struggling in sports since 1964, which was the last time Cleveland won a championship. Cleveland sports had seen their fair share of curses and struggles, however James redeemed himself as the chosen one and joined the Lakers after winning a championship for Cleveland.
Hospitality and Tourism: The Impact of Sports Teams on Hotels
One of the industries that is mostly directly impacted by sports is hospitality. Hotels, especially that are located near sports arenas and stadiums, reap benefits on game days, especially during important games, championships, finals. Fans book these hotels as they prefer to stay overnight during gamedays. Particularly, when the event either runs late or gets postponed.
For example, the cricket matches that happen between India and Pakistan are a significant contributor to the hospitality industry. This match isn’t just a sporting event, they are titan generators of revenue, broadcast, Ticket sales, sponsorships and merchandising.
The match that took place in Long Island was reported to bring a staggering $46 million in direct economic benefits and $32 million in indirect economic benefits. According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the revenue made by India vs Pakistan matches over the past 20 years was estimated to be $1.3 billion.
The reason why the matches between India vs Pakistan is so popular is because the legacy of the partition and the subsequent territorial disputes have helped create heated rivalries on the field and in other sports like hockey and association football. This is especially for cricket, which was developed in the British colonial rule.
Moreover, the presence of sports teams provide a steady cash flow of business’s for hotels, even during regular game seasons.
The Challenges of Business’s Depending on Sports Revenue
While sport’s have a largely positive economic impact on different industries, depending on these events cannot always be dependable and might not be the best idea for a business’s cash flow.
Relying on sport’s revenue can depend on a lot of factors, some of the common factors include seasonality and event dependability. Sport events are often seasonal, leading to fluctuation in marketing opportunities and revenue streams for businesses. Budget constraints can also be a problem, advertisers and sponsors may face problem with budgetary limitations. This can impact their investments in sport marketing initiatives. Shifts in consumer preferences and media preferences may impact business’s. Competition is also really high, with various sponsorships and numerous merchandising stores vying to be the top brand.
Secondly, the business’s cash flow can depend on the sports team’s performance. When the team performs well, winning more games, more fans attend the games and spend on merchandise, boosting surrounding businesses such as the sponsors. However, when a team performs poorly it can lower revenue for the business as there’s lesser foot traffic and less fans attending the games of the sports teams they are relying on.
Lastly, Business’s located near sport arenas or stadiums, their primary or secondary source is the revenue they make from fans on game days or sporting events but relying on this can be way too risky. If the sport team moves, venue changes or gets postponed people might not come and this can dramatically occur a loss for the business.
While sports teams bring stability to local business’s helping with the economic impact, particularly in the hospitality and tourism sectors, depending on sports revenue cannot be the best way for a business to make revenue. Seasonality, event dependability, over reliance, sports team performance, competition are all notable challenges that the business might incur. However, by diversifying their cash flow streams they can maintain stability such as adapting to off seasons, spending more on marketing during the off seasons, creating other revenue streams business can help find ways to mitigate these risks.