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Introduction to the Sports Industry

¹ Video Tip
For our brief video introduction to the Sports industry, see www.plunkettresearch.com/video/sports.
 
The sports business means many different things to different people. This is a truly global industry, and sports stir up deep passion within spectators and players alike in countries around the world. To one person, sports are a venue for gambling; to another, they are a mode of personal recreation and fitness, be it skiing, cycling, running or playing tennis. To business people, sports provide a lucrative and continually growing marketplace worthy of immense investments. To athletes, sports may lead to high levels of personal achievement, and to professionals, sports can bring fame and fortune. To facilities developers and local governments, sports are a way to build revenue from tourists and local fans. Sports are deeply ingrained in education, from elementary through university levels. Perhaps we cannot state with confidence that sports enrich the lives of all of us, but they certainly entertain a huge swath of the world’s population. In addition to economic impact, the largest single effect that sports create is that of gripping entertainment: hundreds of millions of fans around the globe follow sports daily, whether via radio, television, printed publications, online or in person, as spectators or participants.
Sports are big business. Combined, the “Big 4” leagues in America, the National Football League (NFL), National Basketball Association (NBA), the National Hockey League (NHL) and Major League Baseball (MLB), bring in about $23 billion in revenue during a typical year, but that’s just the tip of the iceberg. U.S. sporting equipment sales at retail sporting goods stores are $42.6 billion yearly, according to U.S. government figures. A reasonable estimate of the total U.S. sports market would be $440 to $470 billion yearly. However, the sports industry is so complex, including ticket sales, licensed products, sports video games, collectibles, sporting goods, sports-related advertising, endorsement income, stadium naming fees and facilities income, that it’s difficult to put an all-encompassing figure on annual revenue. When researching numbers in the sports industry, be prepared for apparent contradictions. For example, the NFL receives vastly more money each year for TV and cable broadcast rights than MLB, despite the fact that MLB teams play about 10 times more games each year than NFL teams.
When the astonishing variety of sports-related sectors is considered, a significant portion of the workforce in developed nations such as the U.S., UK, Australia and Japan rely on the sports industry for their livelihoods. Official U.S. Bureau of Labor Statistics figures as of 2011 found that there were 12,630 professional American athletes plus 193,810 coaches and scouts, along with 15,630 umpires, referees and officials. Meanwhile, the data showed that 489,200 Americans work in fitness centers, 39,700 work in snow skiing facilities, 68,300 work in bowling centers and 342,300 work at country clubs or golf courses. In total, approximately 1.3 million Americans work directly in amusement and recreation sectors. Another 45,000 work in the wholesale trade of sporting goods, and 245,800 work in retail sporting goods stores.
While it may not seem like it to the casual observer, the sports sector is constantly evolving in terms of personal tastes, popular games and technologies. For example, the decades-old Indy 500 has been eclipsed by NASCAR in many ways. In fact, the personality and popularity of a top athlete can have a tremendous impact on the current popularity of a particular sport—NBA megastar LeBron James, who was recruited for the league directly out of high school, being a superb example with his extremely positive impact on basketball both at home and abroad.
Research from the National Sporting Goods Association (NSGA) indicates that tastes in individual sports, exercise and recreation are continually evolving in America. NSGA’s 2011 sports participation study showed kayaking to be the fastest growing sports activity in the U.S. among consumers seven years of age and older. Kayaking increased 26.6% over 2010, followed by cross country skiing at 11.5%, wresting at 9.4%, aerobic exercise at 8.9% and running/jogging at 8.9%. It should be noted that none of these fast-growing activities require expensive equipment (kayaks can be purchased at modest expense) or expensive club memberships.
NSGA reports that exercise walking is the most popular sports activity in America, with 97.1 million people participating. Exercising with equipment follows as a distant second at 55.5 million, then swimming at 45.0 million, overnight camping at 42.8 million, aerobic exercising at 42.0 million, bicycle riding at 39.1 million and hiking also at 39.1 million.
It is worth noting that there are significant differences between NSGA’s annual study and the other major study conducted in the U.S. each year by the Sporting Goods Manufacturers Association (SGMA). SGMA’s results are also very interesting, but quite different. NSGA requires that a consumer participate in an activity at least once during the year in order to be counted. SGMA requires that the consumer reports engaging in the activity at least twice. Also, NSGA counts younger consumers than does SGMA.
SGMA’s 2012 study, covering activities through 2011, found strong growth in high-impact aerobic fitness activities. It also reported significant growth in elliptical motion trainers, running/jogging, and stationary cycling done in groups (“spinning”). Participation in fitness classes like Zumba and yoga also have been growing in popularity in recent years.
Another consideration in sports and recreation is the problem of gasoline prices. Clearly, expensive gasoline significantly dampens the popularity of motor boats, RVs and anything else that has a large engine.
Meanwhile, the number of people playing golf in America has been dropping over the long term, although audiences for televised golf events remain very large. Then there’s the fact that large audiences have been watching high-stakes poker tournaments on television recently. Does that qualify as sports broadcasting? It’s certainly a game. Moreover, thanks to the Internet, fantasy sports teams and online betting on sports events are soaring. Meanwhile, electronic games have become one of the world’s leading industries, at more than $60 billion in annual revenues. In the minds of many people, competing against other electronic games players is a sporting activity.
Amateur participation in the team sports of lacrosse, volleyball and rugby is extremely high. SGMA reports 29% growth in core participants in lacrosse during 2011.
One of the strongest, long-term growth trends in all of the recreation business is in fitness-related activities. In the U.S. alone, health clubs boasted 51.4 million members in 2011, representing a 2.4% increase, according to the International Health, Racquet & Sportsclub Association (IHRSA). America’s 29,890 health clubs enjoyed revenues of $21.4 billion (a 5% increase). Members visit their clubs an average of about 100 days each year.
Another 25 to 30 million Americans use exercise machines in their homes, according to Plunkett Research estimates. America’s 75 million surviving baby boomers, with time and money on their hands plus a growing concern about their quality of life, will boost the health club and home exercise sectors further. (Sports and leisure revenues from the Baby Boomer segment will grow quickly. For example, “pickleball,” a racquet and ball game played on a court about one-quarter the size of a tennis court, is soaring in popularity with senior citizens.)
Internationally, IHRSA research found there were 43.5 million health club members in the European market during 2011. This represented a decrease of 900,000, not surprising in light of the economic downturn in Europe.
Globally, IHRSA estimates 133,000 health clubs serving 129 million members as of 2011. It also reports that Brazil, a very body-conscious nation and home of Rio de Janeiro’s famous beach culture, is second only to the U.S. in the total number of health clubs.
Evolving technologies and fashions have an immense impact on sales of sporting goods within specific sectors. Sporting goods makers are constantly trying to create reasons for consumers to buy new equipment. Golf club makers adopt new technologies with great success. Snow ski and board makers use new technologies as soon as they become available. Additionally, ski gear manufacturers introduce new fashions, new colors and new styles yearly in an effort to get consumers to buy new or buy up, regardless of whether significant new technologies are involved. Nanotechnology, with the ability to provide components with tremendous strength at very low weight, is being featured in new equipment to a growing degree, including tennis rackets. Likewise, carbon fibers are increasingly seen in the construction of upper-end equipment, including fine bicycles.
The types of electronic technology applied to sporting apparel and sporting goods is becoming much more advanced, as sensors are being embedded that wirelessly gather information through sophisticated accelerometers. Nike’s Nike+ brand is a major success in this arena, enabling users to set goals, see real-time exercise results and upload exercise histories to www.nikeplus.com. Eventually, the sports industry will see widespread use of remote wireless sensors in virtually all types of sporting equipment, from tennis rackets to bicycles to golf clubs and even apparel such as swimsuits. Sports participants are going to want to be as totally connected to personal electronics during their recreational activities are they are in all other aspects of their lives.
Meanwhile, media used to deliver sports and sports related information is evolving quickly. Sports coverage is one of the most widely viewed categories online. At the same time, digital TV recording devices (DVRs), such as TiVo, are enabling fans to watch events according to their own schedules. The rapid emergence of sports news and events video delivered via state-of-the-art mobile devices is having a major impact. Watch for continued rapid change throughout the sports industry, as consumers’ tastes and manufacturers’ product lines evolve.
The global recession had a significant effect on sports and recreation in 2008 and 2009. Professional teams encountered difficulty selling tickets, and revenues for manufacturers of sports and recreation equipment dropped. Gambling revenues plummeted. Consumers in America and Europe are still keenly interested in their favorite sports and recreation, but many are reducing their discretionary purchases, and they are cutting back on luxury, leisure and entertainment purchases in particular. Since ticket prices for professional sports have become extremely expensive, sales have been affected. Some golf courses suffered revenue declines, and many have closed. At least two major U.S. sports teams fell seriously behind on their debts and took bankruptcy during the recession. Even the NFL laid off 150 employees at the end of 2008. For the mid term, the sports industry will face challenges in providing services and products that are appropriate for consumers in slow economies (particularly Europe as of mid-2013), while revenues in emerging nations such China will have an excellent opportunity to grow.
The biggest opportunities in the sports industry today lie in providing exciting, high-value opportunities for sports fans, such as high-tech recreational gear at reasonable prices; spectator sports ticket packages that represent good value; exercise/fitness services and programs that will appeal to aging baby boomers; and equipment and apparel that provide high value and exciting design. Consumers still want to play, but they want to do so at reasonable cost.