FIFA World Cup generate R29 billion in revenues – Win locally to score globally

The impact of the 2008-09 global economic slump left very few industries unscathed including the international sports market, which is now experiencing a gradual but robust recovery. PricewaterhouseCoopers’s (PwC) survey ‘Back on Track? The outlook for the global sports market to 2013’ estimates that total worldwide revenues will record modest overall growth as the industry rebounds from the decline.

South Africa successfully hosted the Soccer World Cup 2010, FIFA’s most profitable tournament to date. The World Cup generated approximately R29 billion in revenues for FIFA, up nearly 25% from 2006. The profits from the tournament will finance approximately 95% of FIFA’s operating budget during the next four years.

The FIFA World Cup and Olympic Games global sports spending will increase from US$114 billion in 2009 to US$133 billion in 2013, representing a compound annual growth rate of 3.8% over four years.
The sports world is shrinking as signs of globalisation in the sports market are constantly emerging. The NFL and NBA which was previously limited to the US now hosts regular games in London while the IPL cricket tournament migrated wholesale from India to South Africa for one season before returning home.

This globalisation of the industry is being spurred on by new technologies which are accelerating shifts in business models causing a blurring of historically separate revenue streams. As a result sponsors and broadcasters are now facing new challenges as they seek to maximise value in a multi-platform world.

Sport companies, businesses and the way the marketplace currently operates confirm that we are now truly a universal industry where technology has contributed to the globalisation of both the industry and specific sports. However, great sports have deep and enduring local roots which in turn help to shape their global commercial potential and reach. To win in the 21st century sports environment it’s vital to think globally and act locally.

Vicki Myburgh, PwC’s South African Entertainment & Media leader says, “We are very excited about the launch of the very first edition of the South African Entertainment & Media Outlook 2010 – 2014. This publication reviews the various sub-sectors of the media and entertainment industry (one of which is Sport) and provides some insight into what the trends and future prospects are for these sub-sectors. The launch is planned for October 2010.”

The Sports industry by market segment

Gate Revenues: Price and attendance – Striking the right balance
Global: Gate revenues will remain the biggest component of the global sports market by a significant margin over the period. Total gate revenues will expand from US$43.2 billion in 2009 to US$49 billion in 2013, a 3.2 per cent compound annual increase, making this the slowest growing component. However income from gate revenues varies greatly from country to country often reflecting factors such as local economy and peoples’ disposable income. Attending live sports is an integral part of certain cultures and in some cases a national obsession, but in the emerging markets where tickets are less affordable, this is an opportunity few can experience. Recessionary conditions have driven some innovations: in the US for example, a number of sports teams are using dynamic ticket pricing, similar to the yield management models used by airlines and hotels. Prices change depending on the available seat inventory and the remaining time period to the event.

South Africa: Approximately three million people attended the FIFA World Cup matches in 2010. At an average price of approximately R1,700, gate revenues totalled nearly R5.1 billion, which by itself was larger than combined gate revenues for all sports in South Africa.

Sponsorship: Smaller brands face an uphill battle
Global: Sponsorship will be the fastest-growing component at 4.6 per cent compounded annually from $29.4 billion in 2009 to $35.2 billion in 2013, although it will remain the second largest component after gate revenues. Despite the economic downturn the largest sports brands with global reach and pulling-power have continued to attract the massive sponsorship deals. The mid-level brands or brands associated with a particular city or country have been hit badly. Unsurprisingly there were changes in the industries who were actively investing in sponsorship deals during 2009 with some, like banks, shifting their spending priorities away from sponsorship. Looking forward, improving financial conditions will likely see the return to sponsorship by the financial services sector. The US healthcare industry, which is currently facing regulatory reform, has already started to escalate its sponsorship efforts in order to raise its profile in the marketplace. Another industry investing increasing amounts in sponsorship – particularly in EMEA – is online sports betting where football shirt sponsorships is a key focus for these businesses.

Having attracted the major sponsors, sports organisers need to ensure that restrictions they impose on the use of the brand do not undermine the business case for sponsorship. This is especially important as sponsors are also demanding more transparency on the return on investment (ROI), something the larger sports brands are able to deliver more easily. The issue of social responsibility and community involvement in sponsorship has also become more prominent in corporations’ sponsorship portfolios, while reducing the emphasis on corporate hospitality.

Broadcast Media Rights: Facing up to a multi-platform world
Global: Growth in underlying spending during the period will be healthy during the forecast period seeing revenues rising from US$23.1 billion in 2009 to US$ 26.7 billion in 2013, at 3.7 per cent compound annual rate. As many contracts are long-term they have been less susceptible to the near-term economic developments. The one overarching challenge for all players in the media rights market is how to protect and monetise rights in a multi-platform world of pervasive (and often freely-available) digital content, an issue both the music and film industries have grappled with. The impact of the recession on advertising spending and the resulting shift towards subscription models has seen pay TV companies dominate the rights deals. Media rights have traditionally been one of the hardest revenue streams to predict accurately and this challenge has been heightened recently due to increasing scrutiny from competition regulators, rising demand for sports content in emerging markets and the explosion in digital media platforms.

South Africa: The media rights market is affected by several trends. The advertising environment is a major factor as it determines to a large degree the return on the investment in sports rights. Pay television broadcasters are playing a growing role in the market because the pay television universe and pay TV revenues are growing despite the recession.

Merchandising: Exposed shifts in consumer confidence
Global: The smallest of the four components of the sports market, it will also have annual compound growth of 4.1 percent. North America continues to dominate the global merchandising market accounting for around three quarters of total global spending throughout the forecast period. Though benefitting from years when there are major sporting events such as the Olympics and FIFA World Cup, the market is also reliant on consumers’ disposable income and has felt the impact of the recent slowdown in the economy. The industry also faces huge challenges, and subsequent loss of revenues, from the threat of counterfeiting which is particularly proliferate in the developing markets.

South Africa: Most merchandising revenue is generated at the events themselves. In 2009, the added international events and the rise in gate attendance boosted spending.