The Cost of Sport

The true cost of sport is emotional -- paying exorbitant amounts to attend pro-sporting events wears on the nerves. But the tide could be turning. The recession is starting to affect the sports industry. Now might be the time to take a look as an investor, or at least drive ticket prices down by staying away -- if we can.

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By Bob Bobala (TMF Bobala)
January 9, 2002

Here is an example of the great sports dilemma many of us face each day: Last week I took in the Washington Wizards-Chicago Bulls game here in D.C. and saw Michael Jordan not only beat his old team but score his 30,000th point. It was an historic moment. Only four NBA players have scored that many points (Kareem Abdul-Jabbar, Wilt Chamberlain, and Karl Malone are the other three).

I reveled in the scene  -- for about two minutes, until those nasty monetary thoughts crept back into my head.... I've dropped $160 on two measly NBA games this season -- just for my seats. I paid $4 for a Coke. Beers are $6. God knows what I paid for nachos. Clearly, this is not living below my means.

That's the problem with being a sports fan nowadays. One moment I'm thrilled by the competition and overjoyed at my team's triumph. The next I'm swearing off professional sports altogether, disgusted by the money and greed that have tarnished them.

Oh, to be male and money conscious. According to Team Marketing Report, the average cost for a family of four to take in a baseball game -- the least expensive pro-sporting event to attend -- last season was $145.83, a 36% increase since 1997. Over the past five years, ticket-price increases for pro football, baseball, and basketball have more than tripled the inflation rate (hockey wasn't too far behind). If something doesn't change soon, ballparks and arenas will be filled with only luxury boxes and suits. Part of me says, "Ah, the heck with it. I don't want to put my dime toward some whiny millionaire athlete's salary anyway." I mean, God forbid if they had to live on $60 million instead of $120 million. That must be damn near impossible.

But, believe it or not, now might be the time to fight back. The recession is finally catching up with pro sports. Here are just a few indicators reported recently by The Washington Post:

  • Home attendance fell for 14 of the National Basketball Association's 29 teams last season. Consequently, according to Team Marketing Report, the NBA reduced ticket prices by 2.3%. That may sound modest, but it's the first time in the 11 years since they've been keeping track that a major professional sport has cut its ticket prices.

  • Attendance fell last season for 60% of Major League Baseball's franchises.

  • The major television networks will collectively lose as much as $1 billion this year on contracts with Major League Baseball, the NBA, and the National Football League.

  • The market for easy-money stadium deals is drying up, especially with the high-profile bankruptcies of Enron (NYSE: ENE) (whose name is on the field where the Houston Astros play) and PSINet (its name is on the NFL's Baltimore Ravens' stadium), which likely put the kibosh on their $100 million deals.

Kick them while they're down
Sports fans, now is the time to take our fingers out of the nacho cheese jar and revolt. Kick them while they're down. It's all about supply and demand, right? If we stop paying, prices will have to decline.

You need more evidence that the time is right? Consider the recent NBA television negotiations. Disney's (NYSE: DIS) ABC and ESPN and AOL Time Warner's (NYSE: AOL) TNT and TBS are expected to pay the league $4.1 billion over six years. That's a lot of dough, but it's less than the last contract and the networks are actually getting the rights to twice as many games. General Electric's (NYSE: GE) NBC, which held the NBA rights for 12 years, bowed out of the negotiations, saying the deals are still not economically feasible.

Whether the networks will ever be able to recoup the cost of those payouts remains to be seen. In 1998, Fox, ABC-ESPN, and CBS agreed to pay the NFL $17.6 billion over eight years. Internet companies aren't the only ones getting hammered by dried-up ad revenue. The television networks are hurting as well. In fact, the ad market is so soft that Fox is cutting its pre-game show for the Super Bowl in February to a mere three-and-a-half hours because it can't find advertisers to fill up the ridiculous seven hours it had in 1999 -- something we can all be thankful for.

What can we do?
The billions spent on sports -- spent on our passion and obsession -- aren't going away. But with the business of sports on the defensive for the first time in a long while, can we take advantage of the situation to get in on the action?

At The Motley Fool we spend a lot of time trying to find quality companies that may be beaten down to attractive valuations. The sports industry may not be beaten down that far, but you can find The Motley Fool's take on investing in sports in the most recent issue of The Motley Fool Select. If you're not familiar with Select, you should really check it out. Our analyst team cranks out stock ideas every single month -- and I'm not one of them. I'm not even good enough to be their ball boy.

Whether or not you're able to find sports investments to make a profit, you're probably not going to find a bargain that allows you to buy your favorite team, even in this weak economy. The privately held Boston Red Sox, for example, just sold for $660 million (plus the assumption of $40 million in debt) -- and the Sox lost nearly $14 million last year.

Perhaps the best thing we can do is this: Instead of dropping $100 to see Air Jordan, drop $100 into Nike (NYSE: NKE) or any of the multitudes of other companies that pump money into and make money off of sports. Be careful, though. Don't get caught overpaying like the television networks. Also, don't forget about sports equipment makers like Callaway Golf (NYSE: ELY) that sell to amateurs as well as the pros.

Of course, who says you can't build your own sports empire, one share at a time? Even if you can't, the novelty of owning a share of your favorite public sports company might be compelling enough. If my dad is reading, I'd like to point out that I still think a stock certificate for a share of the Boston Celtics (NYSE: BOS) would be a great gift -- not to mention a great way to start my sports conglomerate (Disclaimer: Your team standing near the top of the Atlantic Division is not enough reason to buy its stock for an investment.)

But here you can see the paradox, or maybe just the insanity. In the same column that I'm entertaining delusions of owning the Boston Celtics, I'm saying, "Kick them while they're down. Pro sports teams are losing money. Stop giving it to them!"

The solution?
I may just be a lost cause. I think I'm going to limit my sports viewing to high school teams. Even college is tainted. Or maybe I'll go halfway and take in some minor-league ball games. Not too long ago on a warm summer evening I watched a Harrisburg Senators game. It was a lot closer to the essence of sport, sitting out there in my $7 seat, eating peanuts, and smelling the freshly cut grass -- that was five feet away from me.

In the end, I suppose it's a losing battle. If everybody joined me out there in the minor leagues they'd raise ticket prices, wouldn't they? Rats.

Bob Bobala is a New England sports fan, so you can understand how unstable he is. He doesn't own any of the companies mentioned in this article. The Motley Fool is investors writing for investors. Go Pats!