Sports industry struggles under COVID-19; faces reform as ticketing, sponsorships and broadcasting hit

A basketball game Photo: VCG

As the COVID-19 epidemic in China is largely under control, the domestic sports industry is finally hearing some good news. China's top basketball league will allow audiences in the stadium in Qingdao, East China's Shandong Province from Sunday, the Chinese Basketball Association (CBA) announced early last week.

But the stadium is unlikely to allow a full audience. According to the CBA statement, games on Sunday will only allow speculators from limited sectors, including medical staff, coaches and public security. Tickets will be available for wider audiences from July 31. 

Despite the limitations, this is some of the first good news for the domestic and global sports industries since the outbreak of COVID-19, which has put a halt to almost every aspect of the sporting world. 

2020 should have been a great year for the sports industry, with the Chinese Super League, the CBA playoffs and, most notably, the Tokyo Olympics all originally scheduled to take place. The Olympic Games has now been postponed for a year, and most games in China have not allowed speculators at live events.

The road to recovery in China's sports industry is bound to be bumpy, as occasional regional COVID-19 resurgences can easily return recovery progress to zero. The Chinese Super League, one of the top football leagues in China, kicked off on Saturday amid increased worries over the resurgence of COVID-19 in Dalian, Northeast China's Liaoning Province. All matches will be played behind closed doors without any spectators.

An industry practitioner surnamed Fu told the Global Times that the loss of live speculators is significant, but other traditional business models in the sports sector are also facing severe challenges under the COVID-19 crisis. 

"To put it simply, there are three business models through which sports companies can make profits," Fu said. "The companies can earn income through broadcasting and through sales of media rights, and they can also get sponsorship for games from marketing partnerships. Revenues from ticket sales and the related hospitality industry are also significant but make up a relatively small part."

For Fu's company, which mainly sustains itself on sponsorships from big brands like Nike, the impact of the COVID-19 suspensions in China and abroad has been devastating. Fu told the Global Times that due to an indefinite pause on the entertainment industry when the COVID-19 outbreak began, the company's major client, Nike, cancelled all sponsorships between April 2020 and April 2021. 

"First the company put a lot of staff on unpaid leave, and then since April there has been a mass lay off," Fu said. 

Although most sports that have resumed are now being broadcast on different platforms, the disruption to the original broadcast schedule and uncertainties over when other sports will resume have also brought huge costs to broadcast platforms. 

Tencent Sports, a major broadcast platform in China, last year paid $1.5 billion for the exclusive broadcast rights for NBA games for five years. But the sudden halt to NBA games now means Tencent's schedule for the next half decade may have to change, and that could pose a challenge for its cooperation with brand and advertisement partners. 

"Big platforms such as Tencent Sports are very reliant on the broadcast of big international games such as those in the NBA," Zhang Qing, CEO of Key Solution Sports Co, a firm that consults on the sports industry in China, told the Global Times. 

"They usually put in huge investment and bet big," Zhang said. "But now suspensions and altered schedules mean they will have to rethink how they can deliver advertisements they had secured with brand partners."

The impact of the year's turbulence is already evident in the financial reports of big sports companies. Wanda Sports, under the Wanda Group and one of the biggest sports media and marketing platforms in China, saw its revenues drop 26 percent in the first quarter, compared to the same period last year. 

"It is undeniable that the traditional business models of the sports industry no longer work, and companies will need to make major changes to weather the storm," Zhang said. "But for now many are still on the fence, waiting to see what might happen."

Alibaba, an Olympic partner, announced on its official Sina Weibo account on July 22 that the countdown to the Tokyo Olympic Games would resume. The games will begin on July 23, 2021.

In 2017, the company joined the Global Olympic Partnership, which runs until 2028. The world's first official Olympic flagship store opened on Alibaba's e-commerce platform Tmall in 2018 in preparation for the Tokyo games.

As China's leading internet company, Alibaba is set to provide more cloud and e-commerce services for the Olympic Games. The firm will be able to take advantage of the postponement to upgrade its cloud services. In the long run, the postponement of the Olympic Games may present internet enterprises with opportunities for transformation, upgrading and promotion, an analyst with a Chinese e-commerce research center told the Global Times on Tuesday.