By Eurohoops team/ info@eurohoops.net
How much the COVID-19 pandemic hurts European basketball? According to Olympiacos General Manager Nikos Lepeniotis even a 50% cut of revenues is more than possible.
In an article published in the financial portal capital.gr, Lepeniotis explains that will no prediction can be considered safe at this point, things are not looking good. “We are dealing with financial catastrophe”, is one of the main points and Lepeniotis explains why.
The cash flow of the club’s revenue is streamed mostly in the last quarter of the season (April-May-June) “which almost amounts to 45% – 50 % of the annual revenue”. It’s obvious that in this environment the damage will end up being huge in almost every case.
The full text written by Olympiacos GM is the following:
The spread of the COVID-19 pandemic has impacted the stage of sporting events around the globe. No matter how much you try to assess the current situation and evaluate the economical impact, there is only one conclusion: there is absolutely no way to assess, evaluate and forecast its future.
There have been many attempts by individuals involved with the sports industry to come up with specific numbers, percentages or loss evaluation procedures for professional teams, sponsors, but mainly for professional athletes. Ironically, these attempts seem to be used only as a criteria tool to serve personal interests and big egos.
During these difficult moments, where other countries lack coffins to bury their dead and cannot say goodbye to their loved ones, any evaluation or assessment of the financial status of athletes, leagues, agents, sponsors, media outlets and any other institution sustaining the professional sports industry is almost amounting to hubris. This is at least how I personally and everyone else within the Olympiacos organization feels right now, from the Presidents to each one of the club’s employees.
With all due respect to what is happening right now, we have to take a step forward and review the technical characteristics which can potentially help us to understand the current status of the sports industry.
Since the 12th of March, all sports events, including games and practice sessions, have been canceled. This has caused significant disruptions to the sports’ industry with the most affected being the professional league associations which are trying to manage a situation that presents the following unique and unprecedented characteristics:
- We are dealing with financial catastrophe.
- Nobody knows when this catastrophe will end.
- On March 12, all sporting “production” came abruptly to a halt; either the “production” company belonged to the Premier League football stage like Liverpool or being the smallest professional hockey regional club. As a result, any income source is now drained for all teams. It is an abrupt and complete lockdown of the business pipeline.
- Nobody can say for sure when the sports community will be back to normal (meaning games with fans and TV coverage). Nobody knows when the sports industry will be operating and under which circumstances. Therefore, nobody knows if the industry will ever receive even a euro of income again.
- Meanwhile, the industry has to make decisions for all the employees. All employees are affected either they belong to the production team (administrative employees), or those in sales, and higher-ups (athletes and coaches). Are the companies going to continue paying them in full, even if they are not working and therefore producing? And if yes, for how long?
- In addition, the company has a series of other expenses to cover. Ongoing procurement, finances and loans as well as raw materials, services and safety and a series of other obligations that can in some cases be mitigated or decreased. Where all these funds will be coming from?
- Finally, the owner of the business in the specific industry, who is in the most challenging and difficult position of them all, has to evaluate a number of new data that change every day and even every hour and make decisions beyond his control (for instance, the closing of sporting facilities, restrictions in commute etc.). They will also have to evaluate the market’s direct competitors and how they are managing the crisis. Evaluate their personal financial solvency and whether they can afford to stay in business. Finally, evaluate and forecast of the commodity and the business in the future, ways to return to business and be competitive.
Following the above points comparing and listing the industry challenges, there is just one outcome; nobody can foresee anything.
When nobody can foresee anything, it is inappropriate to discuss the present and even more about the future. It is absurd to have any discussion related to the rights of athletes based on their current contracts and for sharing the losses between teams and athletes. Damages incurred by each and every professional team will be unprecedented and the greatest in their history and therefore cannot be calculated. The famous finance guru Larry Fink from Blackrock, the world-renowned firm that manages funds of 7.5 trillion dollars, has said that: “in the 44 years of my career in finance I have never experienced anything like this”.
No team wants to withhold any payments directed to athletes or coaches or any employee for that matter. It is a matter of its capability to do so, based on the current reality and its basic priorities… with the number one priority for each and every one of us being securing there is a tomorrow.
Life continues. And because life will always continue we will all be on the same front. Our main goal is not to destroy one another or to impose our superiority. Our goal is to find the right balance for the new era we will all enter and co-operate for our common objective. We want you, everyone, to be back. The problem is a systemic one and if one systemic link is destroyed or tries to impose its dominance, the system will crash and there will be no balance. This balance has to prevail between businesses and athletes, sponsors and leagues, leagues and the fans, fans and the streaming providers, athletes, and agents, leagues and sponsors etc.
In professional sports, professional clubs receive most of their income towards the end of each season. There are many reasons for it, such as the importance of games which boosts the increase in people’s interest, the finals or the playoffs, critical games, and therefore, most of the sponsors choose to be advertised during that exact time. Usually, the majority of the payments are made towards the end of the season. Therefore, all of the above are streaming most of the cash flow towards the last quarter of the season (April-May-June) which almost amounts to 45% – 50 % of the annual revenue. And no one can predict what the actual amount the teams will be receiving is…
If the freeze of all athletic interaction due to the pandemic is combined with the freeze of revenues within the sports industry, it creates an enormous gap on the PNL this year. As a result of the pandemic, the pro-teams will be recording a potential 50% loss of revenue this season. To lessen the impact, these damages need to proportionally be mitigated to all the stakeholders and mainly of course, to those who, according to date, receive about 75% – 80% of the budget of each business league per year (athletes/ coaches including taxes). No one disputes that, not even the athletes; the only deliberation is in regard to the final percentages of said mitigation…
In practice, if all the total revenue for a professional team is an annual 20 million, about 8-10 million will be received during the last quarter of the season (2.5-3 months). If we now consider that athletes are paid on a 10-month basis and they stopped working 6 months and 12 days into the season, the remaining compensation for the athletes regards the remaining 3 months and 18 days. However, 2.5 months out of the 3 months and 18 days remaining to conclude the season would have produced 45-50% of the revenue for the professional teams involved. Therefore, in some sense, the games not played are considered to be the most important ones in terms of the teams’ total revenues, while the athletes’ salaries for these final 3.5 months are linked to the “production” or incoming cash flow for the teams equal or higher than 50% of their total annual revenue.
Based on the above, who will be the experts, judges or mediators that will be able to decide what would be fair for the athletes and the professional teams in case the leagues competitions are not to resume? Is there any fair decision to be made? The answer is none.
This will result in each business to act in the best way possible to secure a future for the team and the ability to keep operating. It is certain that some sports businesses will go bankrupt as other businesses in different sectors. I will be presenting here the case for Adidas that has reportedly asked a 1-2 billion euro stimulus from the German Government; while about 80% of media content providers (4 out of 5) will also need monetary assistance, having suffered a huge disruption of income.
The PNL evaluation of all the professional leagues will not be completed before the end of the 2020-21 season and more specifically before the summer of 2021. It is most probable that decreased income will be the norm for the next 2 or 3 seasons. Forecasts for the next season cannot be made at this moment, as there is no margin to obtain reliable plans. It is like foreseeing the unknown; you want to tread in shallow waters and be able to see what you step on, not to swim in a bottomless sea you have never seen before. This metaphor will be used as a trend by some leagues the following season worldwide. It might bring back the equilibrium which had been lost lately due to excessive competition, circulation of ‘cheap’ money and the lack of a suitable plan of action in many divisions (FFP, salary cap, common tax salary policy etc), especially in Europe.
The outcome is; we are all losing from the pandemic effect. Some are losing more some others less. The most important thing is that all of us be here tomorrow together and move one. This can only happen if we all look at each other in the eyes with understanding, compassion, respect, and solidarity. Because at the end of all this, the goal is to come out of this ordeal alive and healthy, not richer….