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Sport also feeling the financial pinch : New Frame

Sport also feeling the financial pinch

As South Africa slips into recession tough times are looming. Sport has already been hit hard too.

As South Africans endure the excruciating pain of a VAT increase, rising fuel prices and the spiralling cost of living, sport has not been spared the trickle-down effects of a depressed economy. 

South Africa’s escalating economic maelstrom has been an ongoing feature of the post-Jacob Zuma recovery project. It includes a budget deficit to the tune of R195 billion, thanks to the South African Revenue Service’s R50 billion shortfall. These are the numbers the South African public has become aware of over the past eight months. 

While it may be too early to fully assess the impact of the state capture years, it’s fair to assume that the stench of corruption has offended investors and benefactors. As such, the knock-on effects on the sports industry are beginning to reveal themselves through dwindling numbers in sponsorship which make up the bulk of revenue in sport.

When SA Rugby presented to the Portfolio Committee of Sport and Recreation in Parliament in August, there would have been sweaty palms, furrowed brows and some explaining to do in light of what was about to be revealed.

SA Rugby had suffered a net loss of R33 million in 2017, and the SA Rugby Group had lost a total of R62 million.

To blame, according to SA Rugby, are the failed 2023 Rugby World Cup bid, which sapped a jaw-dropping R24.4 million; and the PRO14 tournament, which cost a further R37 million. These are the kinds of numbers that turn sweaty palms into full-on heart palpitations among sports administrators, even though SA Rugby’s dwindling fortunes are not out of the ordinary in the context of the South African economy, and these alarming words by the Statistician-General Risenga Maluleke.

Recession 

“We are in recession. We reported a contraction in the first quarter even with revisions and now in the second quarter with a fall of 0.7%, we are in recession,” Maluleke is reported to have said.

Major sporting codes are bearing the brunt of tough economic times, sponsors becoming risk shy, fans tightening their belts, and government support curtailed as the country looks to control spending.

The sudden downturn in sponsorship and support for local sports must be of concern to a Department of Sport and Recreation buckling under the yoke of expectation and scarce resources. Not all provinces are funded equally, according to the department, which affected schools programmes and infrastructure funding in 30 municipalities.

On 30 May 2018, the Portfolio Committee on Education and Recreation raised concerns about budgetary issues and a deficit in sport for 2018/19.

The meeting summary states: “The Department of Sport and Recreation received R1 billion from National Treasury and National Lottery for the 2018/19 budget, and the department argued that that was insufficient funding, given the required infrastructure, the need to address gender inequality in sport and the required programmes to make sport more accessible to South Africans of all ages.”

The department’s allocation is an increase of just 3% from the previous year. And as government funding dries up, sporting bodies take the strain and sponsors get cold feet. It’s a double whammy for a sports industry with grand visions of rolling back the Mandela years by using sport to push for a sense of unity among compatriots.

Sunfoil withdrew its sponsorship of the the domestic first-class cricket series as well as for national Test cricket. Ram did not extend its sponsorship of the domestic T20 competition this season, leaving Momentum as the sole major sponsor of domestic cricket right now. 

But Momentum didn’t renew its sponsorship with the Proteas Women’s team despite the side’s upward trajectory. Momentum’s announcement came at the back of SuperSport’s withdrawal from an equity deal with Cricket SA [CSA] to stage the Global T20 League this year. It’s been a difficult time for CSA as it looks to salvage pride.

Football has also been hit by the tough times. Absa renewed its sponsorship with the PSL last year, but the prize money remained the same with no inflation-adjusted increase as has been the norm. The SA Football Association’s finances are said to be in tatters. Safa is yet to finalise Bafana Bafana coach Stuart Baxter’s technical team – more than a year since his appointment. 

Budget constraints 

“You know‚ we have budget constraints and I understand that. It’s nothing where I accuse anybody of letting me down,” Baxter says, “We have budget constraints and we also have political constraints.”

The sporting landscape is shifting rapidly. Sport is run as a business at the elite level. New technologies and platforms emerge daily, offering businesses greater insights into customers’ needs, but also a major threat to businesses that don’t adapt.

Speaking ahead of last year’s Discovery Sports Summit, Sgwili Gumede, the chairman of the Sport Industry Group said: “One of the key challenges affecting all sport in this country is declining attendances in the stadiums, and declining television viewership. In many ways, the sponsors themselves are feeling the pinch. The economy is not growing, and when the economy is not growing, then there’s less money to be invested across the board.

“The challenge is how do we learn from other industries, and from sporting organisations from around the world to tackle such issues.”

Some countries are getting it right, which begs questions about how our own sporting bodies are managing their finances.

Schalk Burger Snr called on the entire SA Rugby top brass to resign amid the R33 million loss in 2017.

“Making a loss on over a R1 billion turnover is just bad management and that is where all the problems started. We are so arrogant with regards to our decision-making, yet SA Rugby cry like babies about the net loss of R33 million they suffered in 2017. I feel the financial losses are only going to get worse because they aren’t going to lay off any jobs at their ivory tower,” Burger told News24.

He also criticised the decision to support the Cheetahs and Southern Kings admission into the PRO14.

“SA Rugby is technically bankrupt, so how could they go and spend R144 million on the Cheetahs and Kings to compete in the PRO14 and then subtract that money from the unions that most need it for development? How can you ever take a decision like that?

“One thousand people watching Western Province in a Currie Cup match is ridiculous. Never in the history of rugby has South Africa had such a diabolical competition structure as this year,” Burger adds.

SA Rugby’s turnaround strategy includes looking for commercial opportunities ahead of the 2019 Rugby World Cup in Japan, and the money-spinning British and Irish Lions tour in 2021.

Gumede says: “What we need to do is find ways to present the different sports, different opportunities and events in a manner that connects with the fans. Fans and consumers have a lot of options. Sport needs to find its own niche to attract fans and keep them.”

With this in mind, CSA’s insistence on hosting a Global T20 League makes business sense. Australia’s Big Bash League [BBL] has been hailed as a model for success. Its objectives are clear: attract the youth, families and female audiences to the game of cricket, and secure the future of the game. “The BBL was born as an answer to the question: ‘How does the sport of cricket safeguard its future?’” Anthony Everard, the head of the BBL, told  Forbes.com. “Cricket is very popular here in Australia and abroad, but there was a significant part of our population that was not engaged in the sport…Our goal was to launch a product specifically targeted towards people who did not care much for the sport.”

Cricket Australia consults with a top US sports marketing agency on the BBL. The competition takes place during school holidays. A family of four could attend a game for AUS$40 [about R440]. The BBL even struck deals with entertainment brands like Warner Brothers to allow players to dress in superhero costumes.

Broadcast rights for the Big Bash now sit with the Seven and Foxtel networks for a reported AUS$1.2 billion [about R12.7b]

A new approach is needed 

It is becoming clearer to sporting codes and franchises that in order to progress, they need to develop their organisations to navigate the tough times ahead, something that local football focus has struggled to achieve.

The disappearance of Mpumalanga Black Aces is one example of a PSL club unable to build a sustainable project out of top-flight football. They were bought by John Comitis to form Cape Town City FC. Bloemfontein Celtic were almost liquidated. 

Though the financial health of some South African sports may concern local businesses, tech companies abroad are seeing an opportunity in sport, bidding for streaming rights against traditional media houses.

Amazon recently bought the rights to stream 20 English Premier League matches. Google’s YouTube TV has bought exclusive rights to stream matches played by Los Angeles’ new team, the first time a streaming service has made a deal with a professional sports team. In May, Facebook reached a deal worth £200 million [about R3.9 billion] for rights to broadcast English Premier League games in Thailand, Vietnam, Cambodia and Laos. The move is likely to give traditional broadcasters nightmares as tech companies present a more compelling and engaging proposition.

The South African sport sponsorship market, as forecast by BMi Sport Info, reached an estimated R5.7 billion in direct spend on rights fees in 2016. The net result is a paltry 0.4% growth in comparison to 2015.

“With marketers under increasing pressure to deliver tangible results with fewer and fewer dollars at their disposal, activation budgets became severely constrained as well … Total sport sponsorship spend in 2016, inclusive of leverage budgets, ended up marginally down year on year,” the report said.

Attendances at PSL games last year averaged at 6 700, and though the support at bigger teams like Kaizer Chiefs [18 700] and Orlando Pirates [11 800] are better, those gate takings are hardly enough to contribute to a sustainable revenue model.

Former SAP Africa Executive Chairman and current Group CEO of Metrofile Holdings, Pfungwa Serima, says “The future of sport can be seen in the same context as the future of all business in Africa. It’s about effectively using data-gathering and mobile technology, coupled with powerful tools for analysing data to predict the future.

“The big advantage sports teams have over other businesses is that if they get the customer experience right, those customers become fans: they paint their faces and wear the team’s branding for free. That’s a powerful endorsement of any business.”

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