Inflation is not a concern for sport as funding rates remain low –

Inflation fears may grab the headlines, but they only cast a weak shadow on the sport.

“You still see historically low borrowing costs – historically low floating rates plus spreads. And the spreads for longer-term funding are also at historically low levels, ”said Steve Vogel, general manager of the sports finance group at US Bank, in a phone call. “You have a certain inflation which affects certain areas. However, there has not been a shortage of capital to support the projects, and this is largely due to the underlying strength of the sport in general. “

As screaming chyrons tout the specter of the highest inflation rates in four decades, the impact is not visible. “Could this have an impact on capital spending? I will say right away that my experience is no, ”said Shawn Quill, National Sports Industry Leader at KPMG, in a phone call. “I’ve had a dozen conversations over the past two weeks about new training facilities, stadiums, baseball diamonds – there’s a ton of owners looking into that. Much of this is attributable to ownership…. When you are a billionaire or a collection of billionaires, you are not so concerned with this.

In fact, the financial market’s preferred measure of long-term inflation, Treasury bond yields, continues to show extremely low costs for everything from new stages to buying franchises. The yield on 10-year Treasury bonds, a benchmark influencing rates across financials, was 1.41% in mid-December. Before the pandemic hit, rates were only one month lower, in 2016. Ten years ago, Treasury yields were 2%; 20 years ago, they were 5%. Seen decades ago, since the early 1980s, when government yields hit 15%, the bond market has not signaled inflation. “There are always risks that no one can see, but from a finance and capital raising standpoint, we’re not about to go back to the 1970s, 1980s,” Vogel said. “You’re going to continue to see favorable borrowing costs even if interest rates potentially rise. “

Yet in the short term, teams must contend with rising costs to fans, as determined by the Consumer Price Index, a monthly survey of more than 200 goods and services that consumers buy, from eggs to sporting goods to funeral services. Even there, the recent hedging of CPI inflation has been somewhat misleading. While the headlines call November’s 6.8% rise in the CPI the worst since 1982, discussions of inflation on Wall Street normally focus on the “core” CPI, that is. that is, without the energy and food costs. This is because oil and crops tend to have crazy price swings from month to month which can skew the longer term trend, and those prices end up being reflected in d anyway. other goods and services. The core CPI in November was up 4.9%, still a 13-year high, but perhaps not as worrying.

Higher food and energy costs are “one of the key variables they’re looking at, and that could impact costs in the future,” Quill said. “But furthermore, for CFOs of sports teams, it’s a confluence of financial factors they focus on: primarily, the labor shortage, the potential decrease in footfall with COVID, the problems of Supply Chain. Then I would say, maybe fourth, inflation. While labor and supply costs could be inflationary if they resulted in higher costs, it is simply the lack of availability at all costs that worries team leaders.

Normally, teams would have pricing power to pass on higher match costs, such as concessions. But that’s a calculation made complicated by the disruption of the pandemic, said Lee Igel, a clinical professor at the NYU Tisch Institute for Global Sport. “I don’t really think we can look at sport as a completely safe port, as it used to be in the past, where it didn’t really feel the effects of what was going on in the economy at large,” he said on a phone call. .

Fans’ desire – or lack thereof – to attend games in person means teams may not have short-term pricing power. “The pandemic mindset is really wrinkling the whole discussion. The way people view their money and their time has never been so different, ”added Igel. “How will this really affect sports consumers? Will they really care? “

There are signs that teams could feel the pinch in the short term. In recent years, teams have increased season ticket prices on average between 5% and 7%, according to Steve Hank, chief commercial officer of SSB, which helps sports organizations maximize revenue for their customers. “Over the past five years, annual inflation in the United States has averaged 1.9%. As a result, ticket prices have exceeded inflation by an average of 3% to 5% per year. Considering COVID, I don’t see this overshoot continuing at the same level, ”Hank, longtime former director of revenue for the University of Texas sports department, wrote in an email. “Teams will seek to capture as much of the increase in inflation as is reasonable in their market, based on their individual circumstances, but [will] absorb part of the blow to cushion the impact on their short-term subscription holders.

Other potentially inflationary factors that could affect sports, such as rising cable bills and rising prices for fan gear, will take longer to show up in consumers’ bank accounts. For now, the new wave of COVID cases makes concerns like inflation a bit more abstract. ” We are talking about it. But from a sports team’s CFO perspective, inflation isn’t a major concern for them right now, ”said Quill of KPMG.

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