This article was first published in the 3rd quarter 2017 edition of Personal Finance magazine.
CAPE TOWN - Sport is big business. According to Forbes magazine’s 2017 list of the world’s highest paid athletes, the 100 top earners banked a total of $3.11 billion in 2016.
Portugal and Real Madrid footballer Cristiano Ronaldo topped the line-up of dollar millionaires, with earnings of $93 million.
Lionel Messi of Argentina and Barcelona, who competes with Ronaldo for the title of the best soccer player in the world, was third, banking $80 million.
Other familiar names who made the list were golfers Rory McIlroy and Phil Mickelson, tennis stars Roger Federer and Novak Djokovic, racing drivers Lewis Hamilton and Sebastian Vettel, and the fastest man on Earth, Usain Bolt.
Astonishingly, tennis player Serena Williams (51st with $27 million) was the only woman on Forbes’ list.
These astronomical numbers show why so many athletes are swayed to turn professional. Sport has gone way beyond the sphere of mere recreation. There’s money to be made, and it outweighs the fun element. It’s also entertainment for the masses, with television networks paying billions to own the rights to broadcast sports events.
In South Africa, SuperSport is the biggest sponsor of sport on the back of the rights it holds for international and local rugby, football, cricket and other disciplines likely to attract paying viewers. A mantra at SuperSport over the years has been “we’re not in the business of selling sport, we’re in the business of selling decoders” – in other words, having major sports events on their channels is what persuades people to pay for contracts.
David Sidenberg, the chief executive of BMi Sport Info, says the South African sports industry generated a total rights spend of R5.703 billion in 2016. Another R2.759 billion was spent on enhancing naming rights by way of advertising, promotions, banners and on-field activities. Budgets are tight, so the total of R8.462 billion was slightly down on 2015, but it still shows the extent to which corporates are willing to sink their money into sport.
On top of this, a huge amount is spent on sports equipment – golfers, cyclists, racing drivers and yachtsman, in particular, know how expensive the tools of their sport are. There are no reliable figures to quantify the sports goods market, but it is estimated that it is at least as big, if not bigger, than the spending on “classical rights” (naming a competition after a brand, having the sponsor’s logo on the kit, television advertising).
In South Africa, however, the business model is flawed, because many sports codes are too exposed to a single sponsor and most struggle to make ends meet.
One of the biggest problems is that South Africa has too many professional sportsmen, particularly in rugby. A mistake made at the onset of professional rugby in 1996 was that the entire game went professional instead of only the top-tier players. This had dire consequences for provinces and clubs, which could not afford the players’ pay demands. As a result, a number of top local players seek employment overseas.
More than 300 South African rugby players – from experienced Springboks to men just trying to gain a foothold in the game – are playing at various levels in the United Kingdom, France, Italy, America and Japan. This exodus is often attributed to dissatisfaction and frustration with the South African system, but in truth the biggest driver is that, because the rand is weak, a top player can earn much more in pounds, euros, dollars or yen.
It also does not help that government assistance for sport is miserly, and that the South African Sports Confederation and Olympic Committee, the body that oversees Olympic sport and has a controlling brief over other sports, is underfunded and badly run.
However, this should not detract from the important role a proper national sporting model could play in society and the economy. A study by the Department of Sport and Recreation, released in 2010, highlighted the virtues of sport for business and society. This thorough piece of research set out the social and health benefits of sport, which have been recognised for many years, as well as the economic benefits of a vibrant national sports set-up.
The document made this telling point: “Every rand invested in sport produces multiple returns in terms of improved health, less demand on health services, psychological well-being, improved productivity, economic regeneration, improved employment opportunities and, most importantly, national, regional and local gross domestic product (GDP).”
Sadly, the case for sport was not put strongly enough, and the good intentions evaporated. It was calculated at the time that sport contributed about two percent to South Africa’s GDP, and this figure has not increased since.
As more sports became professional and South Africa’s international participation increased after the years of apartheid isolation, the number of paid players increased. In rugby, for instance, there are six Super Rugby squads each employing about 40 players, plus coaches and medical staff, as well as 14 provinces with similar numbers, dramatically increasing wage costs.
Professionalism has led to a concurrent increase in the creation of sports-related jobs.
The success of staging the 1995 Rugby World Cup and the 2003 Cricket World Cup in South Africa indicated the value of big international events. However, this was not matched by the staging of the 2010 FIFA World Cup. Sports tourism is a major factor in the business of sport, but 2010 was marred by poor planning at the outset, tardy administration in the build-up, internecine squabbles, and subsequent dissatisfaction because of these problems. Many of the purpose-built new stadiums were poorly conceived, badly built and not properly completed, with the result that most ended up as white elephants incapable of being run as going concerns.
The upside, however, is that, with proper planning and efficient administration, the successful staging of international sporting showpieces has big spin-offs for a country. This was recognised by the South African Rugby Union (Saru) when it submitted its bid to World Rugby to stage the 2023 World Cup.
“We believe we have submitted the strongest technical bid, supported by world-class venues and outstanding training facilities in an ideal climate against a stunning African backdrop,” Saru chief executive Jurie Roux said in the union’s voluminous bid document. “We will maximise the commercial benefit for World Rugby with a low-cost, high-return event in a country that has the infrastructure and major event experience to turn on a colossal event.”
Roux said the combination of infrastructure, environment and climate would allow rugby to show South Africa at its best.
He added he believed that the commercial model set out in the bid document would be hard to beat, while 2.9 million match tickets would be available.
“The economic impact study we have commissioned by (accountancy firm) Grant Thornton has a good-news story to tell South Africa.
“We predict that hosting Rugby World Cup 2023 would have a R27-billion direct, indirect and induced economic impact on South Africa; R5.7 billion would flow to low-income households; 38 600 temporary or permanent jobs would be sustained; and there’d be an estimated R1.4-billion tax benefit to government.”
Having been part of the bidding process for the 2011, 2015 and 2019 World Cups, Saru has a good idea of what it takes to host a successful event and has clearly gone to great lengths to tick all the right boxes. A successful bid would be very good for the country and once again show that South Africans have the capacity to be good at the business of sport.
This is the first in a series of articles on the business of sport.
ALSO READ: Insurance against recession
- PERSONAL FINANCE ONLINE