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With largely no fans in the stands due to COVID-19, digital transformation in sports is accelerating.
Professional sports teams and leagues rely on fan attendance for significant portion of their revenue. They get plenty of income from media contracts, advertising and merchandise sales as well, but people paying for tickets and coming to games remains their primary source of profit.
That source of income, however, has almost completely evaporated.
Since March 11 when the NBA and NHL played their last games before pausing their regular seasons due to COVID-19, there haven't been any fans in the stands at professional sporting events in the U.S. Some colleges have allowed some fans at football games since the college football season began on Sept. 3, but the NFL, NBA, NHL and Major League Baseball have staged games in mostly empty stadiums and arenas since the start of the pandemic.
So, like organizations in other industries, they've had to pivot.
They've had to get creative. They've had to come up with new ways to engage fans and spur them to spend money. They've had to use analytics to identify efficiencies and potential new revenue streams, and to help them plan for different scenarios.
Mark Lehew, global vice president of sports and entertainment operations at SAP, a global analytics and ERP vendor with partnerships with numerous pro sports leagues, estimated that 60% to 70% of teams' revenue is derived from fan attendance. And while nothing has come close to fully making up for the revenue lost by the absence of fans, digital transformation has been a means for pro sports teams and leagues to increase fan involvement in ways that can mitigate at least some of the losses.
"Many of the leagues, especially those that were forward-looking, were already looking at different ways to participate in this digital transformation and are taking advantage of opportunities to learn, to grow, to iterate, to develop new ways of interacting with fans," said Mike Maughan, head of global insights at Qualtrics, an experience management software vendor. "[The pandemic] has accelerated that in a degree and in a way that we never had to consider before."
Ultimately, just as COVID-19 is accelerating digital transformation worldwide in ways that may one day benefit the organizations that outlast the pandemic, teams and leagues stand to benefit once fans are allowed to return and stadiums and arenas are again full. Having found new revenue streams, they might be even more profitable than prior to the pandemic.
First, however, they have to survive the storm.
Digital transformation is simply the adoption of technologies to improve operations, and when it comes to the business of sports, one of the significant aspects of digital transformation is the use of technology to engage fans.
Before the pandemic, teams and leagues could rely on fan attendance to fuel their profits. Most of their attention, when it came to the fan experience, was therefore focused on those fans in the stands, the average 70,000 at an NFL game, 40,000 at a MLB game, or 20,000 at an NBA or NHL game.
But by paying most of their attention to the fans in attendance they actually ignored the vast majority of the people who follow their teams.
According to Lehew, only about 1% of sports fans ever actually attend a game. The rest watch from their homes. And that 99% watching from the comfort of their couch is a huge untapped source of revenue, one that sports teams leagues are now trying to engage digitally.
"What they're having to think about isn't really new," Lehew said. "They've always had this challenge. The thing that's new is getting them to stop worrying about the people just in-venue and look at what to do about the vast majority of the audience that never shows up. The pandemic is forcing them to look broader."
Mike MaughanHead of global insights, Qualtrics
One of the ways they're attempting to increase fan engagement is through social media. Broadcasts now frequently feature polls, asking fans to vote via Twitter, in particular, on questions posed throughout games in order to keep fans entertained beyond just the action itself and keep them from switching to the myriad other viewing options.
Another is the advent of digital events during the offseason where players meet with fans virtually. The hope, according to Lehew, is that such events will engage fans during the months when teams in a given sport aren't playing to get them more excited for the upcoming season. Many teams previously hosted fan expos in person, but that required transportation. Fans can attend digital events from the comfort of their homes.
Teams and leagues are also trying to improve the visual experience of watching a game from home during the pandemic.
The NBA, for example, is taking advantage of the lack of fans sitting courtside by utilizing camera angles they previously couldn't. The more visually appealing their product, the more people they can get to watch at home, and the more they can attract and keep viewers, the more teams and leagues can charge advertisers for commercials to increase ad revenue.
And then there's focusing on the international audience, a resource sports such as soccer and basketball have tapped effectively, but which other sports -- football, in particular -- have struggled to capture.
"When we think about the fan experience it's very myopic to think about the fan experience solely as those who are in the stadium or in the arena watching it live there," Maughan said. "There is a much larger audience, [and the pandemic] has allowed different sports leagues to focus on the fact that the fan experience is so much bigger than just what's happening in the arena."
Monetizing digital transformation
Beyond the obvious path from increased viewership to increased ad revenue, sports teams and leagues are figuring out how to turn their accelerated digital transformation into new revenue streams.
Much of that comes down to discovering who the fans are and directly marketing to them.
Teams know who buys tickets to their games. But they don't know who's watching at home. In fact, if someone buys four tickets to a game, they don't really know anything about the three people in attendance beyond the one who purchased the tickets.
Through digital transformation, sports teams and leagues are finding ways to learn about the people now engaging with them in new ways. They're attempting to gather data, and turn that data into fuel for marketing campaigns.
They're doing surveys to learn more about who's tuning in to their games from home. Some are offering their own media content, and as people sign up to view that content the teams and leagues are able to capture information, while others are exploring other means of expanding beyond just the games and into entertainment to get people to sign up for things in order to digitally engage.
"Teams all did surveys, but now they're broadening it and using [analytics] in many different ways to get insight, and then it's taking that insight and acting on it that makes a difference," Lehew said. "Data sources that they were used to tapping dried up for them, so now they have to come up with different mechanisms virtually to engage these fans to get at this sort of insight."
Analytics are also key to understanding the mindset of fans as teams and leagues prepare for the eventual return to playing before tens of thousands in stadiums and arenas.
Just as restaurants need to make people feel safe in order for them to return to in-person dining, and grocery stores have had to make people feel safe for them to shop in person rather than online, teams and leagues will need to make people feel safe about again sitting shoulder-to-shoulder with strangers.
"Just opening the doors is not enough," Maughan said. "You have to make sure to understand how people feel. Even if it's just a perception thing, you need to know that not only do you have the data that makes sure people are safe but also the data that provides the means whereby people feel safe. That's one of the most important ways we've seen the use of data and analytics."
If teams and leagues can't make people feel safe, they risk losing their main source of revenue for a lot longer than just a single season. It's one thing to try to make up a portion of lost revenue for six months or so, but it's another to lose out on 60% to 70% of revenues long term.
"Analytics have been massively important to the various leagues as they have tried to understand what's going on," Maughan added. "Think about a restaurant for a moment. Even though you've opened your restaurant because you can, it doesn't mean that anyone is going to show up. The analytics are huge because it's not important just to know what's happening, but you have to know how people feel."
The players' perspective
The digital transformation in sports sparked by COVID-19 extends beyond teams and leagues attempting to engage fans in new and creative ways.
It extends now to the way leagues and teams are engaging with players as well.
Sports can't operate without players, and the well-being of those players – psychological, as well as physical -- has been paramount to the restart of live games.
Just as data has been crucial in the fight against the spread of COVID-19 among the general public, sports organizations have used it to keep players as healthy as possible. But data has also been crucial to the mental health of players as they perform under unprecedented circumstances, particularly in those sports in which players have been isolated from the public to prevent exposure to COVID-19.
The NBA and NHL each centralized games to be able to finish their regular seasons and hold their playoffs. Players left their homes in early July, and for the duration of their respective seasons were separated from family and friends and quarantined in hotels, leaving only to go to the arena to play.
For some, it was only a matter of weeks. But for those on the Tampa Bay Lightning and Dallas Stars who played for professional hockey's Stanley Cup it was nearly three months of isolation, and for those on the Los Angeles Lakers and Miami Heat now playing in the basketball's NBA Finals it will similarly be about three months away from home.
Baseball players were allowed to live at home during the regular season, and teams played their games in their regular stadiums rather than a centralized location. However, now that the playoffs have begun players are separated from their families and living in hotels, and once the second of four playoff rounds begin they will move to a centralized location. While their isolation won't last three months, for the teams that make the World Series it could last about six weeks.
In response, to monitor the mental health of its players, the NBA created an app to communicate with players, according to Maughan.
Twice each week, players were simply asked, "How are you doing?" As a follow-up, they were asked, "What can we do to make your day better?"
Their responses were logged, including explanations about why they felt a particular way, and teams have subsequently taken data-driven actions to ensure as positive an experience as possible.
"You can begin to look at responses on both an aggregate and an individual level," Maughan said. "It's so important to keep a constant pulse on people both at the forest level and at the tree level."
With such information, the league has been able to find patterns. If players on a particular team or hotel are feeling worse than those on other teams or in other hotels, the NBA has been able to be proactive in preventing mental health issues caused by isolation. And if an individual player has been struggling psychologically, the league has been able to work with them.
Despite the proactive efforts of the various leagues, however, whether because of physical health concerns or the prospect of spending months in isolation, some players decided not to play.
Dozens of NFL players opted out of the season, including Patriots linebacker Dont'a Hightower, a three-time Super Bowl champion and a team captain. Likely Hall of Famers Felix Hernandez and Buster Posey are among the baseball players who chose not to play this season. And some NBA and NHL players also opted out prior to the restart of their seasons.
Another season looms for the NBA and NHL, with the hockey potentially restarting in December and basketball in January, and baseball's spring training won't be far behind. If there are no protective bubbles, teams and leagues will need to make their players feel safe to ensure that as many as possible elect to play.
"It's one thing to know hospitalization rates, infection rates, mortality rates, etc., but it's equally important to understand if we're reopening this, are any of the players going to come?" Maughan said. "On the analytics side, what can we do proactively as an organization and a league to make sure that people feel safe, that they feel we're taking into account what they need?"
The positive side
With three of the four major sports either completing their seasons in the next few weeks or already finished and the NFL now in full swing, sports have succeeded in returning to competition.
They have not, however, played before many fans yet (a few NFL teams have allowed a small number of fans to watch in person), and it's possible they'll play in front of empty stands -- or at least reduced crowds -- when their next seasons begin. Eventually, however, most expect COVID-19 to be controlled and stadiums and arenas filled.
Eventually, teams and leagues will get their main source of revenue back.
And when they do, they will have actually benefited from the absence of that revenue. The accelerated digital transformation forced by the pandemic will likely mean new revenue streams for sports teams and leagues on top of their traditional income sources.
"This sort of shock to the system is really an accelerator for a lot of these people that have done things the same way for 20 to 30 years to force them to look at things differently and take a different approach to things," Lehew said. "There's going to be some lasting change, for the good, that moves people toward what it's really going to take to compete in the entertainment and media world."
Similarly, Maughan said that the pandemic represents an opportunity for sports teams and leagues.
Short term, there's struggle. Some teams have been forced to lay off staff, and according to Lehew, if teams face a second season without fans in the stands they might struggle to pay their players unless the leagues and their respective players unions agree to restructure contracts.
But long term, the creativity forced by the COVID-19 crisis has the potential to lead to increased profits.
"Those leagues that are viewing this an opportunity to look at how to expand their footprint in a deeper and new way will come out of this much stronger," Maughan said. "They'll come out much stronger with a much more robust fan base in a much wider place with much better ways to engage them. And that will help them come up with new ways to monetize."