RIO DE JANEIRO, BRAZIL – At this point in the championship, everyone knows, to a greater or lesser extent, the effects of the Covid-19 (coronavirus) on the world economy and on Brazil in particular. Stock markets down, exchange up, turbulence aggravated by an unexpected crisis in the oil world.
Well, those who are not cold-blooded at this time are running around and losing money. Let us try to act with the required caution and assess the impacts of this scenario on world and Brazilian sports.
Thinking about the world, the main concern is connected to the speed of contagion and the amount of people who need medical-hospital support, with respiratory treatment to a greater or lesser degree.
Over 50 percent of infected individuals need a bed and care, which in addition to other diseases that persist, are filling the beds available within the hospital system. With treatment, lethality is low, but when there is a lack of equipment and beds, it rises and this is the drama that is causing restrictions on movement and crowding.
This has a direct effect on sport. As much as TVs may broadcast them around the world, the practice of most sports requires the presence of an audience, which creates the atmosphere needed for a competition.
Even in sports where concentration and silence are part of the game, such as tennis for one, the explosion of fans after a disputed point is immeasurable. Or measurable, because some of the revenues of those organizing competitions come from the sale of tickets, and food.
The issue with situations like the Covid-19 in an industry like sports is that it lives on a calendar, which is usually considered in advance due to the many demands in terms of security and organization, not to mention the technical aspects. But it also lives on the presence of supporters and fans. In fact, more of supporters than fans, who are the ones who really shape the atmosphere of competitions.
Therefore, continuing the matches without an audience is hardly enough simply to comply with the schedule. Sports without an audience do not exist. This week the Juventus fans watched Dybala’s goal against Inter Milan on TV in an important and well-contested match.
Just as no one witnessed in person the match between Valencia and Atalanta, beaten 4-3 by a fine Italian team in Spain. But in Germany, RB Leipzig relied on the support of their fans to beat José Mourinho’s Tottenham 3-0. A presence that undoubtedly spurred the German team, and whose absence made life easier for Atalanta.
The number of cancelled sporting events is large, from the Indian Wells Master 1000 (tennis tournament), which is regarded as the most prominent after the 4 Grand Slams, and which awards the winner US$1.3 million and approximately US$20 million in total prizes – even Roland Garros is at risk of being affected, as is the entire season in Europe – through the World Swimming Series in Italy, the Abu Dhabi Cycling Tour, and the Women’s Ice Hockey World Cup in Canada.
Not to mention the number of events already postponed, in soccer, athletics, racing, ice skating, fighting and so on.
And worse: to defer is to impact the future calendar, and in 2020 there are at least three major competitions around the world: the Tokyo Olympics in July, the Euro Soccer Cup, to be played in June in 12 different countries, and the Soccer America Cup, also to be played in June in Argentina and Colombia.
Borrowing a song by Raul Seixas, we are living in 2020 the year in which the Earth stopped, or is close to it. And sports are bound to be affected.
Everything is still very recent, and it is premature to talk about assessing the financial impacts of cancellations and matches behind closed doors. The problem with closed doors is the absence of the competitive environment that the sport requires, as well as the difference between playing matches at home and at the opponent’s field.
But what can happen from now on? There is no answer to that question. The main competitions to be played until April will likely be temporarily suspended, awaiting developments.
There may only be a complement to the Champions League Quarter-Finals behind closed doors to complete the stage. And other competitions will remain on stand-by. Changes in the formats of some competitions may occur in order to find a championship and close – except for the Premier League, which already has a virtual champion, Liverpool – but it’s quite possible that there will be impacts that will extend until next season.
For instance, the failure to host a tournament like Indian Wells leads to distortions in the ranking, and this worsens as other tournaments are cancelled. Moving on to competitions like UEFA EURO 2020 and the 2021 America Cup will impact the 2022 World Cup qualifiers.
But sacrifices and adjustments will ultimately have to be made, after all, public health comes before the sports’ private economic issues. The world will suffer greatly from the already measurable effects of the Covid-19.
Brazil
Should some major competitions be cancelled or postponed, some athletes will individually lose the chance to dispute them at the peak of their physical condition, and in addition to the opportunity to win, there is the whole financial issue of the awards involved.
In the region, some South American federations are imposing quarantine on athletes who play in Europe when they are called for qualifying matches for the 2022 World Cup. Perhaps the CONMEBOL will ultimately postpone the first matches, so far there has been no confirmation, merely comments on social media that dates will change.
For Brazilian soccer clubs, the sport with the highest financial turnover in the country, the impacts are linked to two factors: exchange rate and GDP/income.
In the case of the exchange rate, it jumped from R$4.02 to R$4.72 in just over two months. But the upward trajectory was already occurring before the shock caused by the Covid-19.
In other words, the deterioration of the international scenario, associated with a deterioration of the domestic, political and economic scenario, pushed the exchange rate throughout the year, with the economic area supplying ammunition for the market to operate – “We don’t have a ceiling” to act in the sequence when it reached R$4.40 and later Minister Paulo Guedes saying that “if you mess up too much the dollar could reach R$5.00”, providing another ceiling for the market to operate.
One cannot tell what the clubs have done, but there are three items that typically impact their finances and are tied to the exchange rate:
- Sale of Athletes
- Purchase of Athletes
- Foreign Currency Compensation Payment (US$/euro)
In the above period the euro varied from R$4.50 to R$5.27 (+19.8 percent). In other words, the practical effect of a debt or a receivable of €10 million is as follows:
– January 2nd, 2020: €10 million x R$4.50 = R$45 million
– March 6th, 2020: €10 million x R$5.27 = R$52.7 million
Without doing anything the club will have either a positive or a negative impact of R$7.7 million.
What should it do? Hedge (exchange protection) and lock the price at R$5.27 (in case of receivable amounts) or when it realized that the trend was upward and consistent and lock at least the nearest payment portion.
In this highly volatile scenario, the expected behavior for someone who has a recurrence of foreign currency payments is precisely to hedge the next few months’ installments. At least in the next six months, but ideally in the next 12, to at least ensure that the budget does not suffer from an external issue, namely the exchange rate.
However, there is yet another internal effect which is the GDP and Income issue that is associated with Inflation. And this is all linked to the fans, who finance the soccer business. Whether through what is expected from advertising associated with the sport, or through subscriptions to TV packages, tickets and general consumption associated with soccer.
Upward foreign currency means inflationary pressure. Inflation means less power to consume non-essential activities such as soccer. Therefore, there may be a drop in revenues from ticket sales, PPV and marketing.
Less income in the pockets of fans means less income in the club coffers. Declining GDP means less propensity for advertising investments, and less money for clubs.
Therefore, the scenario drawn for 2020, which may also reach 2021 depending on how long the Covid-19 crisis lasts, is now very difficult for the sports industry in general, but for the Brazilian in particular, considering that the year has already begun fragile, with high costs and stable revenues.