Expert calls on Japanese sports industry to innovate after pandemic

The COVID-19 pandemic has caused serious damage to the sports business worldwide. After a few months of inactivity, leagues are finally returning to action. In Japan, Nippon Professional Baseball had its opening day on June 19, and the J. League resumed Saturday.

Now the industry faces a serious challenge as it figures out how to make up for lost time and opportunities. Takayuki Hioki, managing director of Sports Branding Japan, sat down with The Japan Times to discuss how the sports industry will recover from this unprecedented experience.

Due to the COVID-19 pandemic, NPB's season opening was delayed, the J. League was interrupted and the B. League season could not be completed. The Summer Grand Sumo Tournament and the spring and summer National High School Championships were canceled. As Japan's sports industry has suffered great financial damage, how long do you think it will take to recover from the loss?

It is difficult to calculate the exact amount that the industry has lost. In baseball, for example, NPB failed to earn three months of income that would have come from tickets, broadcast fees or stadium concessions had it started in March. It is so hard to make up for it because you don’t have many alternative ways to make money in sports.

In apparel, you can make up for losses by turning to online shopping, but sports' main content takes place at games. It is impossible to get back 100 percent of the loss in the short term. The number of fans at stadium will be limited to half of venue capacity for the time being.

The sports leagues don’t have ways to make up for the lost 50 percent. You only have a few options — raising ticket prices or reducing stadium capacity. But even if the seats are reduced by half, you can’t double ticket prices because the service you provide is the same. Now sports leagues are looking for new ways to earn money in the digital field.

Speaking of digital, almost every sports event is being held behind closed doors and fans have to watch games on TV or streaming video services. During the coronavirus outbreak, more people are watching sports on streaming services than ever before. Do you think it will be established as a new business model?

I have been saying it should be. I own two video service companies. One produces sports videos at low cost and the other provides a platform to deliver the videos, also through a low price. We have added various services to streaming so that fans will pay for it. Broadcasting on TV costs a lot. Some major sports leagues can sell broadcasting rights, but the majority of Japan’s sports leagues or associations, such as American football, ice hockey, handball or high school and collegiate sports, can’t. My companies provide affordable video services to them.

Video services have created a new market. For example, our companies have started to stream NPB farm team games and we produce about 600 games per year. Our cost is ¥400,000 ($3,730) per game, while broadcasting a farm team game requires ¥2 million. What has happened is that top-team scouts started to use the video to watch players’ performances. They can watch it anytime and anywhere, and the teams can pay for the service from their budget because scouting is a part of their activities.

Streaming farm team games has also brought more fans to their games and enabled those stadiums to sell advertisements or raise their advertising rates. This increases teams' revenues and covers costs. That's our business model, and I think it can be duplicated for many amateur league and associations.

Some streaming services have a system where fans can tip for individual plays or performances by clicking a button. Will this become a new system for sponsorship in the future?

I’m not sure that system is effective as sponsorship, but the leagues or teams should build business models in which they get money from the end users. Teams have already been merchandising their goods or selling e-tickets. They need to take the next step.

I think the ultimate model is sports betting. I don't gamble myself, but sports betting should be one of the measures used to pay for sports. Under a proper and legal system, the revenue would be divided to the teams and the teams could use that money to add to their value.

Will the delay, cancellation or interruption of sporting events due to COVID-19 cause fans to leave?

I don’t think it will happen. It was only a few months, and sports fans are a relatively small part of Japan's population. I don’t think the number of sports fans will decrease.

But it's very important for leagues and teams to change their mindset on how to widen the market. They have to attempt to succeed in new business fields, such as digital. Those blank three months are hurdles you have to overcome. It's true of athletes as well — if you overcome adversity, you’ll advance. If you don’t, you’ll fall behind. The future depends on what leagues or teams will do to overcome the adversity of the last three months. The fans have waited; they are patient. If the community needs sports, fans will be back for sure.

Each league has dealt with the coronavirus situation differently. For example, the J. League and NPB formed a task force of experts that help decide when the league should start or resume.

It has a lot to do with the financial circumstances of the leagues or parent companies. Both the J. League and NPB have enough funds and are supported by financially healthy enterprises. That helps them create established decision-making processes.

For most of the other leagues or associations in Japan, however, those in charge have no experience making business decisions or dealing with such crises. They tend to take a lot of time to make decisions. If you have enough savings, you can make decisions or take action without worrying about money. If not, you have to worry about money first.

Sports is a field in which you cannot receive financing easily because many Japanese sports organizations have no assets such as real estate. Many of them lease arenas or stadiums for use. Players are not assets, but rather costs. Those organizations have to rely on sponsors.

Many enterprises or companies have been financially damaged by the pandemic. How will it affect sports?

Some teams could be forced to fold. But many of the teams in Japan, whether they are pro or amateur, are owned by companies or enterprises. Japanese companies have decent savings. Of course, they will suffer shortfalls in the near term because their sales will have decreased compared with normal years, but they should be able to get through this situation without laying off players or staff. So long as parent companies or supporting enterprises are fine, the teams can survive.

That being said, the damaged companies will start cutting costs such as advertising expenses or budgets for their sports teams. That could happen a year from now. Planning for that future is important. The ability to create new and aggressive business plans under these circumstances could determine your team's survival.

The Tokyo Olympic and Paralympic Games have been postponed to next summer. Could the increasing cost cause sponsors to drop their sponsorship?

I don’t think it will happen. This is a very difficult issue. There are cases for both sides, in terms of whether or not sponsors will be asked to cover the extra cost. The postponement is a force majeure for the sponsors. Can you ask the sponsors to pay the same amount of money again? No. Because it is the same as having to pay for two Olympics. New rules are needed to deal with this situation.

Some sponsors’ contracts expired after 2020. If the contract is extended, the question is whether sponsors can use Olympic rights for free or if they will be asked for additional money. Those extended contracts could clash with the rights of stakeholders of the 2022 Beijing Winter Olympics. These issues are complicated.

Do you think the development of a COVID-19 vaccine will be a major factor in holding the Tokyo Games as scheduled?

I don’t think so. The various sports leagues have already started without a vaccine. I should not say this easily, but what matters isn't the vaccine, but rather maintaining global consistency. There could be cases where some nations cannot send athletes because of the coronavirus. Or some para athletes could decline to come to Japan due to concerns over their immunity. It is possible that while some national Olympic committees can send their athletes, others cannot. If that happens, can we still accept that as a style of Olympics or Paralympics? This is a tough question to answer.