The SportsFolio Journal - December 2020

Sports

Something strange happened last week. Something that did not happen since 1965. The Denver Broncos became the first team to start a non-quarterback at the position and lost badly to the Saints: 31-3. They completed one pass. 

Why did that happen? You guessed it, COVID-19. The Broncos were without a quarterback because they did not comply with the COVID-19 protocols: mask-wearing and social distancing. One quarterback tested positive, taking the other three down with him because they were designated as high-risk. The Broncos asked the league to move the game, which was denied. 

All of this was largely predictable. As we said earlier, the NFL is a close-contact sport that is not being played in a bubble environment. Basketball’s success does not translate to football. “Do We Need Football in America This Badly?” asked the New York Times, and urged the league to pause. We are not holding our breath that it will happen. The NFL is simply too big and there is too much money at stake. Our concern, as we have repeatedly said, is that by prioritizing the economy over public health, you actually get neither. This is true for the broader economy as well. Australia, a success story from a COVID-19 perspective, treated the threats to public health and the economy as intertwined. The result? The Australian states that contained Covid-19 best also saw the strongest economic recoveries.

We realize that it is hard to take the short-term economic hit for a league, or for a country. But, as we recognized at the beginning of the cycle, public health vs. economy is a false choice in the long term. Prioritizing public health is not just the right thing to do, but also the most profitable thing to do. The NFL may be able to finish the season, but at what cost? Wouldn’t it be just better to accept 2020 as the lost year and start strong next year?

Money

Congratulations Joe Biden and Kamala Harris. There is a tough road ahead, but we know you are looking forward to the challenge.

One could position the 2020 elections as a referendum on truth. The voters had enough with Trump’s casual relationship with the truth, one could hypothetically argue and voted overwhelmingly for truthfulness and accountability. They want a country where people do the right things for the right reasons, and there are consequences for bad behavior. They want to see a country where decency and integrity are restored, and they recognized that a commitment to upholding these values is precisely what will make America great again. 

That view would be inspiring, almost romantic. It would also be largely false. 

The truth of the matter is more than 74 million have voted for Donald Trump. Trumpism seems to be alive and well.  No, this election was not a referendum on truth. The more plausible explanation is COVID-19. An unrelenting pandemic, it was just enough to tilt the balance in favor of Biden. Truth is a public good, everybody wants it, at least in theory, but nobody wants to pay for it. Like public goods, the private sector cannot profit from it, but it is even worse. Arguably, the private sector profits from moving away from the truth, or at the very least from not bothering to correct it.

COVID-19 made a public good private for just enough people at the exact time it mattered. People who were not necessarily bothered by misstatements and lies started to care when it was COVID-19 that was misrepresented, presumably because the truth became impossible to ignore. We think one of Joe Biden’s most effective moments was when he talked about empty chairs. The analogy resonated because it made the consequences of falsehoods tangible for people - their devastating loss was partly a result of the truth being undersupplied to the public.

Trump, ultimately, was not a cause, but a symptom. The country remains largely divided, and if the state of Georgia doesn’t come through for the Democrats in the run-off elections, we are looking at a divided Congress again and holistic reform seems unlikely. That may be good for the stock market, but is it good for the broader economy? For the country?

What to do? Categorizing people along ideologies will not do anybody any good. As Andrew Yang tweeted, if this many people did something, it is important to listen and understand why they did it. What is it that is not going well in this country? What can be done about it? Here is a related problem that is really hard to solve. How do we make people care about the truth when bending it doesn’t impact them? 

Short answer: we must think of ways making the truth profitable, lean hard on ethics and making sure our institutions act as a backstop when we can’t get there through either economic incentives or ethics. If you want the long answer, keep reading the SportsFolio Journal in 2021.

Sports & Money

The intersection of sports & money can be seen as a microcosm of the broader economy in the sense that the challenge of meeting short-term economic goals tends to lead to results that are not necessarily beneficial for the long term. 

Let’s take a look at the NBA. At this point, it is well known that COVID-19 is wreaking havoc with the NBA's finances. The NBA not only came $1.5 billion under revenue projections in 2020, but it also fears more losses if the 2021 season is delayed. It is reported that the NBA is planning to counter this by creating unconventional revenue sources. The same question we asked in the Sports section applies here as well. At what cost? It is true that sports gambling may give the NBA a few million dollars. A sports betting future is being floated as a possibility with in-stadium betting being viewed as an important element of that future.  The vision these days seems to be people hanging out at betting lounges, pulling up their phones and making bets, booze flowing. It might be entertaining, but is it the long term solution that the leagues are looking for?

It is not. This whole thing really started with Adam Silver’s New York Times opinion piece six years ago where he advocated a different approach, but sports gambling is ultimately an inferior tool for what Adam Silver really wants to accomplish. There is a better way.  

Let’s start with defining the right problem because if we don’t get the problem right, we won’t get the solution right. Most everybody thinks the problem we are solving is that people want to gamble and they can’t. That is false. The real problem is 

People want to speculate on sports

Let’s start there. How do we give people what they want (you’ve got to meet the market where it’s at), but do that in a socially beneficial way (capitalism works best when it works for all not just for a select few.)

The answer, of course, is sports investing. It scratches the itch but does that in a way that is good for everybody. Practically in every area, it delivers much more than sports gambling. 

  • Generates direct revenues for the league in multiple ways addressing the cash problem;

  • Generates year-round fan engagement, not just during games;

  • Generates more indirect monetization because of the increased fan engagement;

  • Gives fans a reason to watch the entire game, not just the highlights; 

  • Makes fans root for their teams, as opposed to the spread or a hodgepodge of players; and

  • Preserves the integrity of sports.

These are just the benefits for the leagues. Add to those jobs, growth, taxation and financial literacy, and it becomes clear that this is a win-win for all stakeholders. Economic, ethical and societal incentives are all aligned.

Let’s co-create the New Sports Economy. One trade at a time.