Impact of Covid-19 on the Sports Industry: Portugal

Six weeks have now passed since the World Health Organization declared the Covid-19 outbreak a pandemic on 11 March 2020. The sports industry was one of the first to feel the pain, with championships put on hold, the paying public barred from attending sports venues and advertising and broadcasting revenues plummeting.

Immediate impact

The sports industry in Portugal is worth more than €1bn a year, directly and indirectly employing thousands of the population. It has been severely impacted from the outset of the crisis, most notably due to the suspension of a range of professional competitions, including the national football league, tennis ATP, and the basketball, volleyball and handball leagues. Public gatherings have been severely constrained since the beginning of March, sporting events suspended as of 12 March and gatherings of more than 100 people prohibited since 15 March. Coupled with the introduction of home confinement for the general population since the declaration of the state of emergency on 18 March, this has meant that sporting venues have effectively been closed since the beginning of March.

Addressing the disruption: Sports Federations

The most visible impact has been in professional football, the most lucrative activity in the Portuguese sport sector, with the two top governing bodies (the Portuguese Federation of Football and the Portuguese League of Professional Football) suspending all domestic competitions.

Meanwhile, the basketball, volleyball and roller hockey federations were all unanimous in suspending professional competitions for an undetermined period and with immediate effect from 12 March. With competitions suspended, league results are effectively in standstill, and there is still no solution regarding the outcome of the professional competitions. This impacts competing clubs and athletes in terms of titles, money prizes and marketing revenues.

Following the cancellation of several international tournaments and, in relation to football, FIFA’s declaration that it would not issue binding guidelines to national football bodies on how to handle suspended competitions, the discussions in Portuguese football are focusing on finishing the championships. Options for the first two divisions include play-offs between the runners-up to decide the champions, or the extension of the competitions into the summer months. In relation to the lower leagues, the decision was taken to end the respective competitions, with clubs maintaining their current league position and the league title not awarded.

Availability of economic measures

Deprived of their key revenues, football clubs are facing severe difficulties to pay the high salaries of their players, coaches and other staff, which represents a significant portion of the ongoing expenses of the organisations.

In order to survive this unprecedented period, clubs may make use of measures approved by the Portuguese Government to support the economy as whole, including temporary tax breaks, credit moratoria, and simplified lay-offs.

The high sums involved in the professional football industry – from broadcasting rights to advertising revenues to players’ salaries – mean that the commercial impact of decisions taken in the sector can have serious economic and legal repercussions. The reputation of clubs and players alike is at stake, especially at a time when across the economy fears of a severe downturn are high.

Sporting Clube de Portugal, one of the "Três Grandes" (Big Three) clubs in Portugal, has entered into an agreement with its players for a 40% salary reduction over the next three months. The remaining staff was laid-off. Portugal’s two other big clubs, SL Benfica and FC Porto are still assessing how best to proceed.

In the meantime, Alexandre Fonseca, CEO of Altice Portugal, the broadcaster of football matches, announced that after having settled payments to football clubs with respect to the month of March, Altice is suspending its payments for the month of April. Payments should return as soon as the competitions resume and contents are made available to Altice’s clients.

The simplified lay-off mechanism – are sports clubs eligible?

A new simplified lay-off mechanism has been introduced under Portuguese law, specifically in response to the pandemic (Decree-Law no. 10-G/2020, of 26 March 2020). The mechanism allows companies impacted by closure or a substantial reduction in activity following the outbreak to significantly (and temporarily) reduce their wage expenditure while employees collect so-called “compensation” (where 30% of the compensation provided to employees is borne by the employer and the remaining 70% supported by the social security mechanism). This law does not distinguish between sports clubs and other commercial enterprises, so professional sport clubs may be entitled to benefit under the regime. Indeed, at least two football clubs have already requested access to the simplified lay-off mechanism for their staff, including players.

Impact on other players in the sports industry

A range of other companies and activities active in the sports sector have been severely impacted, from suppliers, broadcasters and event organisers, to manufacturers and sellers of sports equipment.

Equally, sports media outlets, especially newspapers, have suffered a marked decrease in their sales, since there are no competitions to report on. Advertising revenues have also dried up across the media sector, with most revenues now being absorbed by general news outlets.

In parallel, online betting websites are expecting close to a 100% downfall of their revenue due to the dearth of sporting events on which users can place bets.

Comment

Despite the plans currently being discussed to resume activities across the sector, there is still no final decision on how and when competitions will resume. The entire domestic sports sector is therefore virtually at a standstill, at least for now. It is expected that the national state of emergency will be lifted in the course of May 2020. Players, broadcasters and fans will all hope that any anticipated easing of social constraints will bring about much needed clarity and trigger collective decisions from the main sports governing bodies in relation to sport events and suspended championships.

However, with (some form of) social distancing apparently here to stay and fears concerning large gatherings in closed venues enduring, the industry will most likely have to rethink its business model and shift its focus to revenue streams less dependent on the paying public.