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Sports teams can hang onto sky-high valuations by taking care of employees now during coronavirus outbreak

Key Points
  • The coronavirus pandemic has suspended major sporting events across the U.S. including games in the NBA, NHL, MLB, and postponement of the The 2020 Masters.
  • Experts advise team owners to be cautious of supporting hourly staff, as a negative workforce moral post-coronavirus could hurt valuations. 
Cynt Marshall at Mavericks stadium
Credit: Mavericks

In the midst of what he called sports' "Black Swan," Dallas Mavericks owner Mark Cuban was praised by experts throughout the sports business industry for his early signs of leadership after the NBA suspended its season due to the coronavirus.

Cuban told CNBC's "Squawk Box" Thursday that staff throughout American Airlines Center would be financially "stuck" without events that aid workers, and said he would create "a program" for those affected throughout his workforce.

On Friday, Cuban elaborated via email, telling CNBC: "This is a chance to demonstrate that compassion for employees can take priority over profits, and from employees, an understanding that we all need to be flexible will go a long way towards helping us get through this crisis."

With fears of the coronavirus pandemic continuing to have a global impact, it's professional sports owners like Cuban who are faced with the "opportunity" to lead, according to Marty Conway, an adjunct professor at Georgetown University's McDonough School of Business.

"I can see a number of owners and leagues saying, 'We're going to take some responsibility here. It's the right thing to do to sustain the business,'" Conway said.

Conway, who spent time at AOL Sports and served as a special advisor to former MLB commissioner Peter Ueberroth, said team owners throughout sports would need to assist in combating the financial stress that could hit everyday workers.

And if they do it right, owners could enhance their team valuations once the coronavirus outbreak settles, and sporting events reconvene.

The coronavirus outbreak sent shock waves through sports this week. Augusta National Golf Club chairman Fred Ridley announced on Friday the 2020 Masters would be postponed, days after the National Basketball Association became first U.S. league to suspend its season after Jazz center Rudy Gobert tested positive for COVID-19.

Other leagues, including the National Hockey League, Major League Baseball and Major League Soccer followed suit.

In the U.S., the virus has infected more than 1,323, according to Johns Hopkins University, and killed at least 38. But it's also threatening workers who rely on sporting events to earn a living.

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Dallas Mavericks owner Mark Cuban on NBA suspending season due to coronavirus

The handling of the coronavirus outbreak may be new territory for sports leagues, but reacting to a crisis isn't, especially for the NBA, which was praised by Conway for its handling of Magic Johnson's HIV announcement in 1991.

Joe Favorito, a long-time communications and sports marketing consultant, is a professor in strategic communications at Columbia University. He said sports leagues are equipped to handle crisis situations, using 9/11, Hurricane Sandy, Hurricane Katrina and other major events that disrupted sports outings as an example.

After the chaos settles, Favorito said live sporting events become the "unifying force."

"Those brands playing the long game benefited [then] and will again," Favorito said. "This time the disruption could be a little longer, but events will return and when they do, the [valuations] could even rise."

In the meantime, sports owners may take short losses on revenues with the work stoppage, but Dr. Harvey Schiller, the chairman of marketing firm Collegiate Sports Management Group, said income from "major sponsorships and naming rights" should not be affected.

And Conway added ticket revenues for leagues isn't as significant as media deals, which make up a large portion of leagues' income. The National Football League is currently bringing in more than $6 billion per year in media rights fees, while the NBA is bringing in over $2 billion per year.

Also, throughout the recent bull market, valuations of pro teams skyrocketed. Alibaba co-founder Joseph Tsai purchased the Barclays Center and sole control over the Brooklyn Nets for a record $2.3 billion last year, while hedge fund billionaire David Tepper bought the Carolina Panthers for a then-record $2.2 billion in 2018.

In 2017, Tilman Fertitta, owner of restaurant chain Landry's, paid more than $2 billion to purchase the Houston Rockets in 2017.

With owners willing to pay billions to purchase sports franchises, Conway said they should be ready to use their financial stability to help keep staff afloat. Conway added evaluating workforces and making proper adjustments like improving wages, healthcare benefits and more will also help morale, which ties into preserving future valuations.

"The profitability of a sports owner is primarily determined when they sell," Conway said. "Along the way, they must care for not only fans … but the workforce."

And if team owners cut staff, or appear disassociated from workforces throughout this sports pause, Conway said the consequences of negative public opinion could be challenging to overcome and hurt future valuations.

"It will be another side to this," Conway added. "And I think as an owner; you want to be on the right side of that when [sports] resume."

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