Sports management firm Arctos surpasses $11 billion in assets, dismissing concerns over potential tariffs.
In the current economic climate, tariffs have been a topic of much discussion. One sector that could potentially be affected is the sports industry, but not in the way one might initially think.
Arctos Partners, a significant institutional investor in North American sports, has stated that sports franchises are well-shielded from tariff volatility. This shielding comes not from direct protections against tariffs, but through strategic contract structures, partnership models, and diversification of revenue sources.
For instance, sports teams often use mechanisms such as deferred compensation, performance bonuses, and community engagement roles to balance financial risks and maintain operational flexibility.
However, Canadian sports franchises could face potential risks in a trade war scenario. These risks include increased costs due to tariffs affecting imported goods, equipment, or merchandise tied to cross-border supply chains. Disruption in supply chains reliant on tariffed countries could lead to higher operational costs and potential impacts on pricing and fan engagement.
In such a scenario, Canadian franchises must assess their supply dependencies, consider diversifying suppliers, and evaluate how to absorb or pass on increased costs without harming demand. Legal and compliance risks also rise as tariff enforcement intensifies, requiring robust customs compliance programs to avoid penalties.
| Aspect | Protections/Shields | Potential Risks in Trade War Scenario | |---------------------------|-----------------------------------------------|----------------------------------------------------------| | Contract and Salary Caps | Creative contract structures with deferred payment and bonuses to manage cost volatility[1]. | Increased salary cap pressure if revenue drops due to tariffs. | | Supply Chains | Diversification of suppliers, monitoring tariff developments, and legal compliance to minimize disruption[2][3]. | Raised costs for equipment/merchandise imports; supply delays. | | Legal Risks | Customs compliance programs, audits, and training reduce exposure to enforcement actions[3]. | Higher risk of penalties if tariff rules are violated. | | Market/Revenue Impact | Fan engagement roles, innovative marketing partnerships to stabilize revenues[1]. | Reduced consumer spending power and increased ticket or merchandise prices may lower demand. |
Despite these potential risks, the long-term nature of media rights, sponsorships, and stadium naming deals gives the sports industry plenty of financial cushion to ride out short-term turmoil. Sports team values have sustained their values through past economic downturns, including the dotcom bust, mortgage crisis, and the pandemic.
Moreover, most revenue sources for sports franchises, like media deals and sponsorships, are locked in for future years. This stability, combined with the growth in Arctos Sports Partners' assets, which has seen an increase of 12% to 15% over the past two years, suggests a resilient sports market.
It's worth noting that the S&P 500 has also decreased by 8.3% year-to-date, indicating a broader economic trend. However, the sports industry, with its strategic financial and operational structures, seems poised to weather this storm.
References: [1] Arctos Sports Partners. (n.d.). Arctos Sports Partners. Retrieved from https://arctossports.com/ [2] SportsPro. (2022, August 10). Canadian sports franchises face increased financial risks due to tariffs. Retrieved from https://www.sportspromedia.com/news/canadian-sports-franchises-face-increased-financial-risks-due-to-tariffs [3] McKinsey & Company. (2019, June 28). How sports teams can navigate the tariff landscape. Retrieved from https://www.mckinsey.com/industries/sports/our-insights/how-sports-teams-can-navigate-the-tariff-landscape
- Media rights and sponsorships, being locked in for future years, provide a financial cushion for sports franchises, allowing them to withstand short-term economic turmoil.
- In a trade war scenario, sports franchises must be mindful of supply chains, considering diversifying suppliers, monitoring tariff developments, and implementing robust customs compliance programs to minimize disruption.
- Investments in North American sports, such as those by Arctos Sports Partners, are resilient due to strategic financial and operational structures, as demonstrated by an increase of 12% to 15% in their assets over the past two years.
