The return of in-person events in many parts of the world is exciting but challenges abound and many of the conversations I am having inevitably turn to the issue of commercially sustainable business models.
At MPW19 in Singapore, a recurring topic, both on and off the stage, was the broken business model. The elephant in the room just got way bigger and I am concerned to see that many events and organisations are returning with essentially the same model under vastly more challenging economic conditions.
My sense is that the “top of the pyramid” the likes of Abbott World Marathon Majors, IRONMAN, Spartan, large gran fondos, large running events over 10,000 participants and organisations with a portfolio of events are still experiencing huge challenges but have the reserves, cash flow and diversity of business model to survive and ultimately prosper.
Likewise, I think the bottom of the pyramid – passion projects, club and community events with limited overheads and reliance on volunteers and community goodwill will continue and possibly even grow. That said, I’m hearing of many of them throwing in the towel because “it’s become too hard” both from a permit, compliance and liability perspective as well as commercially.
My biggest concern, and that of numerous industry leaders I have spoken to, is for the middle of the pyramid – medium sized events from around 2,000 to 10,000 participants (in the running sector) and organisations with probably 10-20 staff.
We have already lost huge numbers of events and organisers. For example, indications are that 80% of events in Thailand will not return, in Australia the figure is around 30% and I’m hearing a sense of as much as 50% in some other countries.
I certainly don’t have all of the answers but my fear is that some of those who have managed to weather the storm over the past two years will be wiped out this year by rushing to return with a flawed business model during what is certain to be a challenging transition year.
I am going to address five key areas impacted below and then share seven thoughts on possible opportunities and solutions.
1. Revenue
Core revenue streams are in most instances still entry fees and sponsorship and sometimes Government grants.
I am generally seeing a reluctance to increase entry fees. Pierre Duvelleroy, CEO of njuko, shared that he is seeing, at best, a few percent increase in entry fees in Europe. I’m hearing similar feedback from most parts of the world. I recognise that increasing prices on what is essentially discretionary spend for participants is risky but is it possibly the lesser of the two evils?
From a registration perspective, very few events are oversubscribed and typically I am hearing anything from 50% to 80% sign-up. Often on reduced capacity – ranging from 30% to 75% of 2019 levels. I heard of a high-profile event in South Africa which is usually oversubscribed but did not even fill its ballot and had to go back to the market.
Sponsorship seems to be a mixed bag with a few new brands entering the space but broadly reduced budgets and a more conservative approach to events until the risk of potential cancellations and postponements is reduced as well as funds redirected to digital options.
In a few markets, governments are providing grants with one example being Australia where there is a push from regional tourism departments supporting MP events to help revitalise local economies. I was speaking to one operator who indicated “we are not doing any events that do not have government funding.” A model which certainly makes sense but most likely will only benefit larger marquee events and a small number of events in each town.
2. Cash Flow and Reserves
My sense is that there is enormous and increasing cash flow pressure across an industry which, generally, is thinly capitalised. It may well be the tipping point that sends businesses over the edge as they try to restart their engines.
Someone said to me in December “it’s going to take us at least two years to get back to where we were financially in 2019 and I have no idea how I’m going to cash flow that”.
The statistics from njuko are that the peak of the registration bell curve has moved 21 days closer to event day. When added to the above-mentioned decreased entry levels, this has significant cash flow implications for final payments, especially when combined with the fact that many vendors are now demanding larger up-front payments.
Some sponsors are moving towards performance-based partnerships rather than traditional front-loaded rights payments which will certainly exacerbate the issue.
More often than not government grants are only paid months after event day and linked to the risk of achieving KPI’s. I was talking to an organiser just last week who was chasing an overdue grant payment while juggling pressure from unpaid suppliers.
Investment is starting to flow into the industry in some markets with a few recent US-centric deals such as Ragnar being sold to Fitlab, Lifetime Fitness buying Sea Otter and the partnership between Ironman and UTMB which has already seen significant expansion. However, in comparison to the broader sports eco-system it is barely a trickle
No doubt there will be more consolidation which is probably a key to addressing some of the current business model issues and potentially attract more external funding.
3. Input costs and supply chain
Without doubt input costs and supply chain issues are two key areas that are creating enormous pressure on the business model. My sense is that input costs have increased by at least 20 to 30% in most markets.
Late last year, even before the added impact of the war in Ukraine, I was speaking to Mike Nishi, COO of Chicago Event Management who indicated that analysis of their expenses indicated ranges from 10 to 50% increases on individual line items.
Supply chain challenges are not only adding to direct costs but taking up significant additional staff hours – negotiating deals, sourcing new suppliers, briefing new vendors and managing the potential risk of non-performance relative to tried and tested operators who know the event from many years of involvement.
Many commentators are indicating that interest rates will rise which is likely to have direct impacts on those events that have borrowed money but also potentially further increase input costs.
4. The Great Resignation
In an industry where “on-ground” experience is hugely valuable, the great resignation is creating headaches for many organisations and races with respect to full time staff, freelancers and volunteers. Decades of experience have been lost, succession plans have been thrown into disarray and wage bills have increased.
The recruitment process is creating enormous time and resource pressure at a time when a focus on the delivery of safe and commercially viable events is crucial. One senior exec told me a while ago “I now have seven new staff that I am personally onboarding which is having a huge impact on my time”
Last week I was speaking to someone in Australia who indicated that an advertisement for a well-paid marketing role had only attracted one applicant.
5. Permits and Ownership
One of the big challenges for our industry has always been the intrinsic importance of permits and approvals to the value of the asset that is being created. No permit = no event = no or hugely diminished asset.
I have heard a number of examples where the lack of continuity caused by the COVID hiatus has resulted in permit issues for events looking to return. One 25-year-old event in the UK is now dealing with an entirely new council team, who have no knowledge of the event, and is facing extreme uncertainty over their permit.
Another example is of an event being told by a new council staff member to “try with 50% capacity this year and if it works we can look at increasing it next year”.
Even if permits are ultimately granted the increased time and staff costs as well as new compliance requirements are likely to create commercial implications.
Some thoughts:
1. Entry fees
It’s hard to see how entry fees won’t need to be increased in many events. If ever there was a time to be able to justify it to participants it is now. Market research to understand tolerance levels and clear communication of the value proposition will be crucial.
2. Postponement and rationalisation
Probably counter-intuitive in markets such as Europe and USA but an example out of New Zealand of an event which had a June 2022 date and made the decision to postpone to 2023 to have longer lead time and better visibility of the economic climate.
Remember those organisers at the start of the Pandemic that called it early, gave refunds, pulled up the shutters and waited for more certainly – is that kind of approach perhaps still appropriate in some markets rather than rushing back?
Less is sometimes more – I am hearing a few stories of events going “back to basics” with no noticeable push back from participants. Again, key is going to be understanding your audience – is a medal and T-shirt essential or perhaps a “top-up” which those that want them can pay for as an option?
If you have a portfolio of events have you really analysed the contribution of each individual event and are there opportunities to scale back to fewer with possibly a better overall commercial outcome.
3. Partnership versus ownership
I was speaking to Chris Heverin, MD, Spartan, Australia & New Zealand and Chair of Australian Mass Participation Sports Events Alliance who indicated that a number of organisers in Australia are moving from a rights owner to a partnership model on some events.
Shared risk and reward with governments, sponsors, suppliers and other key stakeholders potentially helps the commercial model and assists with the permit approval process.
4. Data and year-round engagement
First party participant data is even more essential to inform engagement strategies and partnership conversations but my sense is that still only a small percentage of the industry has invested in it both mentally and financially.
There is no doubt in my mind that many participants are not looking for “more of the same”. Data to understand, rather than assume, what they want is going to be crucial to survival for many. For smaller operators a solution may be to collaborate with sponsors who have the resources to help with strategy and analysis.
5. Staffing
There may well be some valuable opportunities from the great resignation: Downsize core teams, attract new talent with a fresh perspective from different industries, collaborate with/sub contract other organisers, share volunteers and outsource to freelancers and new service providers.
6. Technology
Huge advances have taken place during COVID. Some specific to the industry and others that can be repurposed. An operational example is Blerter out of New Zealand, an event and risk management platform that helps reduce costs in a number of areas including staffing and radios while enhancing communication and safety. There are many others that can support all functional areas of your business. Talk to others and do your research.
7. Web 3.0 and The Metaverse
Still much to learn and understand but a few early adopters especially in the NFT space. Possibly opportunities to open new revenue streams and ways to engage with younger generations.
A recent example being Jeff Foo from LIV3LY in Singapore launching an NFT bib. Watch the last MPW Web Series to hear his insights along with those of Trevor Doerksen from Klocked which is already staging events in the Metaverse including the opportunity to dress your avatar in Spartan gear.
Every challenge creates an opportunity. I have been saying for some years that the industry had one foot on a banana skin and I believe that COVID has fast-tracked what was inevitable for many.
I still have no doubt that Mass Participation has an enormous role to play in the health and well-being of humanity and in years to come will look back on this time as a pivotal moment in helping build a more resilient and commercially sustainable industry.
As Dave McGillivray, Race Director of Boston Marathon says “The Comeback is Always Stronger than the Setback”.
I would love to hear your feedback and ideas. Please do not hesitate to contact me chris@massparticipationworld.com.