Investment, Politics & Governance, Multiple sports, Global

The world in 2022 - part three: Margins too tight to mention

In his latest four-part series written exclusively for SportsPro, senior contributor Matt Rogan gazes over the horizon to better understand the future into which leaders will be rebuilding their businesses. Next up, he explains what can be done to withstand the forthcoming economic headwinds.

by Matt Rogan
The world in 2022 - part three: Margins too tight to mention

The need for attribution modelling and tight accountability is particularly acute in the current economic environment, with so little room for manoeuvre in most businesses in sport. Sadly, the fundamental instability is unlikely to change in the months to come. 

While debt levels on most developed nations have been significant since the 2008 financial crisis, these have increased markedly as a means of navigating 2020. Average levels of debt among the OECD richest nations are expected to reach circa 137 per cent of GDP – perhaps easier to quantify as an increase of US$13,000 of debt per person in those countries.

When you then consider only around 60 per cent of the population in most of those countries is of working age, and then about 80 per cent of the 60 per cent is currently in work, the debt level is likely to be an extra US$25,000 to US$30,000 per working citizen. That’s not the total debt these nations hold, just the extra part that 2020 has loaded on.

Sport has been vociferous in its lobbying for protection from the immediate aftermath of the crisis, and rightly so. For any commercial sector, however, there is no magic money tree, and sport will be expected to pay its way as governments come to terms with their overall debt challenges. For that reason, it is perhaps more important than ever for sport’s leaders to understand the macroeconomic environment in which they need to rebuild. 

Andrew Zimbalist is professor of economics at Smith College in Massachusetts. “The macroeconomic outlook is bleak globally,” he says. “Large swaths of economies have been shut down by Covid-19 and will have to restructure and rebuild. Governments at the municipal, regional and national levels are deeply in debt and hamstrung to continue to provide necessary services.” 

Zimbalist also projects forward some material changes in the landscape with which individual economies need to right themselves. “Consumer preferences will look different,” he says. “Trade wars are intensifying. Climate change will grow more threatening and destructive.”

In May 2020, investment management firm Russell Investments predicted five longer term economic impacts of the pandemic for business. These can be paraphrased as:

Low interest rates, for longer: There is a lot of economic spare capacity which will keep inflation low for a couple of years. This means central banks will likely keep interest rates low initially. 

Less globalisation: Globalisation was in reverse before Covid-19. The virus is accelerating the trend.

A bigger share of government in the economy: Eventually debate will turn to how to pay for the lockdown support measures and address social inequalities that have been worsened. 

Pressure on profit margins: Slower growth, less efficient capital allocation, just-in-case rather than just-in-time inventory management, higher taxes and higher labour costs will place profit margins under pressure.  

Higher inflation, eventually: Longer term, inflation could rise by more than expected. Globalisation was deflationary and its reversal will be inflationary. On the supply side it will cause higher input costs, less cheap labour and rising tariffs. Ultimately, as higher inflation comes in, nominal interest rates will rise in step with prices.

In the US, at least I anticipate that there will be increased public policy attention to inequality. This will blunt some of the high revenue growth areas. 

Andrew Zimbalist, professor of economics at Smith College

This picture will ultimately have a significant impact on the shape of sport in the next few years. As Zimbalist explains: “In the US, at least I anticipate that there will be increased public policy attention to inequality. This will blunt some of the high revenue growth areas, such as premium seating, catering, collateral ballpark development, and corporate sponsorships. In Europe, it remains to be seen whether Uefa has the will and ability to enforce Financial Fair Play.”

For leaders in any industry, this creates a heady cocktail of challenges. For the sports industry specifically, the growth of which has been fuelled by globalisation, ready supply of capital and increasing disposable income, the challenge is particularly stark. Even the strongest of leagues will be impacted.

“I think that the NBA is the best managed and most forward-looking league in the US,” says Zimbalist. “The league will get a fillip from sports betting, but also a dent from deteriorating relations with China.” Zimbalist doesn’t see an end to the globalisation agenda of sport but does think it will be less straightforward. “I think there will some hiccups,” he says, “but the secular trend will continue.”

It is fundamental to build deep business foundations to withstand these economic headwinds. I think there are five messages leaders need to act on:

  1. Build a predominantly local plan in each area: What would your business look like if it could only buy, sell and resource its product in your home nation? How can you reduce the impact of a localisation agenda in any single area for your business? While, as Zimbalist suggests, full retrenchment is highly unlikely, you may encounter several logistical hiccups in the next two years which need swift Plan Bs. 
  2. Play safe on debt: Interest rates may well be back on the rise by 2022. Debt financing on variable terms has a perilous future for any business in an economy that’s already too prone to use debt to solving debt-driven problems. How can you reduce the risk in your financing if interest rates do increase at pace?
  3. Manage inflation before it manages you: What would a marked increase in inflation do to your supply costs, and how would you best mitigate this in your own pricing? Smart contracting can insulate you from significant exposure here.  
  4. Don’t lose your efficiencies: What did your business learn about efficiency during lockdown that you can leave in place? Where can you invest today to reduce margin pressures come 2022? 
  5. Model the margins (until they work): Tough as it is, you need to be able to play with the excel spreadsheet until the model for 2022 is sustainably cash generative, even with significant risks to the cost of delivery and finance.  

One certainty in this environment is that we will continue to see more creative types of financing.

If you can see a path to an actionable response for steps 1-5, then I would make sure the key steps to enable these, or at least have them ready, are top of your To Do list for 2021. Collectively, they’re key components to future-proof your business financially for whatever 2022 might throw at it. None of the above stops you pushing on if your business thrives despite the economic headwinds – in fact, they will just make it stronger for a sustained push to generate market share. 

One certainty in this environment is that we will continue to see more creative types of financing which are engineered to work around the relative inflexibility of traditional debt and equity markets. In some instances, sport is starting to lead the way. For example, National Basketball Association (NBA) star Spencer Dinwiddie recently worked with long-time friend and business partner Sherrard Harrington to create Eonxi, a venture firm and startup studio with a focus on supporting businesses which might traditionally have been missed by conventional capital routes.

Dinwiddie is an entrepreneur through and through. He recently put on the market blockchain-based tokens for a share of his US$34.4 million Brooklyn Nets contract, and his Twitter profile describes himself as ‘just a tech guy with a jumper’.

Just as Serena Williams has role modelled, so Dinwiddie and Harrington are discussing how best to use their platform to support fellow black founders and investors, as well as other groups that have historically been sidelined in venture capital.

As Pitchbook tells the story: ’Dinwiddie and Harrington know they're part of a very small group of black VCs with cheque-writing power, and they want to change that. To attack the problem at its roots, they're discussing ways to form mentorship programmes and partnerships to reach students and young people who are traditionally left out of VC—the sorts of things they themselves never had.

“Growing up in DC, I never thought of being an entrepreneur, a doctor, a lawyer. Those weren't things that were discussed in my community," Harrington said. "These are new avenues for inner-city children. When someone goes to Spencer's profile, some 13-year-old kid who may not be very good at basketball, they can say, ‘Dang, I can be a tech guy.'"  

About the author: Matt Rogan has spent his career creating and scaling businesses in the sports and entertainment arena. Having co-founded Two Circles and led the business as chief executive and executive chairman for eight years, he now advises a number of businesses inside and outside sport as a non executive director. He also supports a small number of chief executives in a mentoring capacity. Matt joined the SportsPro team as a senior contributor in 2020 and will be publishing his second book in 2021. Find out more at

Read part one and part two of this four-part chapter. You can also read the chapter in its entirety in the forthcoming Issue 111 of SportsPro magazine. Subscribe today here.

Matt Rogan's CEO Playbook, an in-depth practical guide for running a sports business in the wake of Covid-19 - is due to be released in early 2021. Here's the story so far: