How Will the Tennis Industry Answer the Wake-Up Call?
By Gary Horvath
When the country rang in the New Year, three months ago, most Americans had not heard of COVID-19. On February 1, President Trump delivered a wake-up call to the world when he closed our borders to visitors from China to reduce the spread of COVID-19 into the United States.
World leaders did not understand the epidemiology of the virus and it was billed as everything from a hoax to the next “Spanish flu.” On March 11, less than three weeks ago, the Director General of the World Health Organization announced COVID-19 was a pandemic. He stated that we have never seen a pandemic sparked by a coronavirus and that we had never seen a pandemic that can be controlled.
U.S. leaders had a choice to let the virus run its natural destructive course and play havoc with the economy and medical system in ways they could not anticipate. On the other hand, they could establish a policy that would leave the nation healthier and rely on fiscal and monetary stimulus to shore up the economy.
The U.S. Economy vs. COVID-19
Most economic data through February indicated the United States economy was healthy. On the day COVID-19 was classified as a pandemic, the Conference Board released its monthly update of the U.S. economy. It projected that real GDP growth for 2020 would drop from 2.1% to 1.4% with weaker personal consumption and business investment. On March 11, this was a reasonable forecast.
In a matter of a few days, economic forecasts pointed to a recession. (The definition of a recession can be found at https://www.nber.org/cycles.html)
The virus had delivered a shock to our country’s supply chain, demand for goods, energy and financial markets, medical delivery system, and psyche of the country. As isolation policies were put in place, schools and worship services went on-line, sporting events were canceled, and businesses reduced their workforce.
The forecasts in Table I tell varying stories about the projected timing and depth of the downturn and its recovery. Pick your poison!
Real Consumer Spending and Real Business Fixed Investment
Consumer spending (68%) and business fixed investment (17%) account for about 85% of the total GDP.
Chart I shows historical real personal consumption along with 2020 projections from the most current Wells Fargo U.S. forecast. Real personal consumption is projected to plummet by 17.0% in Q2 followed by a decline of 6.9% in Q3. The projected decreases are much greater than the largest declines during the 1991, 2001, and 2007 recessions.
Chart II shows that real BFI, or expenditures for nonresidential structures, equipment, and intellectual property, turned slightly negative in Q2 2019 and remained below zero for the remainder of the year. The Wells Fargo forecast projects BFI will remain negative in Q1 then drop precipitously in Q2, Q3, and Q4 of 2020. The forecasted rate of decline for 2020 is greater than the 1991 and 2001 recessions, but less than the Great Recession.
A word of caution should be issued with these forecasts. While they correctly foretell a downturn in the economy, the accuracy of the timing and the severity of the impact is affected by having limited knowledge about the epidemiology of COVID-19. As we learn more about the virus, we will have a better understanding about how to medically and economically affect change. Until then, we must remain patient.
On a positive note, the Federal Reserve and Congress have put monetary and fiscal policies in place designed to reduce the impact of reduced consumer and business spending.
The Nonessential Tennis Economy
Tennis is near and dear to the hearts of those affiliated with the tennis industry, but to policymakers facing a medical and economic crisis, it is a small and nonessential part of the economy. The past month it has been traumatic to watch as the high school and college tennis seasons were canceled, Indian Wells and the Miami Open followed suit, and the Tennis Channel has morphed into the History of Tennis Channel.
The survey results released by the USTA on March 26 showed what it means to be a nonessential industry.
About 85% of the 3,259 respondents indicated the facilities they were affiliated with were closed. Greater than 90% of the respondents in 35 of 54 states and territories indicated their facilities were closed. Of the 15% that was open, almost all facilities were operating on a limited basis. In addition, the employment status of the personnel at the closed facilities was not bright.
The results are not surprising given the above economic forecasts and the fact that tennis participation and the Tennis Equipment Index have declined over the past decade.
The Reason the Tennis Industry Exists – the Tennis Players
The tennis economy is driven by the amount of discretionary income (income after taxes and necessities) available to tennis players. In addition, fear and uncertainty will cause many tennis players to be hesitant about spending. Finally, tennis sales will decline because tennis services are perishable commodities. If they are not used today, they cannot be sold at a later date.
In 2020, tennis players will spend less on court fees, lessons, tennis activities, membership dues, and equipment. The decline in tennis spending will parallel the path of personal consumption in Chart I. As a result, the Tennis Equipment Index is expected to drop below the abysmal levels of 2018.
The Catalysts, Conveners, and Champions of the Sport – The Tennis Delivery System
Tennis professionals and coaches are the delivery system for tennis.
Professionals at clubs customize activities and instruction programs that attract and retain tennis players. They work with club owners to make sure activities and facilities meet the needs of the members. If spending at clubs follows the projected downward path in Chart I, then some clubs will cancel capital projects for new facilities, upgrades, and maintenance, thus creating declines in business spending, Chart II.
State and local governments are a forgotten, but important part of the tennis delivery system. Most state governments provide funding for universities to maintain and operate tennis facilities and programs on college campuses. Likewise, state and local governments provide funding for K-12 schools and municipal facilities and programs.
When the tax base is reduced because of the downturn in the economy, there will be fewer funds to support government-supported tennis programs. As a result, there will be schools, colleges, and municipalities that will be forced to eliminate tennis-related programs, courts, and tennis personnel.
How Will the Tennis Industry Respond to this Wake-up Call?
The case has been made that the tennis economy is in dire straits. The upside of the economic Darwinism that will occur with the current economic crisis is that tennis businesses and teaching professionals will continue to be successful if they innovate, compete with excellence, and evolve with changing business conditions.
Tennis players are the most important part of the tennis economy. What can the industry do to support the catalysts, conveners, and champions of the sport who attract and retain players?
What can be done, beyond programs and initiatives, to provide greater support for the tennis delivery system and the clubs and government-supported tennis programs?
What will be done to make sure teaching professionals and coaches are still in business at the end of the year?
When will more teaching professionals take greater responsibility for improving their profession, the state of the industry, and providing tennis players with a great experience when they are introduced to the sport?
What will the teaching organizations do to make sure the voice of tennis professionals and coaches are heard in determining how to teach, promote, and conduct business in the sport?
Taking from the goals of the ITA… How can the teaching organizations create “a deeper sense of responsibility in teaching, promoting, maintaining and conducting the game of tennis”? How will these organizations educate and serve those individuals and groups who are involved in all aspects of tennis, including the players, their parents, other coaches, and the at-large tennis public?
How can the teaching organizations make sure the industry shows greater respect and compassion for the teaching professionals and coaches at all levels?
How can the teaching organizations make the knowledge and experience of their members available in ways that improve the overall quality of teaching tennis?
How can the teaching organizations use technology to advance the way tennis is taught and the way business is conducted in the industry?
How can teaching organizations provide more meaningful educational opportunities for their members?
How can the tennis industry work with the USTA to make sure it delivers what the industry needs rather than what the USTA wants to deliver?
How can the industry hold the USTA accountable for speaking with one voice?
What steps must the USTA take to become more agile and streamlined?
How can the tennis industry hold the USTA accountable for investing in the infrastructure of the sport, rather than its bureaucracy?
How can the industry hold the USTA accountable for abiding by its mission of promoting TENNIS, not just USTA tennis?
How will the USTA promote tennis beyond the 17.8 million players identified by the TIA? (For example, see the interview with Mike Dowse in the April RSI magazine).
Five years from now it will be interesting to reflect and see how the tennis industry responded to the wake-up call provided by the current economic crisis, what it learned in the process, and if it made changes that improved the business of tennis.
Stay safe! Stay healthy! Remain focused!
Gary Horvath is a USPTA master pro, founder and past president of the USA Professional Platform Tennis Association prior to its merger with USPTA, a certified coach with USA Volleyball and a long-standing member of the Wilson Advisory Staff. His experience as a pro has covered the spectrum from grassroots to college tennis. In addition, Gary Horvath has conducted extensive business/economic research that has largely supported Colorado's economic development efforts.