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.
What is Next for the Tennis Economy?
By Gary Horvath
The Health Crisis
It seems like an eternity ago that the U.S. economy posted stronger than expected job growth in January and February and Sofia Kenin captured her first Grand Slam title at the Australian Open. Uncle Sam and American tennis started the year on a high note.
In late February there were rumblings about the Wuhan/COVID-19/Coronavirus. On March 12th, the virus was declared a pandemic by the World Health Organization and American leaders and medical experts began the battle to maintain a balance between public health and economic vitality.
The country implemented extraordinary lockdown strategies such as stay-at-home, social distancing, wearing masks, travel and activity restrictions, and the definition of essential industries with hopes of mitigating the impact of the virus. As part of the process, tennis was identified as a sport that was not safe to play. About a month after this designation, the Polytechnic of Turin conducted a survey on behalf of the Italian Olympic Committee (CONI) indicating that water polo, golf, and tennis were the safest sports to play during the pandemic.
During the second half of March and early April the USTA, Tennis Media Group, and Sports Marketing Surveys/TIA conducted research showing the lockdown was extremely detrimental to the business of tennis. Their analysis found that between 85% and 90% of the clubs and tennis retailers were closed for business.
Understanding the Impact of the Lockdown
In addition to the research conducted by the tennis-related groups, there are hundreds of data sets that show the severity and suddenness of the lockdown.
Chart I shows the number of jobs lost for 20 different NAICS sectors of the U.S. economy. About 78% of the decline in U.S. employment occurred in the top 7 sectors. Hotels and resorts with tennis programs, tennis retail shops, tennis manufacturers, tennis and country clubs, and not-for-profit tennis associations (other services) are included in these hard-hit sectors.
There are also local governments that provide tennis activities in parks and recreation and public-school programs. In addition, tennis and sports camps are part of the private education sector. Finally, there are tennis wholesalers and state governments that include college tennis programs.
From a geographic perspective, all states and the District of Columbia experienced a decline of 14.2% in wage and salary employment for the months of March and April (Table I). Employment for the 31 states and the District of Columbia declined by less than 14.2% (green). The other 19 states declined at rates greater than 14.2% (red). There are many reasons for the wide range of changes in employment.
Obviously, the recovery of the U.S. economy and the tennis industry will be based on the policies of each state, their mix of industries, a possible relapse of COVID-19, and assistance received by companies.
To the last point, the USTA hosted a website including COVID-19 business and health resources that was popular with tennis-related businesses. A portion of these organizations received assistance from federal programs such as PPP or SBA loans.
In addition, the USTA agreed to pay for USPTA and PTR 2021 membership dues (with restrictions). The USTA also provided $5 million of assistance to tennis facilities, excluding private clubs and country clubs. A survey conducted by Tennis Media Group showed that only 60% of respondents applied for facility grants. Most respondents appreciated the intent of the USTA, although some indicated they needed greater financial assistance.
Moving Beyond the Lockdown
Most states have moved beyond the lockdown or will do so in the next two weeks. The best way to understand the negative impact of the lockdown on the U.S. economy and tennis industry is to read the story told by the Conference Board in its 2020 U.S. real GDP forecast. See Table II or find greater detail at https://www.conference-board.org/publications/Economic-Forecast-US.
The Conference Board prepared three forecast scenarios (V-shape, W-shape, and U-shape) to address the uncertainty surrounding the epidemiology of COVID-19. Table II includes descriptions of the three scenarios and data for the U-Shape scenario and other key metrics.
The U-shape recovery is more gradual with growth resuming in the second half of Q3 2020. Annual real GDP growth in 2020 will be -7.2%.
In this scenario, real GDP growth will return to the December 2019 level in the second half of 2021 or early 2022. Employment will return to 2019 levels much later than 2022.
There are two take-aways from Table II.
First, the data for Q2 2020 (April, May, and June) will be incomprehensibly bad. In Q2, real disposable income will be down by 18.2% and personal consumption will be down by 54.2%. In addition, business investment will be off by 20.8%. The economic situation is changing rapidly and the data that is published may lag the activity on the street. Be attentive!
Second, if the virus is managed there will be a strong economic rebound in late Q3 and Q4 2020. That means the return to 2019 GDP may occur at least 18 months from today and the return to 2019 employment levels could take even longer. Be patient and stay focused!
Tennis professionals and players are excited to get on the court again. The re-opening will last a month or two and the recovery will take much longer. The industry will be challenged to maintain the current level of enthusiasm. Teaching professionals must continue to be disciplined, innovative, and resilient.
Tennis professionals can play an important role in the economic recovery by making players and workers feel safe and comfortable playing their favorite sport again.
A critical factor in determining the shape of the recovery (U, V, W, L, Swoosh) is the ability and willingness of the consumer to spend. Tennis professionals will be challenged to meet the needs of their customers in an environment where their costs have been escalated and opportunities to generate revenue have been constrained. Tennis professionals should emphasize value but remember the recovery will occur over 18 to 24 months.
Personal consumption directly supports businesses. In the process, these expenditures indirectly support state and local governments with tax revenue. State and local governments provide necessary services such as education, safety, maintenance, recreation, and utilities and they support K-12, college, and parks and recreation tennis programs.
Tragically, the Darwinian effect of the economic crisis is the loss of tennis businesses. The survival of the fittest allows the future tennis economy to become more efficient. Companies and organizations must adapt and innovate to remain relevant.
Finally, tennis professionals can take a leadership role in helping their peers and players regain the loss of human capital. The COVID-19 crisis has tested personal and professional relationships, personal trust in the system, and faith in mankind. There are many intangible personal benefits that accrue from playing tennis. Tennis professionals are in a unique position to help others recognize and appreciate those benefits.
Stay healthy, stay safe, and enjoy the journey. It is going to be a wild ride!