Digital, Patch Ads to Drive Fresh Revenue for Sports, Says Fitch
The increase in digital ad opportunities and the recent addition of uniform ad patches to three of the major North American leagues should drive strong revenue growth for sports teams in the years ahead, according to a new report from Fitch Ratings.
The report, titled “Sports Sponsorships Show Patches of Growth,” says such new ad streams will add millions to the top lines of most sports teams, even if the current advertising slump means clubs may take time to sell the inventory, according to Fitch.
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“Sponsorships have been an important source of revenue for sports teams for many decades,” the report said in part. “Brands are increasingly attuned to the broad reach of sports teams and the successful affiliation of partnering with a winning franchise.”
Chief among the new ad offerings are jersey patches, which the NBA allowed in 2017 and which MLB has permitted starting this season. The NHL began allowing jersey patches in 2022, with home and away patch options. That came a year after the league permitted sponsor logos on helmets. In Europe, where jersey ads are more common, sponsorship now contributes about 40% of revenue to the top clubs. In the U.S., that figure is as high as 33%, but dips as low a 5%, according to Fitch.
Patches probably will allow teams to see another $5 million in annual revenue, up to $15 million, according to the report. Sports organizations are also benefitting from new ways to feed ads on digital broadcasts, such as the NHL’s digitally enhanced dasher boards, which allow a different set of ads to be shown to viewers than what is actually on display in the arena.
Fitch reviews sports team revenue as a part of its business of determining the creditworthiness of teams and leagues that seek to borrow money in the capital markets.
Sports facilities in the U.S., which are often not owned by teams but rely on sports-related revenue to pay their debt obligations, are highly dependent on stadium naming rights, ranging from low millions for facilities that host weaker clubs to $20 million for top franchises. By contrast, in Europe only stadiums in Germany have a similar level of naming rights sales, with about 80% of Bundesliga venues having a corporate naming sponsor. Other major soccer leagues in England, France, Italy and Spain have around 20% or less of the stadium naming rights sold.
One consideration is that corporate sponsors in long-term deals can become problematic if the sponsor’s business runs into financial trouble. Fitch found that finding a replacement for stadium naming rights can take less than a year—as with Miami’s NBA venue finding a new sponsor after its crypto-based sponsor imploded. However, in some cases it can take much longer; Tennessee needed four years to replace the bankrupted Adelphia Communications as naming rights sponsor of the NFL Titans’ home field.
“New sponsorship revenue streams, including jersey patches and online engagement, are positive for the sector and supportive of team credit quality and franchise strength,” Fitch said. “However, the effects on top-line revenues are not expected to significantly affect credit metrics or result in positive rating actions, due in part to revenue sharing and collective bargaining agreement salary rules.”
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