Sports funding faces risks due to climate change impact
The burgeoning sports industry, fuelled by lucrative media rights and substantial returns, is attracting an array of investors, from institutional firms to celebrities and athletes. Yet, the escalating climate crisis poses risks that could disrupt operations and erode investments.
The global appeal of sports has catapulted them into a viable investment class. They are no longer mere trophy assets, as men's and women's sports present robust opportunities for investors. Even amid economic headwinds, investors remain optimistic, with some launching sports-focused private equity funds targeting minority investments in NBA, MLB, and NFL teams.
As appealing as these financial prospects may be, the looming climate crisis creates potential risks for sports investments. By 2050, corporate exposure to climate risks is expected to triple, putting over $1.14 trillion in market value at risk for companies on the world's major stock exchanges. Sports organizations are particularly vulnerable due to their reliance on physical infrastructure and scheduled events.
Investors need to consider their exposure to physical climate risks, acknowledges Daniel Keir, a climate resilience specialist at Zurich Resilience Solutions. Hazards vary depending on geography but include flooding, wildfires, extreme heat, storm surges, and other severe weather events. By 2050, NFL stadiums could incur an estimated $11 billion in climate-related losses.
Beyond physical threats to infrastructure, sports face additional financial risks stemming from the climate crisis. Organizers might face increased insurance premiums and revenue disruption due to ticketing, sponsorship, or broadcast interruptions if events are cancelled or altered. Misalignment in values could lead to missed revenue from potential sponsors with a strong sustainability ethos, while partnering with unethical or polluting organizations could cause reputational risks.
Notably, direct climate impacts on a stadium can have far-reaching investment ramifications. As Austin Clack, Climate X's physical risk solutions lead for North America explains, "stadiums often serve as economic anchors and catalysts for broader urban development." Climate risks endangering these assets could reduce investor confidence and hinder development plans in surrounding areas, leading to stranded project investment and lower overall investment inflow into communities.
ESG considerations are not yet central to all investment decisions in the sports sector. Michael Broughton, founder of Sports Investment Partners LLP, suggests that climate risks are on investors' radar but typically become a priority only when they could impact forecasted cash flow. The United Nations-supported Principles for Responsible Investment encourage investors to incorporate ESG issues into investment analysis and decision-making processes.
Climate risks are more likely to be a concern for investors in smaller sports clubs, where a direct correlation can be drawn between issues such as flooding and core revenue drivers like match-day viability and income. Beyond financial risks, reputational risks carry more weight in sports due to heightened media attention and public scrutiny. This includes changing consumer preferences regarding transparency and ethical behavior.
Beyond mitigating risk, climate action offers a commercial upside for investors. Engaging fans and sponsors on climate issues can enhance the appeal of a sports organization seeking investment. Sustainability is a strong selling point, strengthening a pitch even if it's not the core proposition.
The integration of climate risk and ESG considerations into sports investments is evolving rapidly. As the financial implications of climate change become increasingly apparent, investors are likely to place greater emphasis on sustainability and scrutinize risk more closely. Although climate risk or sustainability may not yet be deal-breakers in many sports investments, investors should consistently engage on these issues when considering opportunities in the sector.
Aligning investment strategies with this engagement will not just safeguard and future-proof assets but also unlock upsides through fan trust and sponsorship appeal. In the rapidly changing sports investment landscape and accelerating climate crisis, prioritizing climate risk and sustainability is not just a tick-box exercise; it is a strategic imperative that is essential for success. As Austin Clack points out, "investors should recognize that climate risk is not a distant concern but an imminent financial reality that must be factored into investment strategies immediately."
- Mark Cuban, an investor in the sports sector, acknowledges the financial risks associated with climate change, such as increased insurance premiums, revenue disruptions, and potential reduced investments in sports organizations due to their reliance on physical infrastructure and scheduled events.
- Climate change poses a significant threat to sports investment, as over $1.14 trillion in market value for companies on the world's major stock exchanges could be at risk by 2050 due to exposure to physical climate risks like flooding, wildfires, and extreme heat.
- Environmental-science and climate-change may be emerging considerations for investors in the sports sector, as aligning investment strategies with climate risk and sustainability can safeguard and future-proof assets, as well as unlock upsides through fan trust and sponsorship appeal in the rapidly changing sports investment landscape.
