Business Impact of Crisis Management in Sports Industry
Business Impact of Crisis Management in Sports Industry
Many organizations are not crisis ready. Even though crisis management planning has been around for over 20 years and despite alarming increases in the crisis occurrence rate, half of all Fortune 500 companies do not have a crisis management plan (Aboudzadeh, Hajipoor & Hashemnia, 2014). For example, the potential effects of an organization’s crisis are lack of social responsibility, loss of profits and market share, tarnish of brand image, and increased regulatory scrutiny and control, stockholder discontent, decreased employee morale, and bankruptcy. A report in sports magazine predicts that global sports revenues will grow to US$145.3 billion over the period 2010 - 2015, at an annual compound growth rate of 3.7 percent.
The business activities related to sports are- sponsoring of games by business group as a promotional strategy, organizing sports events, ownership stakes in sports teams by business groups, using players for merchandising. The revenues are generated as entry fee for live matches, Media rights fees for broadcasting, merchandising licensed products with team or league logos, player preferences, or other intellectual rights. Any crisis that emerges from interruptions in games, moral aberrations on the part of sports personalities like Tiger Woods (Bernstein, 2012), legal sanctions due to doping related incidents (Backhouse & Mc Kenna, 2011) etc. affect this industry adversely. A crisis in sports industry can cause loss of revenue in millions and a permanent damage to a firm’s credibility and in some cases economy of a country (Jurak et al, 2014). Hence management of crisis effectively is crucial to the retention of prestige or in some cases, even survival of the business. The general problem is without an effective crisis management strategy; a major crisis can destroy a business brand and image. The specific problem is that many organizations are without or have a limited crisis management strategy. This Study is an attempt towards investigating how management of crisis faced by sports industry can impact the business operations in a sports industry and to influence the sports related business organizations to design an effective strategy for crisis management.
The purpose of this qualitative case study design is to understand the central phenomenon of the effective crisis management strategies for organizational leaders in the corporate and sports industry. After identifying the situation that qualifies as crisis, the different methods of detecting and handling crisis will be investigated to gain an insight on their impacts on business situations and effective ways of managing a particular critical situation. At this stage in the research, the central phenomenon will be generally defined as the organization's ability to detect and prevent a crisis before it happens so as to avoid the detrimental effects on revenues, brand image and business stakeholders. The target geographic consists of crisis management professionals located in New York, New York.
Nature of the Study
This study is qualitative in nature as it is based on exploratory research and the findings are from case studies, reports, interviews and other literature available on the issue. Also there are no benchmarks that can be used to measure the impact on business and therefore a qualitative research is more suitable here. A limitation with qualitative research is that the findings cannot be generalized; however, in this study insight in managing a crisis is certainly applicable. There are several methods of collecting qualitative data such as Field observations, document analysis, interviews and focus groups. The best sources of information are the people who have firsthand experience of a situation. Interviews are the best tools to collect information in qualitative methods although they suffer from the probability of personal bias. Still interviews have the advantage of being cheap, quick and questions are easier to understand because of personal explanation of confusing terms. After collecting relevant data it should be analyzed carefully for marked discrepancies and inconsistencies. If the variations are substantial they can be discarded.
Research Questions
Based on the purpose of the study, the three research questions posed are as follows:
What are the situations in sports industry that qualify as crisis?
How can an organization detect and prevent a crisis before it happens?
How can crises be managed effectively so that the detrimental impact on the sports industry is minimized?
Conceptual Framework
A survey of the existing research on the subject reveals that scholars have presented distributed findings in the area of Crisis Management and its impact on business. The literature available on crisis management is mainly focused on explaining the term and the models used in crisis management with reference to a few case studies. Many authors have used case studies to substantiate their findings on some common practices of handling crisis and the effectiveness in resolving a particular issue with the inference that these practices can be adopted in similar circumstances by organizations in general. Walsh & McAllister Spooner, (2011) have addressed the role of public relations and communication in crisis management in the field of sports. Their inference that a well managed public relation strategy and effective communication can minimize the disastrous effects of crisis can be supported by cases as far back as the Munich Olympic in 1971 to the Tiger Woods case. This study may provide us with the necessary framework on how effective public relations and communication can be used as a crisis management strategy. Some articles that cover the topic of crisis management in sports industries have concentrated on financial crisis like effect of recession. (Devine & Devine, 2012) have discussed how crisis management of recession can generate extra revenue from gate receipts, corporate hospitality, merchandising, programming, sponsorship and marketing. The general effect of economic recession was registered on available sponsorship funding and on all other revenue sources for event organizers (Shawn Lee, S., & Goldblatt, J. 2012). Both the studies directed at exploring the impact of recession on sports industry gives us the necessary framework to detect crisis and also to explore alternates method of revenue generation as a preventive strategy. Some authors are of the view that given the spotlight on athletics, it has become necessary for teams and players to employ crisis management staff who specialize in keeping their names out of the negative press. The growth of the Internet and social media makes the jobs of these crisis management teams more difficult than ever before, as these sites make an impact on public opinion (Bernstein, B, 2012). The role of fans as crisis communicators on social media has been investigated by Brown and Billings (2013). However Crisis management staff can also use the social media to their advantage as a crisis management strategy by reaching the public via this media and invalidate all rumors. Although many articles have advocated a need for crisis management plan in the sports industry, in view of more media attention that comes with the outstanding exposure those brands receive when associated with a property, event, team or athlete, the focus is on a game plan that deals with reputational risks (Vargas and Stetzer, 2015). A proactive approach minimizes the potentially devastating effects on the stakeholders in the case of rebuilding reputation to maintain the popularity among fans.
Situations in sports industry qualifying as crisis can be traced as far back as the Munich Olympics in 1971 when a terror attack killed 11 Israeli athletes. A similar crisis that shook the sports industry in 2001was the death of NASCAR’s sports icon Dale Earnhardt in a car crash in the final lap of 2001 Daytona 500. Johnson & Johnson faced a crisis in 1982 when a drug Tylenol manufactured by it and used as a pain killer was laced with cyanide resulting in death of 7 people. Comments of Football coach Joe Paterno, on the dismissal of Florida State University’s line backer A.J Nicholson in 2006, triggered a crisis. Other crises involve use of performance enhancing drugs by the players of Major League Baseball (MLB) in 2005-2006 seasons. MLB had previously witnessed a labor strife that is an example of a predictable type of crisis. This case furnishes us with knowledge of signs of detecting crisis and preventing it. A crisis can also be predicted by going through media reports of behavioral transgressions of sports icons as in the case of Tiger wood and Kobe Bryant. From these readings we can build a central construct that describes the nature of crises faced by sport industry, how they can be detected at an early stage and the different strategies used to prevent them or handle them effectively post occurrence.
Literature highlighting Crisis Management Strategies recommend planning for crisis, taking charge immediately and use of social media to pacify the public. Post Crisis steps in attending to the cause of crisis immediately like instant withdrawal of Tylenol from market, making it more tamper proof and incorporating security measures are other ways of dealing with crisis. Public apologies by sports person or their managers and assurance that they will not be repeated in future are effective strategies in crisis management (Bernstien, 2012). Fans who act as crisis communicators on social media can be used in crisis management strategies (Brown & Billings, 2013). Media comments created by people about an organization have the potential to impact an organization (Timothy Coombs, W 2014). Taking strategic decisions after a crisis impacts the business as in the case of Munich Olympics where continuing with the events after the terrorist killings was a wise strategy to minimize the losses of sponsors, organizers, and players. The business concerns that act as sponsors to league or institutional matches are worst affected by any disaster and its ineffective handling (Ferrier& Harrison, T. 2013). The impact on revenues earned from sales of products or services endorsed by a player or from sponsoring matches, entry fee and selling broadcasting rights have been studied by the above scholars. Aligning itself with a player whose reputation is at stake will put a business’ credibility at risk resulting in loss of business and goodwill. Crisis resulting from domestic violence by sports person, hooliganism by fans, negative reports about products endorsed by athletes; all have a social impact which may further precipitate a the situation. Corporate Social Responsibility initiatives by business firms related to sports may augment crisis management strategy. An organization’s policy to improve social conditions of the surrounding community may contribute towards building a positive image of the company during crisis. Major benefits from CSR include a better reputation for the firm; increase in fan base; and finding sponsors more easily due to the social profile of the team (Athanasopoulou, et al, 2011).
Significance of the study
The significance of the study can be derived from its usefulness in recognizing the signs for predicting crisis in sports industry, identifying crisis generating dimensions in a business and using crisis management strategies discussed in the paper for the prevention and post crisis interventions. There is a lack of significant research in this area and this study will provide related research with useful findings. This paper contributes to business practices by understanding how a particular crisis can influence a business activity thereby preparing the stakeholder more efficiently for an impending disaster. The description of the potential crisis that is faced by these industries makes them aware of how prone their activities are to a particular crisis, helps them to address these activities and keep a contingency plan ready to handle them. Not all crises can be averted, but a strategy decided in advance helps business units to react immediately and minimize loss of revenues and reputation. The examples and case studies will provide sufficient ground for businesses to implement the effective strategy in similar circumstances. Post Crisis plans like using public relation personnel to resurrect an image or to assure people that sincere efforts should be made to avoid a repetition of such occurrences can help the business to regain their activities like Johnson and Johnson within a year. Therefore this study helps in gaining knowledge about handling of crisis in a less researched field like the sports industry, the different situations triggering a crisis, its impact on various business activities and the ways to deal with it. Another aspect of crisis that has been discussed in the paper is the social implications of a crisis and how it is managed. A crisis like terrorist attack on Munich Olympic athletes, stampedes and arson by fans cause panic in the community. Derogatory comments and behavior about gender, color and other attributes which promote discrimination and comments of authorities that condone moral aberrations of players spread a wrong message in the society and may receive severe criticism from media and the public. An effective crisis management program may succeed in diffusing the public outrage. Also an organization’s CSR policy may reconstruct its image to a large extent. Moreover this paper may contribute to social change by urging the players, fans and coaches to be more careful in their behavior and comments. Hooliganism and other forms of inconsiderate behavior that defy social norms by damaging property and environment, hurting social and ethical sentiments and endangering lives or peaceful existence may be prevented through the crisis management strategies.
References
Aboudzadeh, N., Shoshtari, A., & Hashemnia, S. (2014). Crisis management: Planning for the inevitable. Management Science Letters, 4(6), 1191-1196.
Athanasopoulou, P., Douvis, J., & Kyriakis, V. (2011, October), Corporate social responsibility (CSR) in sports: antecedents and consequences. In 4th Annual EuroMed Conference of the EuroMed Academy of Business
Backhouse, S. H., & McKenna, J. (2011), Doping in sport: A review of medical practitioners’ knowledge, attitudes and beliefs, International journal of drug policy, 22(3), 198-202.
Bernstein, B. (2012). Crisis Management and Sports in the Age of Social Media: A Case Study Analysis of the Tiger Woods Scandal, Elon Journal of Undergraduate Research in Communications, 3(2).
Brown, N. A., & Billings, A. C. (2013) Sports fans as crisis communicators on social media websites. Public Relations Review, 39(1), 74-81.
Devine, A., & Devine, F. (2012). The challenge and opportunities for an event organizer during an economic recession, International Journal of Event and Festival Management, 3(2), 122-136
Ferrier, S., Waite, K., & Harrison, T. (2013) Sports sponsorship perceptions: An exploration Journal of Financial Services Marketing, 18(2), 78-90
Jurak, G., Andreff, W., & Bednarik, J. (2014), The impact of the global economic crisis on the finances of non-governmental sport organizations in Slovenia, Motriz: Revista de Educação Física, 20(2), 131-142
“Shawn” Lee, S., & Goldblatt, J. (2012).The current and future impacts of the 2007-2009 economic recession on the festival and event industry, International Journal of Event and Festival Management, 3(2), 137-148.
Timothy Coombs, W., & Jean Holladay, S. (2014). How publics react to crisis communication efforts: Comparing crisis response reactions across sub-arenas. Journal of Communication Management, 18(1), 40-57.
Vargas, J; & Stetzer, A. (July 2015) Ketchum Offers Clients ‘Game Plan’ for Sports Issues and Crisis Management, Retrieved from https://www.ketchum.com/news
Walsh, J., & McAllister-Spooner, S. M. (2011) Analysis of the image repair discourse in the Michael Phelps controversy, Public Relations Review, 37(2), 157-162.
