Arctos Insights Flash Piece: Impact of the April 2 Tariffs on North American Sports

The steep tariffs announced on April 2nd—and the retaliation they have provoked—are wreaking havoc on business planning and markets. Since mid-February, the S&P 500 is down ~18% and the NASDAQ has officially entered a bear market. Operators need to understand their exposure. The speed and depth of the announcement and market sell-off has, no doubt, caused fear. Obviously, this could be irrelevant within a few weeks – tariff negotiations are fluid. However, we believe that the North American sports industry possesses several key characteristics that make it likely to remain resilient during economic instability. As such, our team has prepared the following analysis to highlight the strength of the North American sports industry through market turbulence.

Tariffs are effectively a tax increase, charged to U.S. based importers. As such, the macroeconomic impact, to first approximation, is comparable to any contractionary tax increase. Should the tariffs remain in place, we would expect a jump in inflation for many consumer goods, especially household durables, apparel, and electronics. Otherwise, the impact should follow what one would expect from a sudden fiscal contraction of approximately 2% of national income, which is what the tariffs announced on April 2 would represent. Foreign retaliation would exacerbate these impacts further, by reducing demand for U.S. goods and services sold overseas.

By and large, America’s major sports leagues appear well insulated from this. Let’s review why, starting with sports franchise revenues and then moving to expenses. In each case, we believe franchises enjoy minimal tariff exposure and are well positioned.

During periods of macroeconomic stress, professional sports franchises have both outpaced broader corporate revenue growth and done so with far less turbulence (see Figure 1). Excluding the temporary disruption of COVID-19, North America’s “Big Four” leagues—NFL, NBA, MLB, and NHL—have consistently grown revenues at a compound annual rate of 6.8% since 2001. This growth has come with remarkably low volatility (~3% annual standard deviation, excluding COVID and the 2004-05 NHL Lockout), especially when compared with other U.S. equity sectors.

The underlying business model of sports benefits from exceptional stability due to long-term, contracted revenues across media rights, sponsorship and ticketing and enjoys sticky, largely domestic demand.

National media contracts typically run for seven to twelve years, and there appears to be little threat of renegotiation or erosion. In July 2024, the NBA secured an 11-year media deal that extends through 2036. The NFL’s current national media rights agreement runs through 2033. Even amid geopolitical strain between Washington and Ottawa, the NHL recently renewed its Canadian broadcast rights with Rogers, locking in that deal through 2038. Sponsorship revenues, meanwhile, offer another layer of resilience. These contracts typically span two to five years, with marquee deals—such as stadium naming rights—extending to 10 or even 20 years. This embedded revenue visibility acts as a buffer, even if broader advertising budgets contract in an economic downturn.

Should household net worth fall sharply and consumers adopt more cautious spending habits, some downstream effects could emerge. But historical precedent suggests these would be modest. During the 2008 financial crisis, the Big Four Leagues experienced only marginal declines in attendance, largely offset by pricing strategies and creative ticket bundling (see Figure 2).

Tariffs are unlikely to materially affect the expense base of North American franchises. Importantly, the tariffs announced on April 2 will disproportionately impact companies with international supply chains that must import intermediate or final goods to be sold in the U.S. In contrast, sports franchises sell an intangible, entertainment product whose major costs are people, employed locally.

The main expense in a franchise’s “supply chain” (if you could call it that) are player salaries, which are a fixed percentage of revenue (normally 45-50%) and largely domestic in nature. Player salaries are governed by long-term Collective Bargaining Agreements that cap wage inflation and are negotiated domestically, reducing exposure to external shocks. Beyond athlete compensation, franchise operations rely heavily on local human capital—executives, coaches, marketing teams, and stadium staff—whose wages are unaffected by trade policy.^[1]

Beyond staff, the major input cost is concessions. While often thought of as flexible and exposed, these are largely domestically sourced. In February, the CEO of Compass Group, a major food and beverage operator across U.S. sports venues, estimated that 85–90% of concession-related procurement is U.S.-based and thus largely immune to tariffs.^[2]

This is not to suggest the industry is hermetically sealed from the global economy. Two key areas warrant attention: exchange rates and stadium construction.

Canadian franchises operating in U.S.-based leagues, such as the NHL, are exposed to currency risk. Revenues are mostly earned in Canadian dollars, but a substantial portion of expenses—including player salaries—are denominated in U.S. dollars. This is somewhat mitigated given that NHL’s annual salary expenses are a function of hockey-related revenues, which are based on an average exchange rate across the league year. Nevertheless, a stronger dollar could marginally erode profitability and increase vulnerability to market swings; though it remains to be seen over the medium-term what the overall currency impact of a global trade war would look like.

Second, new stadium construction is a potential pressure point, particularly for projects still in the planning phase. Roughly one-third of a modern stadium’s budget goes toward raw materials, with structural steel alone accounting for around 10%. Fortunately, recent U.S. stadium projects—including SoFi Stadium in Los Angeles, Allegiant Stadium in Las Vegas, and U.S. Bank Stadium in Minneapolis—have relied overwhelmingly on domestically sourced materials. American steel remains the norm, and while certain specialty materials, such as glass or cladding, may be imported, the bulk of inputs support U.S. industry. As such, projects already under construction are unlikely to see material budget shocks. However, those in early planning stages—where supply chains are not yet locked in—could face cost pressure depending on the tariff regime in place.

Despite these limited exposures, sports franchises have proven to be remarkably resilient assets during periods of economic instability. Their combination of visible revenues, sticky fan loyalty, and relatively fixed costs offers rare defensibility. Over the past three market cycles—including the Tech Bubble, the Global Recession, and the COVID-19 shock—sports franchise valuations have not only held firm but in many cases appreciated (see Figure 3). During the early-2000s tech bust, the S&P 500 declined by 47% over 529 trading days and took nearly twice as long to recover. The 2008 downturn saw a 55% cumulative drawdown return over 355 trading days. Yet across both periods, the RASFI index (an aggregate measure of sports franchise valuations) grew annually at +7.3% and +8.0%, respectively, with minimal volatility (4.2% and 1.8%, annualized respectively). Even during COVID-19, arguably the most existential threat to the in-person sports business model, RASFI returned +9.6% annually on average.

In sum, while trade wars and macro volatility will likely disrupt many sectors of the economy, North America’s professional sports franchises are likely to emerge largely unscathed. With long-term contracts, domestic supply chains, and a uniquely loyal customer base, the business of sport continues to offer something that is in short supply elsewhere: predictability, resiliency and a lack of correlation.

[1] Recessions driven by major fiscal contractions typically coincide with slack in labor markets, not wage inflation. Examples include: U.S. Recession of 1937-38, Sweden 1990-93, UK 2010-12, Greece 2010-13, U.S. Sequestration 2011-13.

[2] Compass Group PLC, Q1 2025 Sales/ Trading Statement Call, February 6, 2025.