At last week’s inaugural SFIA’s Industry Leaders Summit in Baltimore, the industry’s top execs explored social media’s growing influence, emerging digital technologies, nascent global opportunities and the creep of government regulations. But a main theme across many presentations was finding ways to reverse the stubborn trend toward sedentary lifestyles.
At the start of the event that drew more than 200 of the industry’s leaders, SFIA Chairman Bob Puccini, SFIA President Tom Cove, and PHIT America Founder Jim Baugh disclosed that with more and more Americans moving from the ‘active’ category to ‘inactivities’ or ‘couch potatoes,’ the sports and fitness industry will lose $28 billion in retail revenue in the next few years.
Research by Sports Marketing Surveys of 40,000 Americans shows the percentage of American who are totally inactive in 104 sports or fitness activities has grown from 25 percent in 2007 to 28 percent in 2012 including not even walking. More importantly, this trend shows no signs of slowing down and will grow to a whopping 31.1 percent by 2018, which will reduce retail consumption alone by $28 billion.
According to Baugh, daily physical activity cuts sick days by up to 50 percent and also provides numerous benefits around memory retention. Active employees also earn almost 10 percent more than sedentary counterparts. Team sports specifically promise life lessons around overcoming obstacles, collaboration and leadership. With rising heath care costs weighing heavily on the federal budget, the industry is well positioned to provide a solution through the benefits of fitness.
The inactivity issue was particularly explored by a panel moderated by Tom Farrey, director of the Aspen Institute’s Sports & Society Program. A blueprint for reimagining youth sports in America, funded by the Robert Wood Johnson Foundation, is expected to come out by the non-profit by late 2014.
Farrey said the youth-sports development system is “at least dysfunctional if not broken.” He spelled out how we’ve become “a nation of sports have and have nots” with different barriers to participation affecting both higher and lower income households
At the higher-income level, participation is being hurt by the growth of travel teams with many 6, 7 and 8 year olds dropping out of a sport altogether when they fail to make a team. Excessive time demands on the family for supporting a two or three season sport also causes some kids to drop out. A win-at-all-cost mentality, burnout, overuse injuries and concussion fears also impact participation.
At the lower-income level, a lack of available parks, slashed recreation budgets, lack of volunteer coaches, safety/transportation needs, and large schools with small JV and varsity programs all weigh on sports participation.
Dropping of PE class from most schools also has proven to prevent kids from pursuing sports and staying active as adults. A lesser-discussed trend that is depriving kids from building an affinity for sports is the reduction in casual or pick up play, and recreation play overall.
“It’s kids hopping on their bike to ride six blocks away to make up their own game,” said Farrey. “And they’re never thinking of it as exercise or physical activity even though it is. But parents won’t let their kids hop on that bike. They’re scared.”
On the panel, Ed Foster-Simeon, president and CEO, US Soccer Foundation, talked up the merits of programs supporting play have had in reducing crime in poverty-stricken neighborhoods. Providing safe play environments and removing fees is essential.
Caitlin Morris, Sr., director for North America, Access to Sport, Nike, noted the U.S. health cost of physical inactivity come to $150 billion annually, twice the Department of Education budget. Nike has long recognized “the importance of unlocking human potential through sport,” but the company’s own get-fit initiative launched earlier this year, Designed to Move, indicates that it has to be inclusive, social and economically viable, she added.
Christine Brennan, a veteran USA Today columnist and commentator on ABC/NPR, said that the success of Title IX, which celebrated its 40th anniversary last year, is “evidence that you can start from zero or less than zero” in driving a play movement. But with the appeal of shorter stories and Twitter clicks, she worries that the issue “doesn't seem to draw the attention” to encourage widescale public support.
But Farrey disagreed, noting that pieces on the subject he has done for ESPN tend to do draw solid ratings.
Nike’s Morris also said Nike’s “Find Your Greatness” campaign, which showed an obese 12-year old lumbering down a dirt road, received a strong reaction when it ran during the London Olympics. And she believes the public will respond to messages such as today’s younger generation is expected to live five years less than their parents due to inactivity trends. Said Morris, “You may not see it yet but we see a trend toward reshaping the discussion.”
In a presentation exploring ways the industry can adapt in coming years, Kevin Plank, founder and CEO of Under Armour, said that while UA has its own R&D lab, the company also “invites people outside the company’s walls to help us brainstorm for new ideas to take our products to the next level.”
In the same vein, the industry should be working more collectively to explore ways of pushing the industry forward.
“I don’t believe it’s all one red ocean,” said Plank. “I don’t believe it’s me taking your market share or you taking mine. I think it’s creating the blue ocean – of creating new opportunities, of pushing ourselves, and seeing how much bigger we can make the pie because a lowering tide lowers all ships but a rising tide raises it.”
In particular, Plank believes the industry should be looking more into “being relevant beyond our businesses today,” with opportunities directly evident around addressing obesity and inactivity problems. Noting that the U.S. as well as the world “can’t afford to keep building bigger health care systems,” he questions why the industry can’t come up with health cost solutions through fitness rather than waiting for them to appear from Silicon Alley or tech sector.
As an example, he points to Armour39, a training device launched earlier this year. It measures not only heart rate, intensity, and calories burned but also WillPower, a proprietary measurement of how hard the athlete worked. If biometric movement can be measured, Plank questions whether sleep patterns, recovery times, anxiety and other general and pre-emptive health indicators can also be measured.
A particularly bullish presentation came from Joe Pelligini, managing director, Robert W. Baird & Co, who said the industry is benefiting from a “relentless focus on innovation.” Opportunities include creating items embedded with software, customization overall, developing products/programs around goal-setting content, and expansion into not-so-adjacent categories such as food supplements as well as electronics devices.
“Refreshing long-standing categories” are establishing new, premium categories, he said, mentioning Shock Doctor’s ability to support $20 to $30 options for mouthguards as an example. Citing his own kids, he believes today’s youth has an growing appetite to participate in multiple sports. He also pointed to the popularity of CrossFit, P90X and other buzz activities that are expanding the reach of fitness to more people.
Other broader drivers for the industry include the appeal around authentic lifestyles that lends itself to outdoors and sports, addressing quality of life issues such as obesity, and enormous untapped global opportunities overall. But Pelligini particularly heralded the ability of the industry to attract the sophisticated entrepreneur. He remarked, “The level of talent that is being attracted to this industry is just amazing to me.”
As a comparison, he noted that when he first began working in the industry in the eighties, most companies he was first looking to do deals with didn’t even have a CFO. Sports was seen at the time as a “cottage industry” and gaining finance was a challenge. When he helped guide the sale of The North Face to VF Corp., his team was “lucky to get 50 percent of sales.” But industry multiples for many of the key players are trading at two to three times revenues.
He said the opportunity for deals remains ample with low interest rates, many strategic buyers with cash on their balance sheet and little opportunities for growth, and PE funds with abundant cash to put to use.
“The natural demand by the consumer has never looked better,” said Pelligini. “Not saying we’re not going to have downturns but the consumer generally is gravitating more and more toward outdoors and fitness.”
Jeffrey Rosensweig, a renowned business economist from Emory University, explored the business linkages with the emerging global economy, with special focus on the implications for globally divergent demographic trends on the sports industry. With a devalued dollar providing more value and a rising middle class, emerging countries continue to offer plentiful growth opportunities in the years ahead, including nearby Mexico. Said Rosensweig, “Even though they have the drug wars, their economy is performing really well.”
As far as the U.S., he explored the ramifications of low inflation, low interest rates, and a strong stock market, although he felt the job struggles would continue to limit economic growth in the U.S. to 2 to 3 through 2017. He added, “You’re going to have to fight for market share if you’re looking for faster growth.”
Dan O’Connor, president and CEO of RetailNet Group, led a discussion on how the retail landscape will evolve between 2014 and 2020. Drilling down “drivers of change” across five areas: societal, technology, economic, industry and political, O’Connor particularly focused on disruptions driven by technology, including the arrival of humanoid robots that are already tackling household tasks in Japan because of the lack of population growth in that nation.
But O’Connor spent a considerable amount time focusing how shopping and consumer engagement is already being changed by the smartphone, which already has more computing power than all of NASA did in 1969 when it put a man on the moon. Beyond mobile POS, the mobile phone particularly opens up opportunities for two-way engagement through social media channels never seen before. Other topics O’Connor discussed was the arrival of a ”real-time, demand-based pricing environment” with ever-more transparency coming from the Internet, as well as the expansion of national ship programs, including same-day delivery. Both trends, he said, are being largely driven by Amazon.
A panel of professional sports executives examined the relationship between professional sports and active lifestyles also spoke to the largely-untapped potential of sports with social media, pointing to how sports-related topics dominates Tweets with the benefits of real-time reaction to events.
But the panel likewise lamented the sluggish participation rates. Surveys show that active people are much more likely to follow sports teams. According to SFIA data, 80 percent of former football players are fans of the NFL while 54 percent of active Americans in general are NFL fans. By contrast, only 37.8 percent of inactive Americans are NFL fans.
But Eric Grubman, EVP, NFL, also said kids have to play overall or it’s “going to have a dramatic health consequence.” He noted that Play 60 deliberately doesn’t include ‘NFL’ in the name because it’s mission is more about getting kids active overall.
“The most important thing is for people to play or do something physical,” said Grubman. “It’s a way to create more fans. It’s good for our country, good for the world, and good for business.”
“Any activity is better than none,” agreed Tim Brossnam, EVP, MLB. He particularly blamed the single-sport specialization that’s making young kids play one sport up to three seasons through the year while also turning sports away from kids who don’t make the cut for travel teams. At the same time, he likewise rued that there’s “no more pick up anything.”
He added, “It’s incumbent on us to figure out how the get the concept of play out there again. It is too hard to organize 18 to play baseball, or 12 to play hockey, etc. A game of punch ball with two kids is so much better than sitting on the coach.”
With many youth-activity programs aimed at kids, a few speakers said at the conference that a better job could be done emphasizing the dangers of inactivity to parents. The NFL’s Grubman admitted he was “stumped” at ways to directly reach adults.
In the final roundtable featuring industry leaders in a frank discussion of challenges facing the industry, Sarah Fields, president of Century LLC, the leading marshal arts supplier, said parents tend to sign up their kids to take martial arts classes because they’re being bullied. They only later recognize the life skills they’re also gaining such as confidence, courage, respect and humility.
Plank said the way he runs his organization is largely based on many of the teamwork principles he learned in his playing days. Said Plank, “When we take smart people, put them in room and challenge them with stakes, some great things can happen them.”
Hugo Malan, president, fitness, sporting goods & toys, Sears Holdings, also on the final roundtable, sees three simple steps to driving participation: making sports accessible, enjoyable and aspirational.
The final roundtable lamented at the challenge of finding places for even intermural or pick-up play with schools and towns concerned about the liabilities. Scott Baxter, group president jeanswear Americas and imagewear, spoke of the challenges finding coaches, not to mention training and supervising them, with schools shrinking JV and varsity programs. Many coaches wind up coaching three or four sports given the desperate need, he said.
As an active coach himself, Baxter also sees that many parents – outside of those involved with elite travel teams – aren’t making their kids commit to a sport. Said Baxter, “What drives me crazy is I have these kids who don’t show up for any practices, but then show up for the uniforms. Or he comes in by in the 4th inning to play, and their parents tell me, ‘He doesn’t want to come to the practices, he just wants to play in the games.’ I’m shocked at the lack of accountability from parents.”
The Industry Leaders Summit, which is set to come back in Chicago in 2014, also honored its inaugural 2013 class of the Future Industry Leaders Scholarship. The winners were: Isaiah Kacyvenski, head of sports segments, MC10; Keenan Long, research & design engineer, Easton-Bell; Bob Najduk, senior product manager, global retail, Johnson Health Tech; Alex Stone, development manager, accessories, Under Armour; and Nathaniel Woo, corporate development analyst, Life Time Fitness.
The all-male winners provoked SFIA’s Cove to half-joke, “Let’s get some more diversity next time.” The final roundtable summed up that mandatory hirings of women and minorities might be necessary to have staffs better reflect each company’s customer makeup.
Cove laid out a few call-to-actions points to attendees before the final keynote speaker, Ted Leonsis, a tech legend responsible for much of AOL's success in the 1990′s who now owns the Washington Wizards and Washington Capitals.
These include urging legislators to support the Carol M. White Physical Education Program (PEP), which provides grants to initiate, expand, and improve grants for PE programs. The average school PE budget amounts to $764, according to SFIA. SFIA’s 2012 survey also found that those taking PE in school are 45.2 percent more likely to be active as adults versus only 21.8 percent for those not taking PE.
Cove also urged congressional support for PHIT, which pays for physical activities using pre-tax medical accounts (HSA & FSA), youth & adult league fees, health club dues, sports & fitness equipment and personal trainers.
Beyond reaching out to congressman, he urged those companies with sponsored athletes to have their stars support the PHIT or PEP bill. Athletes could also join PHIT America, the non-profit education and advocacy organization designed to combat the nation’s inactivity and obesity crisis. In late August, NFL great Hershel Walker, tennis legends Mike and Bob Bryan, and fitness expert Denise Austin were revealed as the group’s first celebrity ambassadors.
Cove also urged the group to “get local” by encouraging local support of programs supporting healthy, active lifestyles with legislators, community leaders, rotary clubs, or their own employees. SFIA is also creating a task force to address the “inactivity pandemic.”
