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Broadway has gone dark, convention centers are eerie and empty, and pro sports are now played in sterile, empty bubbles with few, if any, fans.
The COVID-19 pandemic has ushered in a grim era and laid waste to the segments of the American economy built on gathering people together, with no signs of abating.
With gatherings remaining limited potentially well into 2021, will companies still value conventions and business meetings after the virus abates? Will crowds return to stadiums, arenas, or theaters on the scale of our pre-COVID lives? Or will the way that Americans interact with each other be forever changed?
Las Vegas struggles
Nowhere epitomizes the “gathering economy” more than Las Vegas, a city built on taking out-of-towners’ money in casinos and the clubs and bars that surround them.
Conventions, in normal times, also go a long way to filling its more than 147,000 hotel rooms.
Almost 30% of the Las Vegas region’s employment is in the leisure and hospitality sector, according to
In July, a month after Nevada casinos were permitted to emerge from coronavirus lockdown, Las Vegas visitor numbers were down 61% from July 2019, according to
Convention attendance, at zero, was down 100%.
Any bounceback will be slow.
One of Las Vegas’ flagship events, the Consumer Technology Association’s massive CES trade show, scheduled for January,
Gambling revenue in Clark County was down more than 31% year-over-year in July, and almost 40% on the Las Vegas Strip, where the casinos are most oriented to out-of-town guests.
“Gaming revenue, accounting for about 18% of the state’s general fund revenue, has also experienced heightened exposure in the current recession with the casinos on the Las Vegas Strip closed,” said S&P Global Ratings analyst Michael Parker. “Furthermore, we believe the travel and tourism-centered structure of Nevada’s economy ties its growth prospects to those of the nation, characterized by stronger growth during expansions and more severe contractions in a downturn.”
Convention and trade shows make up 16% of the Las Vegas economy, said Jeremy Aguero, a principal analyst with Las Vegas-based Applied Analysis.
“There is no doubt the impact is material for the Las Vegas economy,” said Aguero, who has studied the impact of the loss of fans to professional sporting events, conventions and trade shows for the city and state.
Normally, 41 million people visit Las Vegas a year, so the drop-off in visitors amid the pandemic is significant for both Nevada and Las Vegas’ economy, Aguero said.
And conventions play a big role.
“It fills hotels during the midweek, which is important, and convention travelers tend to spend more than leisure visitors,” Aguero said.
He predicted it will take 18 to 36 months for fans and convention goers to return.
“I view this as a problem solved by a function of science as opposed to time,” Aguero said. “It will be resolved as a vaccine becomes available.”
The state government was well-positioned before the pandemic with a combined reserve balance of $498 million, equivalent to about 15% of budget expenditures, but S&P believes the state could face budgetary pressures, Parker said. Las Vegas had an available fund balance of $135.5 million in fiscal 2019, as opposed to $96.8 million in 2008, when the last recession struck.
Slightly “higher reserves may not make a huge difference if the economic conditions continue to decline,” he said.
“The reemergence of large crowds, and in the meantime, the ability of issuers to respond to revenue decline and operational changes will determine the depth and duration of credit pressure in the sector,” Parker said. “In addition, given different patterns of reopening and crowd sizes by state, we expect there could be significant regional variations.”
S&P’s chief economist has noted the economic damage associated with the COVID-19 pandemic is nonlinear, he said.
“If the containment takes twice as long as expected, for example, the economic damage will be more than twice as bad as the length of the recession, with recovery longer and weaker, with more lost output,” Parker said.
And, he added, even if the spread of the virus were to end tomorrow, the effects could linger, especially if social distancing becomes a new normal or business and consumer spending don’t bounce back as people await the arrival of the vaccine.
S&P’s analyses have been based on the assumption that a vaccine or effective treatment will be widely available in mid-2021, with some modest upside potential that it could be earlier, Parker said pointing to a September report put out by S&P U.S. Chief Economist Beth Ann Bovino, “The U.S. Economy Reboots, With Obstacles Ahead.”
“We don’t expect the unemployment rate to reach pre-crisis levels until third-quarter 2024,” Bovino wrote.
“Perhaps, because of lockdown fatigue, combined with the savings cushion, stimulus, and decision by policymakers to end quarantines, the hit to the economy in July was relatively modest,” she wrote. “However, there is no coronavirus vaccine, and now that the U.S. is moving into autumn and winter, social activities will likely be forced indoors, naturally creating restrictions on economic activities.”
Aguero doesn’t think virtual meeting technology will replace travel to Las Vegas and attendance at games or conventions after they are perceived to be safe.
“I think new technology will enhance and grow the economy, but business gets done when people are here,” he said. “I think technology will enhance the convention experience, but I don’t think in the near term it is going to replace the long-term model of people attending in person.
“People seek out interactions with other people,” Aguero said. “Everything from bars to churches are representative of people’s desire to come together. With conventions and trade shows, it is just a different order of magnitude. Everyone just wants those human interactions to be safe.
“The balancing of technology and human touch is part of what makes the hospitality industry the hospitality industry,” he said.
When the stars align for a return of in-person experiences, there may well be pent-up demand.
“Business event audiences are fatigued, underwhelmed and saturated with excessive screen time,”
Conferences, conventions, trade shows
The coronavirus pandemic has been hard on the economy, but it’s wreaking havoc on the convention industry, said Nancy Drapeau, vice president of research for the Center for Exhibition Industry Research. According to
The work-from-home model has, at least for the time being, replaced in-person gatherings in conference rooms with video meetings. Following the wave of convention cancellations beginning in mid-March, organizers have created virtual conferences, along with virtual chat rooms for people to network privately outside of the larger call.
Rafat Ali, founder of Skift, which produces online news and events covering the global travel industry,
“Everything about the underlying economics of this sprawling, diverse, chaotic and highly profitable sector is being undercut by the move to virtual, and 2019 may be the year where the industry’s revenues peaked,” he wrote.
The story of Apple’s annual
The annual fixture is a magnet for the people who write software that runs on Macs and iPhones; every June they fill San Jose restaurants and hotels for a week. It’s so popular that the company holds a lottery for the $1,599 tickets.
This year’s event, of course, was completely virtual, and was successful enough
The online-only format flattened cost, time and travel barriers that otherwise
The tradeoff,
Most businesses are built on human connection, Drapeau said, and that need won’t go away. People attend business conferences and trade shows not just for the knowledge gained through panels, or the continuing education credits, but also to network and create new business, she said.
Sara Oberlies Brown, co-head of Stifel, Nicolaus & Co.’s California public finance investment banking business, said live conferences are important to all bankers for the exchange of ideas and building relationships, but they’re even more crucial for younger bankers, who are just beginning to meet the public sector employees who will become their clients.
“It’s harder for them to make a cold call and get an appointment, rather than randomly meeting someone at a conference or being on a panel with someone and making a connection,” she said.
Drapeau said the serendipitous discovery of a mentor or a new business opportunity that happens at face-to-face business conferences and trade shows is lost in an all-virtual environment.
“We have documented that exhibitors and attendees find that ability to achieve a number of business objectives at trade shows as top ranked in terms of the value of attending,” she said. “It’s not replaced by alternative channels.”
Drapeau believes in-person trade shows and business conferences will have more value, not less, in a post-pandemic world.
“I think in the future, one of the outcomes is that more people will work remotely,” Drapeau said. “Some companies will not have as large a footprint for their offices, and as a result, temporary offices like trade shows will be more important, because the need will be even greater for folks to get together.”
Sports stadiums and venue authorities
In an April report, S&P revised downward its outlooks for about a dozen U.S. convention center and sports venue authorities in the wake of the COVID-19 pandemic, saying the negative outlooks “provide notification that the affected entities face at least a one-in-three likelihood of a negative rating action over the next two years or so.
“The negative outlook reflects our belief that the advent of “social distancing” and subsequent cancellations of major events, as well as material declines in travel and closing of businesses in response to the global spread of COVID-19, have affected and will negatively affect convention center and sports authorities’ revenue streams,” said S&P analyst Andy Hobbs.
The professional sports world has used a variety of techniques to put on its contests while managing COVID-19 risks. What’s missing, for the most part, are live fans.
After a long hiatus, the National Hockey League and National Basketball Association restarted their seasons, but only by providing “bubbles” in one or two central locations with restricted entry and copious COVID-19 testing. The games have been played without fans but the bubbles got the job done — the NHL awarded a Stanley Cup without a single positive COVID-19 test in the bubble, and the NBA Finals are underway.
Major League Baseball reached the finish line of a 60-game regular season on Sept. 27 — that’s 102 fewer than a normal year. Even though its venues were devoid of fans, dozens of games were postponed because of positive COVID-19 tests among players and coaches. The league is now in the midst of its postseason, and it plans to bring a small number of fans back for the National League Championship Series and World Series.
The National Football League is playing its season with most games contested in empty stadiums, though roughly a third of the league is allowing limited attendance, with counts ranging from 2,500 to about 20,000. As with MLB, several games have been postponed due to players testing positive, and on Sept. 10 in Kansas City, one of about 16,000 fans at the league’s opener
Though convention and sports entities generally have strong fiscal metrics and liquidity positions, which are capable of providing cushion for such disruptions, a “prolonged environment of limited to no operations will greatly hamper the entities’ ability to meet debt obligations, as they do not have other significant stable revenue streams to rely on and generally have limited local authority to raise new revenues,” wrote S&P’s Hobbs.
The debt that authorities issued for stadiums and convention centers is “typically secured by special taxes, such as hotel and lodging taxes, sales taxes or car rental fees,” S&P wrote.
“While most governments and many industries are still able to operate in the world of ‘social distancing,’ this practice fundamentally stunts the ability for the authorities to provide their service, similar to the situation that bars, restaurants and other gathering spaces across the world are experiencing.”
Even when governments loosen restrictions around gatherings, S&P analysts noted, “consumer confidence may well lag behind a return to more normalized circumstances. Travelers and ticket-buying customers might be wary of booking flights and tickets, and attending large events even after the virus cedes, further adding to uncertainty and delays in revenue rebound.”
Casey Wasserman, chairman and CEO of Wasserman, a sports and entertainment agency, is perhaps best known as a leader in efforts to bring the 2028 Olympics to Los Angeles. He is the chair of LA 2028, the association preparing the city for the 2028 Olympics.
Wasserman envisions fans returning to stadiums on a restricted basis initially, followed by an eventual return to a game experience much like that before the outbreak.
“In stadiums, we can control people. We can create physical distancing by selling fewer tickets,” he said, speaking on an online panel for the Milken Institute’s online summer series. “It is harder to figure out what to do about bathrooms, because during a football game everyone goes to the bathroom at the end of the quarter, or at half time, so how do you control that?”
In the long run, fans are expected back, which should encourage team owners to meet obligations for venues they can’t use, said Fitch Ratings analyst Chad Lewis.
“There are ways that teams can play in their stadium asset, so they don’t lose them to bondholders,” he said. “The teams have a vested interest in retaining their stadiums, because sports will get back to normal at some point.”
There are levers that can be pulled on additional cash reserves or lines of credit, Lewis said.
“And the deep-pocketed owners are highly incentivized to protect their assets,” he added. “We are thinking there will be some type of recovery. Post 9-11, and post Great Recession, sports returned. And that is our current expectation for post-pandemic.”
It’s the expectation in San Diego, where city officials in September announced plans to foster the gathering-driven environment in the south part of the city’s downtown by redeveloping a four-block area near Petco Park, home of the Padres baseball team.
“Block by block we’re breathing new life into the East Village and making it a vibrant district for San Diegans and visitors alike to enjoy,” Mayor Kevin Faulconer said in a statement.
“If you take into consideration that we are rating long-term debt,” Lewis said, “there is volatility in team performance, but I don’t think it will result in a material shift in fans attending games.”
Theater, concerts, museums
Wasserman thinks concerts and Broadway shows will be more difficult to figure out, because the venues are smaller and it’s harder to work out a scenario that makes social distancing possible.
The American Alliance of Museums
“Even with a partial reopening in the coming months, costs will outweigh revenue and there is no financial safety net for many museums,” said Alliance president and CEO Laura Lott.
The nonprofit status of most U.S. cultural organizations gives them access to the tax-exempt bond market.
“If you own a high-yield fund, you will likely find you have exposure to museums, social service providers, and entertainment facilities,” municipal bond analyst Joseph Krist wrote in his Muni Credit Outlook publication in August. “Those entities are just beginning to see real ratings impacts.”
As the pandemic unfolds, trajectories are beginning to vary within the cultural institution sector — some institutions are better able to operate than others.
Live performances that crowd patrons into theater seats remain on hold throughout the U.S. On Sept. 23, New York’s Metropolitan Opera
“Because of the many hundreds of performers who are required to rehearse and perform in close quarters and because of the company’s large audience, it was determined that it would not be safe for the Met to resume until a vaccine is widely in use, herd immunity is established, and the wearing of masks and social distancing is no longer a medical requirement,” the company said. It won’t return before September 2021.
“The importance and place of the Metropolitan Opera in the American cultural landscape means that decisions by this one institution will resonate throughout the non-profit cultural sector,” Krist wrote on Sept. 25. “We would expect to see more such announcements, especially if the much-feared second wave occurs.”
The story is different for institutions that don’t have to assemble patrons close together in an audience. In New York, where virus numbers have remained low for an extended period, outdoor attractions, including the Bronx Zoo, were allowed to open in July, with capacity limited.
Indoor museums were allowed to open in late August, with similar restrictions.
“They are kind of in a process where they are seeing how this initial opening goes,” Krist said in a late-September interview.
“Museums aren’t traditionally sit-down experiences, and zoos and botanical gardens are outdoors, so it is not as much of an issue,” he said. “The biggest issue with Broadway or sport venues is the idea that you are there, sitting close to other people, for a significant period of time.”
With capacity capped, New York’s museums don’t have a demand-side problem this fall, even without a large share of their usual customer base.
“New York cultural institutions are pretty interesting, because so much is tied to tourism,” Krist said in the interview. “Those people are gone for now and the question is how long are they gone for.”
Elsewhere in the U.S., virus numbers are much higher, leaving people to ponder how long it will take before they can once again attend a game in person or mingle with colleagues at a convention center.
Airline industry executives think it will be a while — with federal relief funds that were tied to job retention set to expire in October, they have announced tens of thousands of planned layoffs in the absence of demand for travel, particularly business travel.
Wasserman, however, believes all live events will return to their previous scale within two years.
“I think once people understand the risk profile there will be pent-up demand,” Wasserman said. “People have short memories and things will get back to normal faster than you think.”
