Ronique Davis, one of KROST’s Sports & Entertainment Industry experts, recently attended the Entertainment Industry Virtual Conference hosted by CalCPA. Below, she shares some of the insights she learned at the virtual event regarding how COVID-19 is impacting the industry.

COVID-19 has had an effect on the lives of almost everyone we know to varying degrees, whether it be losing jobs, reduced work hours, children displaced due to school closures, or more severe cases of sick family members and loss of life. Similarly, most industries have been impacted, and the sports and entertainment industry is one that continues to feel that impact. This year’s Entertainment Industry Virtual Conference hosted by CalCPA, hosted June 23, 2020, was proof of the effects of COVID-19.

Brand Partnerships & Sponsorships in the Sporting Industry

The morning’s first session led with the topic, “Brand Partnerships and the COVID‐19 Pandemic: Business and Contract Issues.” The panel discussed the change in the supply chain processes of the manufacturers that produce equipment for sports entertainment. These manufacturers continue to show resilience throughout the pandemic by switching their production to protective gear, which was and continues to be needed.

Along with equipment production changing in the sports industry, sponsorships in sports went down 40%, whereas last year, the industry saw a 33% increase. This decrease is primarily due to the absence of sporting events. However, e-sports sponsorship has seen a 53% increase. Sponsorship agreements make provisions for several concessions, but pandemics are not usually included. Because of this, corporate sponsors that signed on for the 2020 Olympics may not extend that sponsorship through 2021. Coco‐Cola, previously an official sponsor of Major League Baseball (MLB), has decided not to renew their agreement due to the uncertainty of the sports industry during the pandemic.

Employment Law Issues in Returning to Work During COVID-19

The next session, “Employment Law Issues in Returning to Work During COVID-19,” provided updates on the requirements passed during the pandemic that impact the industry. According to the Occupational Safety and Health Administration (OSHA), employers owe employees duty of care, which includes, but is not limited to, infection prevention measures like social distancing through staggered work schedules, employee training, washing facilities, and personal protective equipment.

More information on the OSHA’s guidelines

As a result of COVID-19, The Equal Employment Opportunity Commission has relaxed their standards. As a result of this, employers can take the temperature of employees entering the office, ask questions of the employee relating to COVID-19 symptoms and/or contact, as well as require COVID-19 testing. However, testing may prove to be of limited value due to timing issues, etc.

As a result of Executive Order N-62-20 signed by Governor Gavin Newsom, a rebuttable presumption for worker’s compensation is available for employees. This applies to employees who contract COVID-19 within 14 days after the employee performs labor or service at the employee’s place of employment on or after March 19, 2020. The rebuttable presumptions expire on July 5, 2020, unless extended. The rebuttable presumption favors the employee, but it does not mean that an employee cannot file a worker’s compensation claim for COVID-19 after July 5, 2020.

Cybersecurity in a COVID-19 Landscape

COVID-19 created more possibilities for cyber threats in a work-from-home environment. Threats include a significant increase in cyber risks resulting from employees working from home on their personal computers for work, employees being distracted while working from home, and household virtual assistant AI technology, like Amazon’s Alexa, listening in on conversations. Phishing saw an increase of 700% due to COVID-19. A common threat is an attacker threatening to release information on the dark web unless a ransom is received. This is different from prior attacks where hackers requested a ransom to release data from being held “hostage.” Attacks on business emails have seen losses at a rate of $10 million a week. IT companies are under attack, which puts their clients in harm’s way.

New Golden Age of Music Publishing

Streaming was once problematic (Napster, LimeWire), but now it is how we regularly receive music. Income from music streaming is still not considered significant, but it is on the rise. Goldman Sachs projects a 25% decline in 2020 global music revenue and a 75% decline in live music with a strong rebound in the live sector for 2021.

Entertainment Considerations

COVID-19 has resulted in changes in distributions for film and TV with release dates continually postponed due to concerns. There is a big question as to whether theaters will be able to survive the pandemic. Theaters would have to address the following questions:

  • How will theaters facilitate spacing issues?
  • How will theaters enforce mask usage? For example, AMC said they would not require patrons to wear masks, but masks would be sold onsite. The next day, they flip-flopped on their stance on masks. There is speculation that this may have been the result of an insurance issue.
  • What happens if patrons get sick, and when will patrons be willing to return to theaters?
  • How long would it take to return to normal, and what will normal look like? More and more films are being pushed to 2021, but will enough patrons go to theaters to make the studios profitable?

Currently, writers have the sweet spot in the entertainment field as they are still able to write during the pandemic and have only experienced a slow down while the rest of the industry has been shut down. When the film industry opens back up, they also have to consider the following:

  • What happens if actors, directors, producers, and others are not willing to go back on set?
  • Will insurance become an issue? What happens if investors and financiers will not back projects or absorb the risk without some sort of COVID insurance in place due to the pandemic?

The industry is seeing more content being sold to streaming services like Hulu, Prime Video, Netflix,  and others. This is particularly true for independent movies. There are also more original theater releases going to Netflix and similar services. This is likely to become a big trend as major releases like “Trolls World Tour” saw a huge success for a home streaming release.

Music Considerations

Since the coronavirus, live events and touring have all been canceled for 2020, and radio consumption is down. Smaller event spaces for musical events have been closed, while services like Spotify and Apple music have seen an increase in subscriptions. Live streaming events have seen an increase and present a new income source. There are some that say live streaming concerts allow the audience to feel more connected.

These were the major speaking points presented at CalCPA’s Entertainment Industry Virtual Conference. Other topics discussed during the conference include the Paycheck Protection Program, CARES & HEROES ACT, SECURE ACT, and state and local tax issues.

Have questions about the impacts of COVID-19 on your industry? KROST’s team of Sports & Entertainment experts are available to assist you or your business during the pandemic and beyond. We have professional services to guide you through the PPP forgiveness process, Employee Retention Credits, as well as other COVID-19 government relief opportunities. All of our services are catered to your specific needs in the Sports & Entertainment industry. Contact us today.