Challenge and Change: Restaurants and Professional Sports Q&A III on Massachusetts

Recap of People’s United Advisors Market Update Call: December 9, 2020

 
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KEY TAKE-AWAYS

  • The restaurant industry is among the hardest-hit in Massachusetts by the pandemic, but restaurateurs and employees are responding creatively with new business models emphasizing take-out and outdoor dining.
  • A second stimulus bill is a must to keep the restaurant business alive.
  • Professional sports teams have also responded creatively to shifts in fan behavior toward more digital, flexible viewing, trends accelerated by the pandemic.
  • Individuals should consider writing to their representatives in the House and the Senate urging them to agree to a new stimulus package – this is especially crucial for the restaurant business and employees.

The Q&A below is the third in a three-part series on the Massachusetts economy. In this discussion, which was introduced and framed by John Doucette, PUB Head of Commercial Banking for Massachusetts, David Murphy, PUA Regional Wealth Leader for Massachusetts, talks with Bob Lutz, Chief Executive Officer of the Massachusetts Restaurant Association; and Ray Guilbault, Chief Operating Officer and Chief Financial Officer of NESN (the New England Sports Network).

David Murphy: The restaurants in Massachusetts have managed to survive the pandemic so far. Can you get through the winter and probably another spring, with strict limitations back in force, particularly on indoor dining?

Bob Lutz: Yes, but I say that with some trepidation. Restaurants were probably the hardest-hit of any industry by the pandemic. We had about 16,000 restaurants in the state before COVID. Since then, about 3,400 of them have not reopened; they still may, but it’s impossible to say how many. There were 300,000 employees in restaurants; in the pandemic’s worst days we had to furlough 255,000 of them. The majority have been re-called, but 39% of them are still out of work. That’s tragic. PPP was of some help, but all the money had to be spent quickly.

On the other hand, the owners discovered that take-out and outdoor dining were popular with a lot of customers. More than 80% of our restaurants had no outdoor dining before COVID, not to mention delivery and curbside services. Now in many of the restaurants, they’re the lifeblood of revenue—so the new business models are sort of a silver lining in the COVID disaster. I just hope that in the virus’s newest surge, we don’t lose outdoor dining too.

David Murphy: I’m thinking about all those workers out of a job, at least temporarily. Doesn’t unemployment insurance for many of them run out right after Christmas?

Bob Lutz: Yes, it goes for 39 weeks in Massachusetts. This is one reason out of many that we need a second stimulus package. Congress has been trying to hammer one out since August. I’d encourage everyone to write to their Senators or Representative and—politely—urge them to agree on a bill, now.

David Murphy: That’s our feeling too. Let’s say that we do get new stimulus and that six months down the road there’s a vaccine widely available and things start opening up. Will we see a different restaurant industry? Has the pandemic changed the business model?

Bob Lutz: Yes. For one thing, I think that outdoor dining will remain popular. Before COVID, 92% of our revenues were sourced inside the four walls of the restaurants. Now it’s maybe 35%; the rest is shared between take-out and outdoor service. The numbers will revert to some extent after the virus passes, but things won’t go back to the way they were. And I’m proud of the fact that with the help of Governor Baker and Mayor Walsh—and the banks like PUB that helped owners negotiate some forgiveness with landlords—our restaurateurs started their outdoor conversions in a matter of days. I think it would ordinarily take about four months.

However, outdoor dining works better in the Boston suburbs than in the city itself, since land is so constrained in the city. The downtown has been harder hit than the suburbs altogether. There’s no business to speak of in Boston now, no conventions, no universities that are open, no tourists. These were the drivers of restaurant traffic, and I’d venture to say that even when the plague is over, the patronage of downtown restaurants won’t come back to where it was.

David Murphy: So things are rough. What are the one or two things you think that our clients could do to help?

Bob Lutz: One of them I already said: Write to Congress. Get to them before they recess in two weeks. The other thing is to support your local restaurant—not only by dining yourself but by giving out gift cards, which many restaurants offer. They can make great holiday gifts.

David Murphy: Yes. I’d ask our clients to have at least one meal a week in a local restaurant. Let me turn to sports now, Ray, and with a specific question: What’s up with the Bruins? Will we have a hockey season this year? And will they be playing some games in Fenway?

Ray Guilbalt: I’m happy to say that there will be a season, starting in mid-January. I expect somewhere between 52 and 56 games. As to Fenway Park, probably not: The crowd sizes would be too big to satisfy the pandemic rules.

David Murphy: What happens when facilities like Fenway, the Garden, and Gillette Stadium do open up to the Sox, the Celtics, the Patriots, the Revolutions, and so forth, but with very limited capacity? How do you get the fans in without making them wait in 90-minute lines to pass the screening?

Ray Guilbalt: That’s just one problem in dealing with so many fewer fans on-site. But just as Bob pointed to creativity in the restaurant industry, we’re going to see lots of initiative in professional sports: Ticketless entry, maybe access in groups like how you board a plane, social distancing, mask requirements, cashless concession stands—they’re all on the table, and the leagues will figure out how best to promote health and safety in their venues. Of course, fans will be very cautious until there’s a vaccine out there.

David Murphy: That brings up a big issue. How do you deal with the revenue constraints the industry is facing? What impact will that have going forward?

Ray Guilbalt: A big impact. Most leagues depend on ticket sales for 40 to 50% of their revenue. And Boston is a great market for fan loyalty—but I think that the fans will be more cautious about going back to the venues than in many other cities. Part of the answer lies with TV. The NFL has a true national TV franchise; in other sports, TV tends to be more local. But traditional TV by itself won’t be enough to sustain revenues. We have to develop, and we are developing, business models that meet the fans wherever they are—meaning on their tablets, their phones, their smart TVs, their laptops. We can’t count on them sitting on their couches anymore for three-and-a-half hours watching a game; this change would have happened anyway, but COVID accelerated the trend—just like in restaurant dining.

David Murphy: So this isn’t a situation like what happened in major-league baseball in the mid-90s, when a season was aborted but the fans came back in force the following year? You’re talking about structural change.

Ray Guilbalt: Right. There’s lots of entertainment options now for sports fans—on Netflix, TikTok, Disney, you name it. We need to do better promoting our games, because sports are entertainment too, and we’ve got a lot of competition now. But we can preserve a large market share if we stay current, stream our games, create apps, use websites creatively—do the things that will bring our fans to us.

David Murphy: And I’ll conclude by saying that your network, NESN, has great offerings, and now you have an app as well. So you’re practicing what you preach.

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