AVIXA: Uncertainty Over Tariffs Could Impact AV Systems’ Costs

Sports’ reliance on large-scale videoboards may be vulnerable to price increases

The NBA may have won over China (recent tweets notwithstanding), and the world’s most populous country is still very much on the NFL’s radar, but the massive Chinese-manufactured video screens and their LED elements that dominate stadiums and arenas are in the tariff crosshairs, along with other AV systems, thanks to the ongoing trade war between the U.S. and China.

When the trade war intensified in the first few days of August, it affected the pro-AV industry in a multitude of ways, according to Sean Wargo, senior director, market intelligence, AVIXA, the leading trade organization for the audio/video industry globally. Primarily, he explains, it introduces uncertainty and makes businesses less likely to invest and expand. Rising import and export costs also disrupt supply chains and make products more expensive.

AVIXA’s Sean Wargo: “Pro-AV growth in the Americas outpaces GDP but is slowing a bit as we work through the [trade-war] challenges.”

“Instead of paying for new AV systems and investing to grow revenue, businesses are paying tariffs and investing to reroute their supply chains around the new tariffs,” he says. It’s a dynamic that will apply to sports venues as well as to other commercial-AV verticals.

The escalation in August began with President Trump’s introduction of tariffs on another $300 billion of imports, making nearly all Chinese imports subject to some form of trade tax, and worsened with retaliation by China. That country’s response centered on allowing its currency to devalue to an 11-year low against the U.S. dollar, a move that functions like a tariff by making U.S. exports to China more expensive while making Chinese exports to the U.S. cheaper.

“In AVIXA’s Industry Outlook and Trends Analysis (IOTA), we factored in some slowdown in the Americas forecast as a result of economic challenges, some of which stem from trade conflicts,” says Wargo. He cites data indicating that U.S. GDP will grow 2.1% this year, down from 2.9% in 2018, and Asia-Pacific GDP growth will slow to 4.5% in the same period. “Specifically, pro-AV revenues in the Americas increased by 6.1% in 2018, with a [predicted] drop to 5.4% in 2019 and 4.5% in 2020. Thus, the pro-AV growth in the Americas outpaces GDP but is slowing a bit as we work through the challenges.”

Recent Price Declines Could Be Reversed
Integrators that design and install AV systems in sports venues have voiced concern about rising costs for video and audio components, which could reverse the steady price declines of the past several years. Those price drops have played a major role in the explosion of larger video screens and sound systems in arenas and stadiums over the past decade.

According to Duane Yoslov, SVP, leading sports and live events, Diversified, whose portfolio includes Miami’s Hard Rock Stadium and Atlanta’s Mercedes-Benz Stadium, the potential for tariffs to increase LED costs by as much as 20% is real, but exactly where the impact of that will land on the capital-cost spectrum of a new sports venue is uncertain. He suggests, however, that future contracts for LED scoreboard will need to include provisions limiting client liability for price spikes due to trade issues, such as tariffs.

“From a contractor’s point of view,” he explains, “you can quote a price for an LED scoreboard but with an exclusion that that price is exempt from any future tariffs. But that does increase your risk: a tariff can quickly negate the profit margin on an LED screen.”

However, he adds, LED displays have become fundamental to fan-engagement strategies that venues and teams use to get customers off the couch and into the stands. “Even with a higher price tag, those screens are still just a tiny fraction of the overall cost of a stadium or an arena.”

Possibly a Positive Effect
The rising costs could spur more manufacture of AV systems in the U.S. and North America.

“If anything, the tariffs are an advantage for us because it makes the Chinese products more expensive,” Todd Whitaker, senior VP, sales and marketing, Inneos, which develops and manufactures optical video products, told Commercial Integrator magazine this year.

Some optimists in the AV industry point out that a growing percentage of audio, video, and lighting products are being sourced outside of China but still in low-cost manufacturing locations: in particular, South Korea, Taiwan, and the Philippines. LED components used in scoreboards and large-scale video screens in stadiums and arenas have especially benefited from this dynamic.

And those countries have become more assertive in developing products used by sports venues; for instance, in 2015, South Korean electronics powerhouse Samsung acquired LED-screen manufacturer Prismview, which has recently placed scoreboards in such venues as Sacramento’s Chase Center and Salt Lake City’s Vivint Smart Home Arena. Furthermore, U.S.-based Daktronics, which is widely considered the global market-share leader in large-scale video displays and whose scoreboards are in a majority of NFL, MLB, and NHL venues and a third of NBA arenas, manufactures its screens at its South Dakota headquarters.

But others in the professional-AV community see more-direct effects from the tariffs. Brooke Walters, corporate marketing manager, Ford Audio-Video, whose sports-venue portfolio includes Bank of America Stadium in Charlotte, NC, and Arizona State University’s Wells Fargo Arena in Tempe, expects tariff-induced price increases to spur significant changes in what has been a steadily growing sector, that he.

“As an industry,” he writes in an op-ed on the website of Premier Mounts, which fabricates support systems for these huge displays, “we are not accustomed to big price increases. For a long time, there has been stability, but we are in a new and unsettling era of uncertainly.”