The Franchise Game

1

• The Franchise Game
• Sport Finance

2
Sport Franchise

• Team franchise
• Product manufacturer
• Defined
• A strategic alliance between groups of people who
  have specific relationships and responsibilities
  with a common goal to dominate markets.

3
Sport Franchise

• In sport A club given permanent rights to play
  in a specific league.
• The corporation which owns a major league sports
  team is often called "the franchise" as a
  colloquial term.
• This concept is standard in the United States and
  Canada, but is foreign to sport structures in
  most of the rest of the world.

4
Franchise Admittance

• Development of a new franchise through the
  expansion of a league.
• Relocation of a sport franchise.
• Through the sale of an existing franchise.

5
Revenue Sharing

• Each of the major sports leagues has revenue
  sharing.
• Equally divide national television revenues
• (regardless of the sports franchise's number of
  televised games, winning record, or drawing power
  among the sports franchises in the league).
• Merchandise licensed on a national level, such as
  team logos, are also shared by the sports
  franchises in the leagues.

6
Revenue Sharing

• Sharing of gate receipts varies among the
  leagues
• NFL Splits gate receipts 60-40 with the home
  team receiving the larger amount.
• NHL Home team retains the entire gate.
• NBA Home team retains 94 percent of the gate
  with the league receiving the other 6 percent.
• MLB The split with the American league is 80-20,
  and in the National League, the visiting team
  receives 42 cents per admission.

7
Revenue Sharing

• Local media revenue is not shared, and the
  revenue from stadium box seats is generally not
  shared.
• The NFL has the highest degree of revenue sharing
  with over 80 percent of league revenues shared.
• National media broadcasting contracts.
• NHL has lowest shared revenue (5.4 percent)
• Only a small portion of total revenue from its
  national media contracts, with the majority of
  its revenues obtained from gate receipts.

8
Franchise Accounting

• Even among sports franchises in the same league,
  financial statements for each franchise are
  generally unique.
• Significant differences in accounting for the
  acquisition of the sports franchise and in the
  accounting policies for major items.
• Player contracts and contingencies.
• Varying levels of vertical business integration.
• The financial statements often reflect
  significant related- party transactions which are
  common for most sports franchises.

9
Franchise Accounting

• The amortization of player contracts is almost
  always a material audit issue.
• Player contracts are typically structured to
  include signing bonuses and deferred compensation
  arrangements.
• (the gradual reduction of a debt by periodic
  payments over the term of the contract.)

10
Franchise Accounting

• Particular accounting issues related to
• Broadcast rights
• Contract Length
• Paid Employees
• Sponsorships
• Exclusivity
• In-kind assets