Sport Management

1
Sport Management

• Financial Principles

2
Financial Health of Sports

• Serious Financial Challenges Face Managers of
  Sport Organizations!
• Increasing Costs
• Stable/Declining Revenue
• Revenue Costs Profit
• 100M - 70M 30M
• 100M - 80M 20M (increased costs)
• 90M - 80M 10M (increased costs reduced
  revenue)

Double Whammy!
3
Increasing Costs - Professional

• Equipment
• Debt of financing new venues
• Player Salaries

4
Increasing Costs - College

• Equipment
• Increasing Coaches Salaries
• Tuition Costs (for athletic scholarships)
• Title IX Compliance
• Statute aimed at eliminating gender
  discrimination in educational institutions that
  receive federal funding.

5
Increasing Costs High School

• Equipment
• Title IX Compliance

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Stable/Declining Revenue

• While rising costs are a concern, sport managers
  also face declining revenue as a result of
  increased competition.
• Fan Support
• Competition for fans is intense. With more
  variety of sporting options, consumers have never
  had so many options for spending their
  entertainment dollars.
• Corporate Sponsorship
• Competition for sponsorship dollars is intense.
  Corporations have limited sponsorship budgets,
  and an increasing number of sporting options for
  spending it.

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Addressing the Double Whammy

• The Double Whammy!
• Increasing costs coupled with stable/declining
  revenue!
• How are sport managers handling it?
• High School Sports
• Booster Clubs Participation Fees Soliciting
  Corporate Sponsors (like PHS and Coca Cola)
• College Sports
• Institutional Support Soliciting Corporate
  Sponsors
• Professional Sports
• Successful sport managers recognize that future
  financial success will depend on their ability to
  aggressively secure new sources of revenue.

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Traditional Sources of Revenue

• These income generating options have provided the
  financial foundation for sport organizations for
  many decades.
• Ticket Sales
• Concessions

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Traditional Sources of Revenue

• Ticket Sales
• The most prominent revenue source for
  professional sport franchises (except NFL)
• Revenue is based upon two factors
• Number of tickets sold
• Price of each ticket
• Teams have increased prices over the years to
  increase profit.

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Traditional Revenue Sources

• Ticket Sales (continued)
• Future Challenge ? Determining optimal ticket
  prices!
• Increasing prices discourage fan from attending
• There exists a price threshold the price beyond
  which fans will resist payment
• We identify customers expected price threshold
  by conducting market research.

11
Traditional Sources of Revenue

• Concessions
• Professional Sports
• Concessions play a BIG Role
• Food service and souvenir merchandise account for
  a large share of revenue.
• Minor Leagues
• Concessions play a BIGGER Role
• Since ticket sales are low, concession sales are
  very important they may actually determine a
  teams profitability

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Traditional Sources of Revenue

• Concessions (continued)
• Amateur Sports
• Concessions play a LITTLE Role
• Less of a financial role because of the lack of
  beer sales.
• In professional sports, beer account for
  approximately 35 to 55 of total concessions.
• Most colleges and high schools do not allow beer
  sales

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Traditional Sources of Revenue

• Concessions (continued)
• Alcohol is a serious concern
• From a revenue perspective, sales of alcohol make
  sense, however
• Heightened awareness of the negative consequences
  of drinking, including traffic deaths, underage
  drinking, and unruly fan behavior, have led sport
  organizations to re-evaluate their policies
  surrounding alcohol.
• Policies include
• Designated family sections where alcohol is
  prohibited
• Stop Selling practices
• Alcohol will continue to be a serious concern
• in the future!

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Traditional Sources of Revenue

• Concessions (continued)
• Latest Trend in Concessions
• Offering diverse and higher quality food and
  beverage options.
• Based on the idea that fans will spend more if
  offered appealing choices like
• Expanded menus
• Upscale menus
• Food courts
• Wait staff
• Has it worked? Yes, spending has increased!

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New Sources of Revenue

• Ticket Sales and Concessions will continue to
  provide a foundation of revenue for sport teams,
  however, increasing costs and competition force
  managers to seek out new sources of revenue to
  maintain profits.
• Luxury Seating
• Permanent Seat Licenses
• Naming Rights
• Corporate Sponsorship
• Licensing

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New Sources of Revenue

• Luxury Seating
• Fastest growing source of income for professional
  teams.
• Luxury Suites
• Wet bar, carpeting, TV, catered food, private
  bath, VIP parking pass, seating for 12 to 24
• Purchased or leased by corporations for
  entertaining clients or rewarding employees.
• Tax laws allow businesses to deduct 50 of the
  cost as a business entertainment expense. This
  has encouraged thousands of corporations to
  invest.

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New Sources of Revenue

• Luxury Seating (continued)
• Club Seats
• Wide bottom, cushioned seats with chair backs,
  in-seat wait service, enclosed lounge area, wide
  screen TV
• Less extravagant option for individual fans
  seeking premium seating.

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New Sources of Revenue

• Luxury Seating (continued)
• Income potential is huge!
• Income potential was fully demonstrated when the
  Palace at Auburn Hills was built in 1988.
• Realization of income potential associated with
  luxury seating has prompted many teams to
  threaten relocation to a newer venue with more
  suites.
• To deter relocation, teams are often granted
  favorable lease agreements allowing them to
  retain the majority of luxury seating revenue.

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New Sources of Revenue

• Luxury Seating (continued)
• Future Challenge
• It is possible that suite construction has
  exceeded demand.
• Will there be enough corporations to support all
  the suites being built?
• In every market there is a finite number of
  businesses with the financial capability and
  willingness to spend money on suites.

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New Sources of Revenue

• Permanent Seat Licenses (PSLs)
• Give fans the right to purchase season tickets,
  often for the life of the venue, in return for an
  up-front payment.
• Prices vary based upon seat location
• Colleges have begun to adopt the concept
• Eagles PSL program at the Link
• Offered 29,000 seat licenses
• Prices ranged from 1,760 to 3,617
• Raised 60 million

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New Sources of Revenue

• Permanent Seat Licenses (PSLs) (cont.)
• 3 Features of Successful PSL Program
• Must be sold on a permanent basis (for the life
  of the stadium)
• Owners must have the right to sell or transfer
  the license to any other family member
• Money back guarantee team agrees to buy back
  the license for current market value or no less
  than 70 to 85 of its original price.

22
New Sources of Revenue

• Naming Rights
• A corporation purchases the right to put its name
  on a stadium or arena.
• Started in the 1990s, but halted a bit in early
  2000 due to economic slowdown and technology
  industry stock crash, which forced many companies
  to prematurely end their naming rights deals
  (Enron Adelphia).
• Facility owners are now careful about attracting
  naming rights partners that are stable and
  reputable.
• The naming rights market seems to have begun to
  reemerge since late 2002.

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New Sources of Revenue

• Naming Rights (continued)
• Going rate at a major venue is 2 to 6 million
  per year
• Colleges have begun to use naming rights sponsors
  as a way to raise money to build new facilities.
• Overall, corporations see naming rights as a
  cost-effective way for their company to receive
  extensive public exposure.

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New Sources of Revenue

• Corporate Sponsorship
• The acquisition of rights to affiliate or
  directly associate with a product or event for
  the purpose of deriving benefits related to that
  affiliation. (remember this?)
• Benefits for the Corporation
• Heightened Visibility
• Image Enhancement
• Product Trial or Sale Opportunities
• Hospitality Opportunities

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New Sources of Revenue

• Corporate Sponsorship ( continued)
• Corporate sponsorship is a great way to achieve
  extensive public exposure.
• Future Challenge
• Large corporations will receive thousands of
  sponsorship proposals a year.
• Marketing approach to solicit sponsors proposals
  must be tailored to the needs of the business.
• Key to identify what a company is willing to pay,
  and what they will want in return for investing
  as a sponsor.

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New Sources of Revenue

• Licensing
• Sale of licensed sport merchandise
• The more fans buy, the more revenue!
• Revenue comes from Royalty Fees
• Paid by the manufacturer for the right to sell
  merchandise with a team name or logo
• of the wholesale price of the product
• Standard royalty fee is 8.5 for the 4
  professional leagues.
• In each league, royalty fee proceeds are pooled
  and divided equally among all teams in the league.

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New Sources of Revenue

• Licensing (continued)
• Also used in minor leagues and at the college
  level
• Not yet used with amateur and high school sport
  programs
• Great way to protect and promote a team name and
  logo while generating substantial revenues.

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Conclusion

• Sport entities are facing a Double Whammy
  stable/declining revenue resulting from increased
  competition, and increasing costs.
• Traditional revenue sources, like ticket sales
  and concessions are not enough to maintain
  profits.
• To maintain profits, successful sport managers
  will continue to create and expand opportunities
  for their organizations to secure new sources of
  revenue.