Financial Characteristics and Challenges Sport Finance - PowerPoint PPT Presentation

1 / 18
About This Presentation
Title:

Financial Characteristics and Challenges Sport Finance

Description:

Revenue Generation vs. Cost Containment. Revenues ... Disney ABC / ESPN. AOL Time Warner. Shoe & Apparel. Nike Many small companies. Adidas Reebok ... – PowerPoint PPT presentation

Number of Views:532
Avg rating:3.0/5.0
Slides: 19
Provided by: DoI3
Category:

less

Transcript and Presenter's Notes

Title: Financial Characteristics and Challenges Sport Finance


1
Financial Characteristics and ChallengesSport
Finance
2
Revenues Expenditures
  • In college sport
  • Costs exceed revenues for most schools
  • Student fees
  • Fundraising Needs
  • Tuition costs
  • Title IX
  • Revenue Generation vs. Cost Containment

3
Revenues Expenditures
  • In college sport
  • Are sources being maximized?
  • Is spending being managed well?
  • College Athletics Arms Race
  • The spending gap between rich and poor athletic
    programs appears to be growing
  • Spending more is not necessarily linked to
    greater profits or more wins in subsequent years.

4
Title IX
  • Does gender equity cost smaller mens programs?
  • Funding for mens programs has risen since Title
    IX
  • Football Basketball cost much.
  • Franklin vs. Gwinnet Public Schools
  • Grove City vs. Bell

5
Professional Sports
  • Spectacular growth over the last 20 years
  • Costs increasing due to increasing spending
  • Player Salaries
  • Facilities Debt

6
Scope of Pro Sports
  • Sports leagues possess many unique
    characteristics that distinguish them from any
    other industry
  • How they operate
  • How they are allowed to exist
  • Few people do not consume the products of the
    professional sports industry in some way.
  • Many other industries depend upon pro sports for
    their success.
  • Revenue and profit figures are difficult to find
    for professional sports teams since they are
    largely privately owned firms
  • Baseball annual revenues of 1.35 billion for the
    1990 season, growing to 2.22 billion in the 1997
    season.

7
Definition of Professional Sports
  • Sports in which the participants are paid for
    playing, as opposed to amateur athletes.
  • Types of Payment
  • Salary
  • Bonuses
  • Reimbursement for expenses
  • Endorsement fees

8
Professionalism
  • Popularity has increased through a combination of
    developments
  • mass media exposure
  • increased leisure time for audiences
  • Major advantages of professional sport
  • increasing the level of proficiency of athletes
  • boosting the popularity of certain sports.
  • Major disadvantages of professional sport
  • diminishes the central ethos of sport, i.e. the
    ethos of being done for its own sake and for pure
    enjoyment, rather than as a means to earning a
    living
  • emphasis on outcome, not effort.

9
Professional Sports
  • Professional sports involves paid athletes,
    competing live, in a sponsored event, in front of
    paying spectators.
  • Revenue sources
  • Gate
  • Luxury seating, etc.
  • Radio and television broadcasting and cable
  • Local TV
  • National TV
  • Local Radio
  • Sponsorship
  • Naming rights
  • Signage
  • Domestic and international sale of licensed
    products (apparel, videos, books, memorabilia

10
The Bottom Line
  • Sport managers must now be entrepreneurs
  • New sources of funding must be found
  • Better financial management skills are needed

11
Financial Management Overview
  • What is financial management?
  • Economic forecasting
  • Financial planning
  • Review of internal and external constraints
  • Other?
  • What are the biggest sport finance issues?
  • Valuation of sport teams
  • Financing of sport operations
  • Mergers of sport businesses
  • Changes in sport sponsorship

12
Valuation of Sport Teams
  • Values can be affected by numerous variables
  • Macro Variables
  • What is included in the deal?
  • Is it a new or existing franchise?
  • What is the leagues financial strength?
  • External variables that affect your ability to
    manage the team finances
  • Micro Variables
  • Salary cap regulations
  • Loyalty of fan base
  • Television broadcast contracts
  • Profit margin and total assets
  • Internal variables that affect your ability to
    manage the team finances

13
Why is valuation important?
  • Acquisitions price setting
  • Borrowing money
  • Expansion fees based on market values of existing
    teams
  • Forbes publishes valuations of all clubs of the 4
    major leagues and leading soccer clubs each year

14
Goldman Sachs Valuation Elements
  • Strategic Position
  • Historic Team Performance
  • Brand Equity and Fan Loyalty
  • Economics
  • Team Operating Performance
  • League Economics
  • Upside Opportunities
  • Comparable Entity Valuations
  • Recent Transactions and Expansion Franchises
  • Ownership Issues
  • Potential Buyer Universe
  • League Rules Restrictions
  • Tax Consideration
  • Rights of First Refusal
  • Trophy Status

15
Valuation Methods
  • Public Markets
  • Stock are a strong reflector of market value
  • Acquisition Market
  • Recent transactions display high value
  • Important to know what was included in obtaining
    the price (can get muddy)
  • Financial Statement Information
  • Difficult sometimes to interpret
  • For example, balance sheet value of a player
    contract may not reflect the players true value
  • Discounted Cash Flow
  • Forecast expected future cash flows of an asset

16
Profitability as a Measure
  • Negotiations of leagues with players or unions
  • Negotiations between teams and cities over public
    financing for stadium development
  • Always involves analysis of profitability of a
    club with private debt scenarios
  • Ticket price increases and public relations
    management

17
Financing of Sport Operations
  • How does an organization raise money to pay for
    its operations?
  • Revenue Sources
  • Lending Vehicles
  • Asset-backed securities (promissory note with
    collateral)
  • Bonds
  • Public stock offerings
  • Government / municipal support

18
Mergers of Sport Businesses
  • Industry consolidations
  • Sport Agencies
  • Clear Channel ? SFX ? Falk Associates
  • Interpublic Group ? Advantage International
  • Broadcasting
  • Disney ? ABC / ESPN
  • AOL ? Time Warner
  • Shoe Apparel
  • Nike ? Many small companies
  • Adidas ? Reebok
Write a Comment
User Comments (0)
About PowerShow.com