Chapter 18

1. Chapter 18 C H A P T E R 18 Sport Finance Trends Across Four Sectors: A Current Analysis

2. Chapter Objectives • Appreciate the dynamics of how quickly financial trends change within the sport industry. • Understand the scope of the current financial problems facing sport today. • Develop appropriate responses and solutions after a financial problem is identified.

3. Key Terms • Balance sheet: A document displaying the financial condition of a business at a single point in time. Basic definition: assets = liabilities + owner’s equity. • Income statement: A document describing how much profit or loss was earned by a business over a given length of time. • Pay-for-play: Fee charged to high school athletes for the right to participate in scholastic sports.

4. Pay-for-Play • No consensus on how this should be structured. • Most districts offer discounts for multiple sports or family caps. • Many families have already been paying for their children to participate in youth sports and club teams. • In some school districts, participation fees are charged as a flat rate per athlete per sport or a flat fee for the entire calendar year.

5. Sponsorship and High School Sports • The licensing resource group markets team merchandise nationally. • Both football and basketball are broadcast live on national television. • Sponsorships are used to pay for equipment, facility maintenance, and uniforms.

6. Texas High School Football In Allen, Texas, local residents approved a $119 million bond issuance in 2009 by a 63% vote, with more than half the money dedicated to the construction of a $60 million stadium for Allen High School.

7. College Sports Athletic expenses are outpacing revenues because of the following: • Rise in coaching and administrative salaries • Facility construction • Tuition increases In FBS division, Fulk (2011) noted the median revenue increased by 9.5% compared to the previous year while expenses increased only 1.7%. (continued)

8. College Sports(continued) Revenue Sources • Booster contributions and ticket sales continue to produce the largest revenue sources. • Athletic departments are now proposing to pay their student athletes a stipend to help defray their costs. • Examples: • real estate • plant • equipment (continued)

9. College Sports(continued) Study by Huma & Staurowsky (2011): • College athletes on full scholarships do not receive a “free ride.” In 2009-2010, the average annual scholarship shortfall (out-of-pocket expenses) for Football Bowl Series (FBS) “full” scholarship athletes was $3,222. • The compensation FBS athletes on “full scholarship” receive for living expenses (room and board, other expenses) positions the vast majority below the poverty level.

10. Broadcasting Deals for College Sports • In 2011, the University of Texas reached an agreement with ESPN to launch the Longhorn Network. This channel is exclusively devoted to broadcasting and promoting both the university’s athletic department and the university. • As part of the agreement, UT will receive payments totaling more than $300 million distributed over 20 years. This money is in addition to the share of Big 12 revenues the university already receives as a conference member.

11. Conference Realignment • Conferences are now being forced to fend off other conferences from raiding their membership. • Traditional rivalries are being sacrificed in order for conferences to maintain and in other circumstances grow their membership.

12. Financial Issues in Professional Sports • Stadium subsidies • Public ownership • Labor issues • Franchise values

13. Stadium Subsidies • Between 1990 and 2010, the total luxury-suite inventory in the four major sports leagues in the United States (MLB, NFL, NBA, and NHL) grew 147% to more than 10,000 luxury suites. • Similarly, club-seat inventory experienced explosive growth, increasing by a whopping 624% to reach an estimated 450,000 club seats.

14. Public Ownership • Individuals, corporations, or a combination have traditionally owned professional sport franchises, and therefore these organizations are not considered public entities. • However, the 2010 Super Bowl Champion Green Bay Packers have been publicly held since 1922 and are the only NFL franchise to have shareholders. • Although the NFL has a league policy prohibiting public ownership, the Packers were grandfathered in as a public entity and therefore remain the only publicly owned NFL franchise.

15. Green Bay Packers Stock • The stock is illiquid, it pays no dividend, and no one is allowed to own more than 200,000 shares. • Also, resale is prohibited, except to the club at a fraction of the original value. • Because of its ownership structure, Green Bay is the only NFL team to reveal annual financial results and consequently offers a rare glimpse into league finances.

16. Labor Issues In 2011, both the NFL and NBA were mirrored in labor disputes, resulting in both leagues locking out their players over disagreements on how league revenues should be divided among the players.

17. Franchise Values • Because team owners are not required to publicly disclose their financial statements, the general population has to rely on anecdotal information about the financial solvency of professional teams. • Yet, despite the lack of publicly available financial information, one fact is not disputed: The values of these franchises do increase and often at rates far exceeding other business entities. (continued)

18. Franchise Values(continued) In 2011, Forbes compiled a list of the 50 most valuable sport organizations, and for the seventh consecutive year Manchester United topped the list with an estimated value of $1.86 billion. While Manchester and other soccer clubs, including Real Madrid at #5 and Arsenal at #7, represented the three soccer organizations in the overall top ten, every NFL franchise (N = 32) was included in the top 50 most valuable franchises. One example illustrating the explosive growth over the previous 25 years of the NFL is the fact that TV revenue jumped 700%. Specifically, the league’s 32 teams now divide $3.8 billion annually under the current round of broadcast deals, expiring after the 2013 season.

19. International Sports • There is intense competition among cities to host events. • Competition for the Summer Olympic Games and FIFA World Cup is particularly fierce, with cities and countries worldwide vying for the rights to host these events. • Sharing of broadcast rights between a free-to-air broadcaster and a pay television service is a growing trend in the United Kingdom. • Rights to the UEFA Champions League and Masters golf tournament are sold on a similar basis (Cushnan, 2011).

20. Questions for Class Discussion • What are the two advantages and disadvantages of publicly owned sport franchises? • Provide three specific examples of how stadium subsidies can positively influence a local community. • What will the key labor issues be for professional sports leagues in the near future? • What variables will continue to drive up the market value of sports franchises? (continued)

21. Questions for Class Discussion(continued) 5. Will all major sports events move to cable or satellite platforms in the next five years? 6. What are the primary benefits for a country to invest resources to host international sporting competitions?