Lesson 3.2 – The Financial Structure of Sports Business Copyright © 2014 by Sports Career...

Lesson 3.2 – The Financial

Structure of Sports Business

Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.2

Intro to Basic SEM Principles

The Financial Structure of Sports Business

Professional team sports are finding

it increasingly difficult to achieve financial successand turn a profit


LESSON 3.2


The Financial Structure of Sports Business


Last season, nine NBA teams lost money while eleven NHL teams lost money

Even the teams that are profitable (aside from NFL franchises) typically enjoy significantly lower profit margins than other for-profit entities such as banks or publicly traded companies

LESSON 3.2


Sports Business Financial Structure

Revenue Stream:

The means for an organization’s cash inflow, typically as a result of the sale of company products or services

+increasing revenue streams+inflated media rights fees+new means for generating revenues

=overall franchise values have risen exponentially in the past decade(expected to continue)


LESSON 3.2



Discussion Topic

What revenue streams do you think sports organizations rely on to achieve profitability?

Revenue Streams For Sports Teams

Ticket Sales

Sponsorship

Licensing and Merchandise

Concessions

Parking

LESSON 3.2




Additional Revenue Streams For Sports Teams

Luxury Suites

Club / VIP / Premium Seating

LESSON 3.2




LESSON 3.2


Luxury Suites & Premium Seating

Often times the lack of suites or premium seating options within a venue or facility will prompt a sports franchise to lobby for a new

stadium


LESSON 3.2



Discussion Topic

Can you think of an instance where a pro sports team has

threatened to move the franchise if it didn’t receive funding for a

new stadium or arena?

Why would a franchise do that?

LESSON 3.2



In Chicago, the relationship between the Chicago Cubs ownership and their neighbors (affectionately known as “Wrigleyville”) soured when the team announced in 2013 plans to renovate the stadium. Proposed renovations would include a 6,000-square-foot video board in left field, a 1,000-foot advertising sign in right, a new hotel and more night games, an “open-air plaza” and an office building with retail space, all in an effort to create new revenue streams for the franchise.


According to a report in the San Jose Mercury News, the San Francisco 49ers sold $138 million worth of luxury suites before construction on the new Levi’s stadium was even completed.

Additional Revenue Streams For Sports Teams

Television Contracts

Additional media contracts (satellite, radio, internet)

LESSON 3.2




LESSON 3.2



TV contracts provide big money

for franchises in the game of sports

business, now accounting for a

major portion of a team’s overall

annual revenue


LESSON 3.2




In 1973, the NBA signed a contract with CBS, yielding $27 million in revenue over 3 years

In 2006, the NBA inked a deal with ABC/ESPN worth $2.4 billion through 2008 (the contract was extended in 2007 to run through the 2015-16 season but terms were not disclosed)

LESSON 3.2




The Pac-12 conference agreed to a 12-year television contract with Fox and ESPN worth about $3 billion, allowing the conference to quadruple its media rights fees and start its own network

The contract, which will begin with the 2012-13 season, will be worth about $250 million per year, guaranteeing each of the 12 schools in the conference about $21 million each per season (in 2010 the entire conference generated just $60 million in rights fees)

LESSON 3.2




Although the terms were not disclosed, the Sports Business Journal revealed the Los Angeles Dodgers’ plans to launch their own regional sports network worth an estimated $7 billion over 25 years.

LESSON 3.2




According to the book The Cartel: Inside the Rise and Imminent Fall of the NCAA by Taylor Branch: “In 2010, despite the faltering economy, a single college athletic league, the football-crazed Southeastern Conference (SEC), became the first to crack the billion-dollar barrier in athletic receipts. The Big Ten pursued closely at $905 million. That money comes from a combination of ticket sales, concession sales, merchandise, licensing fees, and other sources—but the great bulk of it comes from television contracts.”

LESSON 3.2




As competition for rights deals for live sports increases (NBC, CBS and Fox have all created sports networks to challenge ESPN), rights deals will likely continue to increase exponentially.

According to businessinsider.com, last year ESPN paid $15.2 billion over 10 years for the rights to Monday Night football, a 73% annual increase over the previous deal.

LESSON 3.2



Additional Media Contracts

In 2007, Sirius Satellite Radio reached an agreement to broadcast NASCAR races and related events over a 5-year period for $107.5 million (the deal was extended in 2012 through 2016 but terms were not disclosed)

LESSON 3.2



Additional Revenues

LESSON 3.2



Additional Revenues

In 2014, the Kansas City Chiefs allowed fans to use the suites in Arrowhead Stadium as draft central for fantasy football leagues by charging $85 per person (minimum 8 people)

LESSON 3.2



Additional RevenuesAccording to a Forbes report, the money that

all MLB teams made from the $450 million sale of the Montreal Expos in 2006 was

invested in hedge funds that are now worth more than $1 billion

Sports Team Expenditures

Facility Rental / leasing arrangements

Staff / Player Salaries (Payroll)

Marketing

Investment in the Customer

LESSON 3.2




LESSON 3.2



Television ContractsThe driving issue for NHL owners as it

related to the last lockout wasn't revenues but expenses as many small market teams were unable to achieve profitability thanks in large part to high player salaries

Last season the Brooklyn Nets lost a reported $144 million with a player payroll of over $90

MORE Sports Team Expenditures

General Operating Expense

Stadium/venue/facility financing

Information management/research

Team expenses (travel etc.)

Maintenance and security

LESSON 3.2




LESSON 3.2



To gain a better understanding of the financial structure of sports business, let’s review the NFL’s Green Bay Packers’ financials

LESSON 3.2



National revenue from the NFL: $187.7 million

Nike contract and NFL Network (television revenues are shared with all teams in the league)

RevenueTotal revenue in the 2013-2014 season: $324 million

Local revenue: $136.3 million (Includes ticket sales, suite sales, premium seating sales, sponsorship etc.)

Total expenses for 2013-2014: $298 million (18% increase)

Expenses

Player Payroll expense: (includes team expenses): $171 million

Net Income / Profit $25.3

million

LESSON 3.2



Green Bay Packers’ profit for the 2013-14 NFL

season: $25.6 million, down from 54.3 million due in large part to a significant increase in

player salaries

PROFIT

LESSON 3.2



In 2004, Frank McCourt purchased the LA Dodgers for $430 million


In 2012, he sold the franchise to an ownership group that included former Lakers star Magic Johnson for a reported $2 billion

LESSON 3.2



In 2013, the San Diego Padres were sold for $800 million in a deal that ranked as the third largest in the history of Major League Baseball despite having appeared in the post-season just twice since 1999


LESSON 3.2



In 1981, former LA Clippers owner Donald Sterling paid $12.5 million for the team. After his involvement in a very public racism scandal, the NBA forced him to sell the team. At the time, it was valued by Forbes at $575 million, yet the sale price for the franchise fetched a whopping $2 billion (former Microsoft executive Steve Ballmer purchased the team).


Lesson 3.2 – The Financial Structure of Sports Business Copyright © 2014 by Sports Career...

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