chapter 4 Business of Sport

Chapter Outline Sport and the Economy Ownership of Professional Sports Sport As a Monopoly Collegiate Sports As Moneymakers Business of Recreational Sport Summary

Sport and the Economy Corporate sport Today’s professional sports structured and organized Developed by move from agrarian society to industrialized society Sport adopted a corporate structure and athletes became workers

Ownership of Professional Sports Majority wealthy, powerful males Small number of teams owned by public and organizations Historically owners loved the game and promoted the sport Now just a business investment or means to promote other products, with many financial advantages despite lost revenue

Making Money From Professional Sports Investments: Teams that sold for ~$200 million U.S. in early 1990s now sell for between $500 and $800 million U.S. Taxes: Revenue lost from team offsets other profits. Depreciation: Owners can write off depreciation of players each year. Ticket sales: These sales account for 23% of all NFL revenue. (continued)

Making Money From Professional Sports (continued) Stadium revenues: Owners earn money from luxury boxes, concessions, and parking. Media revenue: Revenue from TV ranges from 15% to 60% of team’s revenue. Licensing fees for team merchandise Leagues vary on amount of revenue sharing. Licensing fees give advantage to larger markets. Naming rights Reliant Park in Houston sold rights for next 30 years for $300 million U.S. See table 4.1 on page 57 for some of the deals in stadium naming rights.

Financing of Stadiums Can cost several hundred million U.S. Public, private, or combination of funds Public: sales tax, proximity and beneficiary taxes, bed tax, bonds, tax increment financing Private: owner or league contributions, bank loans, local business loans, personal seat licenses

Pros of Building a Stadium With Public Funds Team can promote the city Increased revenue for local businesses Media attention increases tourism Local jobs

Cons of Building a Stadium With Public Funds Money can be used for alternate means such as better public education, better city infrastructure, low-income housing for poor Team may threaten to leave (blackmail) if city doesn’t provide stadium for them

Sport As a Monopoly Owners control competition and sales. Existing leagues work together to eliminate new competing leagues. Players can negotiate with only one team. New or expansion teams have to pay large fees and need approval to relocate. Owners cannot individually sell team merchandise.

Players’ Rights and Compensation Players can negotiate with only one team. In the United States, 15,000 professional athletes are currently bound to their team until their option year. Average salary for U.S. professional athlete was $45,320 U.S. in 2005; see tables 4.2 and 4.3 for lists of top wage earners. Salary caps or earnings based on performance limit wages. Average length of a professional sports career is less than 10 years. Making it to the pros does not mean an athlete is set for life.

College Sports As Moneymakers University athletic departments are run as businesses. Budgets can be more than $60 million U.S. Big programs can increase contributions to other departments and enrollment. Colleges can receive money from ticket sales, licensing fees, corporate sponsors, and television rights.

Key Point Only 50% of Division I men’s football and basketball and less than 20% of women’s sport programs operate in the black.

Recreational Sports As Moneymakers With increased leisure time, recreation increases. Sales of sport equipment in United States are ~$50 billion U.S. per year. Leagues earn participation fees. Communities use funds to maintain public recreational areas. How much do you spend on recreational sports?

Summary Professional sports teams have become corporate entities. Ownership has become a business venture with athletes as workers. Cities often spend public money to keep or lure franchises despite other spending areas that could benefit from those funds. Collegiate and recreational sports are turning into big moneymakers.

On Deck… Questions and comments Assignments and readings Next chapter: Media and Sport Financial aspects Reciprocal relationship