Chapter 4 Business of Sport

Chapter Outline Sport and the economy Ownership in professional sport Sport as monopoly Collegiate sport as moneymaker Recreational sport as a business Chapter summary

Sport and the Economy Sport is a business with a corporate structure. Athletes became workers; the team and the bottom line are emphasized. Industrialization led to sport consumption.

Ownership in Professional Sport Most owners are wealthy, powerful males. More and more teams are owned by corporations. Very few teams are owned by the public. Why? A sport team is a business investment or a means of promoting other products.

Making Money From Professional Sport Appreciation: Over the past 15 years, NFL franchises have increased fivefold in value. Taxes: Lost revenue offsets other profits. Depreciation: Players are assets who are depreciated. (continued)

Making Money From Professional Sport (continued) Revenue sharing and ticket sales provide income. Venue revenues: Owners earn money from luxury boxes, concessions, parking, and stadium naming rights. Media revenue: TV revenue ranges from about 15% to 60% of a team’s total revenue. Fees are paid to license team merchandise. (continued)

Making Money From Professional Sport (continued) MLB teams receive increased revenue from television and ticket sales for each playoff game they host. Playoff teams tend to enjoy higher attendance in the following year. After a successful 2014, the Kansas City Royals expected an additional $6 million or more from new team sponsors in 2015.

Stadium Financing New stadium costs: several hundred million dollars (two-thirds from public funds in U.S. baseball and football since 1991) Public, private, or combination 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-license sales

Pros of Building With Public Funds Team can promote the city. Revenue is increased for local businesses. Media attention increases tourism. Local jobs are created.

Cons of Building With Public Funds The money could be used to meet other needs (e.g., public education, infrastructure, low-income housing). Final taxpayer cost often exceeds estimated cost (by a total of $10 billion across major U.S. sports). Team may threaten to leave (extortion) if city doesn’t provide stadium.

Discussion The USTA runs the U.S. Open tennis tournament through a very successful business model. How might this model be used by other sport organizations?

Sport as Monopoly Owners control competition and sales. Leagues collude to eliminate new leagues. Drafted players can negotiate with only one team. New or expansion teams must pay large fees, and teams need approval to relocate. Except in rare circumstances, owners cannot individually sell merchandise.

Management Versus Labor Players can negotiate with only one team when they are drafted. Wages are limited by salary caps and performance-based conditions. Average length of a professional sport career is less than 10 years. Making it to the pros does not necessarily mean an athlete is set for life.

Collegiate Sport as Moneymaker Some departments are run as businesses with huge budgets. Big programs can increase enrollment and contributions to other departments. Money comes from ticket sales, licensing, corporate sponsors, and sale of TV rights. Standard school costs include athletic fees.

Discussion Can schools with relatively small budgets compete effectively against schools with larger budgets?

Net Gain or Loss? Only 50% to 60% of D-I FBS football and men’s basketball programs operate in the black. Median annual net loss for all colleges in D-I FBS is $15 million. Only 23 of 120 colleges in D-I FBS had positive net revenue from athletics in 2012.

Recreational Sport as a Business Recreation activity increases with increased leisure time. Sales of sport equipment in United States average $44 billion per year. Leagues earn participation fees. Communities use funds to maintain public recreational areas.