Sports and Entertainment Marketing © Thomson/South-Western ChapterChapter Sports and Entertainment Means Business 2.1 Sports and Entertainment Economics 2.2 Risk Management 2.3 Business Ethics 2.4 Financial Analysis 2

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 2 Winning Strategies one of the largest music content providers cost savings achieved through outsourcing of manufacturing in 2005, income grew due to legitimate sales of digital music the music industry embraces ever-changing technology and helps drive the economy EMI

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 3 Lesson 2.1 Sports and Entertainment Economics Goals Define profit and explain the profit motive. Describe types of economic utility.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 4 Terms profit profit motive economics economic utility

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 5 THE PROFIT MAKERS profit the amount of money remaining from revenues after all expenses are paid Can be made from box-office sales but also dvd sales & rentals, Netflix, movie merchandise, etc.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 6 the money a business receives from the sales of goods and services profit motive making decisions to use resources in ways that result in the greatest profit. Ex. NFL total revenue shared among 32 member teams revenue

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 7 Cultural Opportunities for Profits Worldwide distribution revenue is critical for movie profits. International release increases box-office sale by 50 to 100% over domestic sales Domestic sales usually generate less than 25% of income Marketers must understand markets they are trying to sell to. China is huge with 1.3 billion people but films must avoid political and religious topics. pirated movies diminish theater sales

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 8 In addition to U.S. ticket sales, name two other large sources of revenue for U.S. film studios.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 9 ECONOMICS economics the study of how goods and services are produced, distributed, and consumed

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 10 the study of the economics of the entire society microeconomics the study of the relationships between individual consumers and producers Sports and entertainment marketers are focused on microeconomics. relationships with consumers macroeconomics

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 11 Sports and Entertainment Economics economic utility the amount of satisfaction a person receives from the consumption of a particular product or service

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 12 Types of Utility form utility when the physical characteristics of a product or service are improved. Ex. Iphone improvements time utility making the product or service available when the customer wants it. Ex. Ski gear in winter place utility the product is available where it is wanted Ex. Water Ice trucks near beaches possession utility the product or service is available at an affordable price Ex. Buying an affordable pair of jeans

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 13 List four types of economic utility.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 14 Lesson 2.2 Risk Management Goals Define risk and describe the categories and classifications of risk. Name and describe four strategies for risk management.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 15 Terms risk risk management liable

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 16 RISKING IT ALL risk the possibility of financial gain or loss or personal injury

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 17 Categories of Risk natural risk occurs from unavoidable weather conditions human risk dishonest customers and employees inadequately trained employees economic risk occurs due to changes in the economy

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 18 Additional Classification of Risk gain or loss risk – speculative or pure speculative risk either a gain or loss could result pure risk a chance of an event occurring that could only result in a loss controllable risk if a loss can be prevented or the likelihood of its occurrence reduced Ex. Smoke alarms & fire exits uncontrollable risk nothing can be done to prevent the risk. Ex. Weather

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 19 a pure risk for which the chances of loss are predictable and the amount of the loss can be estimated Ex. Fire insurance uninsurable risk the chance that a dollar loss could occur the amount of the loss cannot be estimated Ex. Team has a loosing streak ticket sales decrease insurable risk Additional Classification of Risk

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 20 What is meant by a controllable risk?

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 21 MANAGING RISK risk management preventing, reducing, or lessening the negative impacts of risk by using the strategies of risk avoidance, risk insurance, risk transfer, and/or risk retention Four categories = risk avoidance, risk insurance, risk transfer, and risk retention

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 22 Risk Avoidance Sports and entertainment marketers need to plan to avoid risky situations. Posting warning signs on rides shows Disney trying to minimize risk liable the business is legally responsible for damages that occur and might have to pay medical costs an other losses suffered by injured person

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 23 Risk Insurance risk insurance pays for predictable losses Ex. Property, liability or theft insurance premium cost of insurance. Premiums from many businesses pooled together and used to pay for the losses that a few businesses may incur

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 24 Risk Transfer Some risks can be transferred to another company or even to the consumer. contracting with third parties for services. Ex. Fireworks show in local park the local township may require the fireworks provider to be liable not the township. including releases from liability on event tickets. Back of tickets saying promoter not responsible for any harm to the ticket holder

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 25 Risk Retention risk retention assuming the cost of an uninsurable risk’ Ex. Setting aside $ to pay for expenses in the event of poor sales risk retention groups similar businesses facing similar risks pool resources resources are distributed to members that have a loss Ex. All teams NFL sharing profit

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 26 Briefly describe four strategies for managing risk.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 27 Lesson 2.3 Business Ethics Goals Define ethics. Discuss the impacts of unethical behavior. How can unethical behavior of celebrities be controlled?

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 28 Terms ethics principles

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 29 DO ETHICS COUNT? ethics a system of deciding what is right or wrong in a reasoned and impartial manner Business should be conducted with integrity, trust, and fairness.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 30 Ethics and Character Matter principles high standards of rules and guidelines Ex. Don’t kill and don’t steal character development a progression in behavior where people advance from childish behavior to mature behavior based on principles First we learn good = reward, bad = punishment Second role models and their expectations mold us Last we are mature and act on principles we learned if we have good role models then most likely good principles

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 31 How does a person’s character develop?

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 32 IMPACTS OF UNETHICAL BEHAVIOR People and businesses should act ethically while pursuing a profit. Is it ok to pollute to make a profit? Unethical behavior can result in bad publicity that will undo the best marketing plans

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 33 Seeking an Advantage Sometimes it is hard to continue to act ethically when you observe people who receive a benefit from acting unethically. Ex. Using steroids may help you this season but if you get caught image destroyed. Ex. Alex Rodriguez

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 34 Controlling Unethical Behavior of Celebrities Only fans can really influence the behavior of ethically challenged athletes and celebrities. We must stop paying to watch them if we feel they are making poor decisions Leagues establish fines, etc for poor behavior but does not seem to control the behavior

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 35 Effective and Ethical Good decisions are both ethical and effective. Good decisions are the right choices for the long term.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 36 How can the bad behavior of celebrities be controlled?

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 37 Lesson 2.4 Financial Analysis Goals Discuss sources of funding and revenue for sports and entertainment businesses. Describe four tools for financial analysis.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 38 Terms return on investment forecast budget balance sheet income statement

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 39 IT TAKES MONEY Profit is the primary purpose of sports and entertainment marketing.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 40 Finding Funding Investors generally provide the funding for an event to cover all the costs that must be incurred before tickets are ever sold. Return on Investment the income from a venture that is distributed to investors

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 41 Money Sources Funds to repay investors are raised through ticket sales broadcast rights licensing facilities

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 42 Name three sources of revenue from sports and entertainment.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 43 WHERE IS THE MONEY being used ? Budgets Balance sheets Income statements forecast a plan that predicts the expenses to be incurred and the revenues to be received

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 44 BUDGETS budget a plan for how available funds will be spent The purpose of a budget is to control costs so they do not exceed the funds available.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 45 Financial Statements balance sheet net worth = assets – liabilities shows net worth at a specific point in time income statement shows revenues and expenses for a specific period of time reveals company’s profit or loss

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 46 What is the purpose of a forecast?

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 47 PERFORMANCE INDICATORS EVALUATED Communicate pricing strategies for supply and demand. Analyze relevant data to determine varying ticket prices for home games. Explain the need for and use of additional revenue from higher-priced tickets.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 48 Explain the benefits of increased revenue for consumers of foot-ball tickets. Demonstrate knowledge of appropriate pricing strategies.

Sports and Entertainment Marketing © Thomson/South-Western Chapter 2 Slide 49 THINK CRITICALLY 1.Why have an increasing number of universities varied ticket prices to games based upon the opponent? 2.Why must universities consider the consumer before raising ticket prices? 3.If games become to expensive to attend, what other options do consumers have to watch the games? 4.How much revenue would be generated from the seven games if ticket prices were $40 all season long?