Unit 4: Team /School Financials Economics of Sports Unit 4: Team /School Financials

Table 4-1 Operating Expenses for the Seattle Mariners 1993 to 1998 ($Thousands) (slide 1 of 2) 1994 1995 1996 1997 1998 Baseball Operations Player Compensation $32,612 $20,918 $29,732 $39,313 $43,815 $52,392 Team Operations $5,200 $3,825 $5,219 $4,530 $5,353 $6,281 Scouting/Player Development $6,458 $5,205 $6,030 $6,375 $7,017 $7,606 Other Operating Expenses Kingdome Operations $1,898 $1,388 $1,864 $2,777 $3,383 $3,888 Marketing, Publicity, Ticket operations $3,186 $2,663 $2,819 $4,239 $4,859 $5,990 General and Administrative $5,501 $4,798 $5,385 $6,765 $7,395 $7,430 Net Int. and Other Expenses $411 $178 $1,324 $1,274 $1,197 $1,230 King County Settlement* -$4,204 ML Revenue Sharing Agreement** $613 $3,364 $3,417 Total Operating Expenses $55,266 $34,771 $52,373 $65,886 $76,383 $88,234

Table 4-1 Operating Expenses for the Seattle Mariners 1993 to 1998 ($Thousands) (slide 2 of 2) Other Expenses Signing Bonuses $4,540 $2,049 $5,019 $5,164 $5,025 $3,572 Depreciation and Amortization*** $9,237 $6,176 Total Expenses $59,806 $36,820 $57,392 $71,050 $90,645 $97,982 *One-time settlement in a political agreement between the team and King County. **The so-called “luxury tax” that shares revenues among MLB owners ***Only reported for 1997 and 1998.

Table 4-2 Fixed and Variable Costs for the Seattle Mariners 1993 to 1998 ($Thousands) (slide 1 of 2) 1994 1995 1996 1997 1998 Short-Run Fixed Costs Player Compensation $32,612 $20,918 $29,732 $39,313 $43,815 $52,392 Signing Bonuses $4,540 $2,049 $5,019 $5,164 $5,025 $3,572 Revenue Sharing Agreement* $613 $3,364 $3,417 Net Int. and Other Expenses $411 $178 $1,324 $1,274 $1,197 $1,230 Depreciation and Amortization** $9,237 $6,176 Short-Run Fixed Costs Total $37,563 $23,145 $36,075 $46,364 $62,638 $66,787 Short-Run Variable Costs Marketing, Publicity, Ticket operations $3,186 $2,663 $2,819 $4,239 $4,859 $5,990 Scouting/Player Development $6,458 $5,205 $6,030 $6,375 $7,017 $7,606 Team Operations $5,200 $3,825 $5,219 $4,530 $5,353 $6,281 Kingdome Operations $1,898 $1,388 $1,864 $2,777 $3,383 $3,888 Short-Run Variable Costs Total $16,742 $13,081 $15,932 $17,921 $20,612 $23,765

Table 4-2 Fixed and Variable Costs for the Seattle Mariners 1993 to 1998 ($Thousands) (slide 2 of 2) Mixed Category General and Administrative $5,501 $4,798 $5,385 $6,765 $7,395 $7,430 Short-Run Total Costs $59,806 $41,024 $57,392 $71,050 $90,645 $97,982 *Pooled sharing began in 1996. **Only reported in 1997 and 1998. Source: Adapted from Table 4-1

Figure 4-2 Hypothetical Winning Percent Production Function MLB in the 1990s Legend: Star players are added to a standard lineup in order to increase winning percent in the long run. The relationship between the number of stars and winning percent, deduced from real-world data on stars and winning over time, is the winning percent production function. For example, adding the first star increases winning percent by .009 (from Table 4-6). Its shape cannot be dictated by diminishing returns since winning percent is a long run choice and all inputs are variable. Limits to managing more and more stars must be the explanation.

Figure 4-3 Hypothetical Long-Run Cost of Winning for MLB in 2008 Legend: Star players are added to a standard lineup in order to increase winning percent in the long run. If the price of stars is known, then the long-run cost of winning percent is also known. For example, buying enough star talent to play 0.429 costs $35 million, and so on (from Table 4.7). The shape of the curve where the total cost of winning percent rises at a decreasing rate at first, but eventually rises at an increasing rate. follows from the same limit to managing more stars that characterized the winning percent production function in Figure 4.2.

Table 4-6 A Hypothetical Production Schedule of Winning Percent MLB in the 1990s Stars Total Winning Percent 0.420 1 0.429 2 0.448 3 0.466 4 0.490 5 0.528 6 0.598 7 0.646 8 0.680 9 0.695 10 0.700

Table 4-7 Hypothetical Total Cost of Winning for MLB Number of Stars Team’s Total Winning Percent Player Annual Salary ($Millions) Total Cost of Team ($Millions) 420 $25 1 429 $10 $35 2 448 $45 3 466 $55 4 490 $11 $66 5 528 $12 $78 6 598 $13 $91 7 646 $14 $105 8 680 $15 $120 9 695 $16 $136 10 700 $20 $156

Table 4-8 Seattle Supersonics Annual Operations Statements, 2000-01 through 2004-05 ($2009) (slide 1 of 3) Revenues 2000-01 2001-02 2002-03 2003-04 2004-05 Ticket Revenue $6,322,893 $32,734,483 $32,642,784 $30,688,944 $31,744,548 Playoff Revenue $0 $2,518,973 $134,833 $9,039,957 National Broadcast Revenue $4,192,764 $32,940,139 $27,953,885 $27,983,980 $27,665,711 Local Broadcast and Sponsor Revenue $3,353,843 $20,480,897 $19,646,688 $18,915,958 $20,234,546 Suite Revenue $1,013,643 $2,107,358 $1,861,992 $2,023,807 $1,489,960 Equity in Earnings of NBA Parnerships $683,694 $2,290,352 $2,816,976 $1,532,441 $2,691,844 Luxury Tax Revenue $10,428,860 $9,739,090 NBA League-Wide Revenue Share $625,147 $772,806 $2,119,732 $14,500,657 $1,911,906 Merchandise Sale $268,374 $1,287,688 $1,421,044 $1,484,932 $2,435,027 Concession Revenue $804,520 $1,144,605 $1,597,964 $2,016,136 Other Revenue $210,523 $121,771 $703,805 $653,811 $514,283 Total $16,670,881 $96,058,987 $100,740,372 $109,256,415 $99,743,918

Table 4-8 Seattle Supersonics Annual Operations Statements, 2000-01 through 2004-05 ($2009) (slide 2 of 3) Costs and Expenses Team and Game Expenses, Net $17,722,927 $68,529,341 $78,267,947 $77,547,645 $81,241,211 Depreciation and Amortization $29,041,833 $48,330,013 $25,933,716 $17,882,653 $12,293,206 General and Administrative $7,740,733 $17,639,447 $18,920,022 $16,541,795 $14,269,289 Local Broadcast and Sponsor Expenses $2,792,008 $12,029,261 $12,055,111 $12,441,237 $4,722,828 Ticket Sales and Operating Expenses $1,169,141 $3,796,714 $4,857,162 $5,168,755 $6,737,187 Arena Expenses $841,111 $1,422,170 $1,440,009 $1,468,050 $1,483,463 Community and Public Relations $588,580 $1,407,985 $1,223,913 $971,472 $1,372,566 Playoff Expenses $0 $1,582,423 $26,442 $193,665 $6,330,722 Cost of Merchandise Sales $547,183 $640,763 $768,251 $886,096 $1,291,849 Other Expenses $871,679 $418,300 $515,970 $425,653 $560,146 Total $61,315,195 $155,796,416 $144,008,543 $133,527,020 $130,302,465

Table 4-8 Seattle Supersonics Annual Operations Statements, 2000-01 through 2004-05 ($2009) (slide 3 of 3) Loss from Operations -$44,644,314 -$59,737,429 -$43,268,170 -$24,270,605 -$30,558,547 Gain (Loss) On Sale of Asset $0 -$785 -$6,960 $17,018 Gain on Interest Rate Swap $301,298 $769,773 Interest Expense, Net -$2,855,613 -$3,368,758 -$3,346,491 -$3,655,314 -$3,292,466 Net Loss -$47,499,927 -$63,106,187 -$46,615,446 -$27,631,580 -$33,064,223 Notes: Schultz took formal financial control of the team on December 15, 2000. The purchase price as $200 million. The team fiscal year reportedly ended on September 30.

College Sports 2011 College Athletic Depts P&L

Figure 13-1 Demand Functions for Men’s and Women’s Basketball Season Tickets (Typical class size = 100) Legend: (From Chapter 2) A simple classroom experiment chooses a subset of the class and asks, “How many season tickets to men’s or women’s basketball would you buy at various prices?” Plotting price against their response gives two different demand functions for the two sports. For example, 70 students are willing to buy a men’s ticket at a price of $20. But the price would have to fall to $10 before 70 students would buy a women’s ticket.

Table 13-1 Revenues and Expenses of FBS Athletic Departments (2009 dollars) (slide 1 of 2) Year Average Total Revenue a Average Total Expenditures Average Net Percent Showing Profit Maximum Total Revenue Total Revenue RatioB Maximum Total Expenditures Total Expenditures RatioC With institutional support 1985 $13,804,000 $14,007,000 N/A 42% $36,134,000 2.6 $33,495,000 2.4 1989 $17,248,000 $17,072,000 80% $39,952,000 2.3 $38,896,000 1993 $20,536,000 $19,630,000 -$302,000 69% $45,602,000 2.2 $42,280,000 1995 $22,165,000 $20,449,000 -$286,000 65% $56,199,000 2.5 $46,046,000 1997 $24,208,000 $23,528,000 -$1,088,000 71% $64,736,000 2.7 $64,872,000 2.8 1999 $28,689,000 $26,200,000 $0 67% $95,652,270 3.3 $83,437,830 3.2 2001 $30,873,000 $28,536,000 -$738,000 $97,908,000 $64,083,000 2003 $34,986,000 $32,368,000 -$714,000 66% $104,482,000 3.0 $79,849,000 2004 $32,728,240 $33,629,560 $121,800 $120,490,360 3.7 $104,502,080 3.1 2005 $36,790,880 $34,863,360 $135,520 $100,465,120 $100,329,600 2.9

Table 13-1 Revenues and Expenses of FBS Athletic Departments (2009 dollars) (slide 2 of 2) Without institutional support $19,328,000 $19,630,000 -$302,000 51% $20,163,000 $20,449,000 -$286,000 46% $22,440,000 $23,528,000 -$1,088,000 43% $26,200,000 $0 $27,798,000 $28,536,000 -$738,000 35% $31,654,000 $32,368,000 -$714,000 40% AAverages were reported to 2001. After that medians were reported. BTotal Revenue Ratio = Maximum Total Revenue/Average Total Revenue. CTotal Expenditures Ratio = Maximum Total Expenditures/Average Total Expenditures. Note: The source lists data for 2006 that are not shown here due a suspected error in the report.Source: Author’s calculations from tables in Fulks (2003, 2008).

Average Total Expenditures Men's Women's Year Average Total Revenue Average Total Expenditures Average Net 1993 14,194,000 10,570,000 3,775,000 755,000 2,718,000 -1,963,000 1995 14,014,000 10,582,000 3,432,000 858,000 3,289,000 -2,431,000 1997 15,776,000 11,288,000 4,488,000 1,224,000 4,216,000 -3,128,000 1999 17,685,000 12,445,000 5,240,000 1,965,000 5,109,000 -3,144,000 2001 19,434,000 13,407,000 6,027,000 1,722,000 5,658,000 -3,936,000 2003 22,134,000 14,875,000 7,259,000 2,142,000 6,426,000 -4,284,000 2004 17,317,640 15,257,480 1,758,560 1,796,840 6,085,360 -3,857,000 2005 19,233,760 14,940,800 2,142,560 1,820,000 6,478,080 -4,021,920 2006 20,329,920 16,411,680 1,305,720 1,838,160 6,634,440 -4,355,640 Table 13.2 Revenue and Expenses of Men’s and Women’s Programs in FBS Athletic Departments ($2009) (slide 1 of 2)

Table 13.2 Revenue and Expenses of Men’s and Women’s Programs in FBS Athletic Departments ($2009) (slide 2 of 2) Note: Averages were reported prior to 2004; medians after that. Only years from 1993 on are used because the data are consistent with respect to values specific to men’s and women’s programs. The data include institutional support directly from the university to its athletic department, if any.

Figure 13.2 Non-BCS and BCS Average Payouts, 1981-82 to 2008-09 (2009 dollars). Legend: At the average, BCS bowl payouts have always dwarfed non-BCS bowl payouts. In addition, while non-BCS average payouts have been steady over time, average BCS bowl payouts have grown in leaps and bounds, although they have fallen a bit in the last few years.

Table 13-3 2006 Revenue and Expenditure Distribution Percentages by Sport for FBS College Athletics Men Women Sport Percent Total Revenues Percent Total Expenditures Football 63% 42% — Basketball 24% 15% 22% 13% Other sports 12% 41% 77% 86% Unrelated to particular sport 1% 2% Notes: The data are for generated revenues and expenses, that is, earned by the athletic department and do not include allocated revenues (e.g., institutional support directly from the university to its athletic department, if any).

Figure 13-3 The University and the Athletic Department Legend: All major elements of the university, inside the triangle, produce outputs (Research, Teaching and Service) that generate money and political support for the university. The university supports those elements best that provide money and political support the best.

Table 13-4 Naming Rights in College Sports Facility College Total Paid ($Millions) Duration of Rights (in Years) End Year Save Mart Center Fresno State 40 23 2022 Comcast Center University of Maryland 20 25 2026 Jones Stadium Texas Tech 2019 United Spirit Center 10 2015 Value City Arena Ohio State 12.5 Indefinite Cox Arena San Diego State 12 Bank of America Washington 5.1 2008 Colonial Center Arena University of South Carolina 5.5 Cox Pavilion University of Nevada Las Vegas 5 2009 Wells Fargo Arena Arizona State Papa John’s Cardinal Stadium Louisville 15 2012 Movie Gallery Veterans Stadium Troy State University Coors Events Center Colorado Carrier Dome Syracuse 2.75 Alltel Arena Virginia Commonwealth University 2 Cessna Stadium Wichita State 0.3

Figure 13-4 The Athletic Department Org Chart Legend: At the bottom, individual team coaches are responsible to their Athletic Director (the equivalent of the Dean for academic departments). The line of responsibility and oversight moves upward through the President (typically, not the Provost as in academic departments), the Board of Regents and, ultimately, to the Governor.

Table 13-5 Annual Values of College Football TV Contracts (slide 1 of 3) Conference Network Duration Ends Amount ACC ABC/ESPN 7 2010 $258 million Big 12 FSN 12 2011 $214 million Big East 2013-14 $200 million *Notre Dame CBS 5 $45 million **Pac-10 10 2006 $169 million $153 million Basketball Raycom 2010–11 $300 million 4 2012-13 n/a ***Pac-10 9 2005–06 $52.5 million

Table 13-5 Annual Values of College Football TV Contracts (slide 2 of 3) Combined Conference Network Duration Ends Amount Big 12 ABC/ESPN 7 2015-16 $500 million Big East 2013-14 $200 million Big Ten 10 2018 $1 billion Big Ten Network 20 2028 $2.8 billion C-USA ESPN 8 2008–09 $80 million MAC 5 2007–08 $3 million Mountain West CSTV 2012-13 $82 million SEC 15 2024 $2.2 billion CBS $800 million Sun Belt n/a WAC 6 $8 million

Table 13-5 Annual Values of College Football TV Contracts (slide 3 of 3) *6 home games per year. **The newest Pac 10 contract values have not been reported. Not available is denoted “n/a.”

Table 13-6 2008-09 Bowl Sponsors and Payouts to Teams (slide 1 of 3) Alamo $2,225,000 Armed Forces Bell Helicopter $750,000 BCS Championship $18,000,000 Capital One $4,250,000 Champs Sports $2,130,000 Chick-Fil-A Chik-Fil-A $3,250,000 ACC $2,400,000 SEC Cotton AT&T $3,000,000 EagleBank $1,000,000 Emerald Diamond Foods $750,000 ACC $825,000 Pac 10 Fiesta (BCS) Tostitos Gator Toyota $2,750,000 GMAC Hawaii Sheraton Holiday Pacific Life $2,200,000 Humanitarian

Table 13-6 2008-09 Bowl Sponsors and Payouts to Teams (slide 2 of 3) Insight Insight.com $1,250,000 Independence PetroSun $1,100,000 International $750,000 Las Vegas Pioneer PureVision $1,000,000 Liberty AutoZone $1,700,000 Meineke Car Care Motor City Music City Gaylord Hotels $1,600,000 New Mexico New Orleans R+L Carriers $325,000 Orange (BCS) FedEx $18,000,000 Outback $3,100,000 Papajohns.com $300,000 Pointsettia San Diego Credit Union

Table 13-6 2008-09 Bowl Sponsors and Payouts to Teams (slide 3 of 3) Rose (BCS) $18,000,000 St. Petersburg $1,000,000 Sugar (BCS) AllState Sun Brut $1,900,000 Texas $612,500 Notes: When a second team from a conference, in addition to the conference champion, appears in a BCS game, the payout falls to $4.5 million for that second team. Utah 's appearance in the Sugar Bowl generated nearly $18 million to be split among their own Mountain West Conference, but also with C-USA , the MAC, Sun Belt Conference, and the WAC.

Table 13-7 2007-2008 FBS Conference TV and Postseason Revenues All Conference TV NCAA Distribution Total Bowl Payouts Total Big Ten $240,000,000 $32,675,726 $47,700,000 $320,375,726 Southeastern $200,000,000 $25,149,625 $51,700,000 $276,849,625 Big 12 $89,261,905 $29,743,405 $46,075,000 $165,080,309 Atlantic Coast $66,857,143 $30,798,392 $28,125,000 $125,780,535 Pacific-10 $38,033,333 $6,454,167 $23,725,000 $68,212,501 Big East $22,000,000 $31,355,275 $3,700,000 $57,055,275 Conference USA $10,000,000 $19,135,016 $4,375,000 $33,510,016 Western Athletic $1,333,333 $12,363,932 $19,250,000 $32,947,265 Mountain West $6,857,143 $10,129,601 $4,000,000 $20,986,744 Mid-American $600,000 $11,860,368 $2,250,000 $14,710,368 Sun Belt n/a $5,477,803 $325,000 $5,802,803 Notes: Annual conference TV values and bowl payouts by conference all calculated by Fort

Table 13-8 Budgets at Washington State University (slide 1 of 2) Revenues 1996-97 1997-98 Difference Booster Club Scholarship Contributions/Endowment $1,968,286 $2,451,854 $483,568 Corporate Support $314,476 $302,739 -$11,737 Football Away Guarantees $1,102,150 $1,344,020 $241,870 Football Tickets $928,230 $1,502,620 $574,390 Men’s Basketball $898,643 $1,312,020 $413,377 NCAA & Conference $349,224 $447,081 $97,857 Other $361,144 $432,316 $71,172 Radio/Sports Video $539,105 $472,114 -$66,991 Student Fees and Tickets $1,408,431 $1,557,302 $148,871 TV- Football Conference $2,589,232 $3,178,349 $589,117 University Support/Tuition Waivers $3,042,047 $2,941,530 -$100,517 Royalties $490,000 Concessions/Merchandise $277,810 Carry Forward $419,269 $111,197 -$308,072 Total Revenue $13,920,237 $16,820,952 $2,900,715

Table 13-8 Budgets at Washington State University (slide 2 of 2) Expenses Capitalized Equipment $234,795 $733,373 $498,578 Employee Benefits $551,972 $1,054,600 $502,628 Goods and Services $2,799,511 $3,814,930 $1,015,419 Recruiting/Professional Development $617,401 $586,998 -$30,403 Salaries $4,140,899 $4,067,257 -$73,642 Scholarships $3,192,773 $2,425,524 -$767,249 Student and Other Wages $629,740 $1,118,885 $489,145 Team Travel $1,310,911 $2,328,934 $1,018,023 University Overhead $437,505 $563,375 $125,870 Total Expenses $13,915,507 $16,693,876 $2,778,369 Net Operating income $4,730 $127,076 $122,346

Table 13-9 Operating Revenues and Expenses, Washington State University and the University of Washington, 2003-2004 (slide 1 of 2) WSU Revenues Men's Teams Women's Teams Ratio Total Basketball $2,148,239 $316,975 6.8 $2,465,214 Football $12,630,209 Other sports $418,866 $1,422,675 0.3 $1,841,541 Not allocated by gender $13,538,665 Grand total $15,197,314 $1,739,650 8.7 $30,475,629 Expenses $1,653,650 $1,253,920 1.3 $2,907,570 $7,668,687 $1,710,020 $4,275,601 0.4 $5,985,621 $12,951,738 $11,032,357 $5,529,521 2.0 $29,513,616 Net before amortization $962,013

Table 13-9 Operating Revenues and Expenses, Washington State University and the University of Washington, 2003-2004 (slide 2 of 2) UW Revenues Men's Teams Women's Teams Total Basketball $4,235,886 $1,083,993 3.9 $5,319,879 Football $28,569,263 Other sports $675,941 $1,811,108 0.4 $2,487,049 Not allocated by gender $6,175,329 Grand total $33,481,090 $2,895,101 11.6 $42,551,520 Expenses $2,492,670 $1,661,035 1.5 $4,153,705 $12,640,090 $3,970,979 $5,875,726 0.7 $9,846,705 $14,749,393 $19,103,739 $7,536,761 2.5 $41,389,893 Net before amortization $1,161,627

Table 13-10 College Games and Rights Fees Year # Games Total Contract ($Millions) Per Game ($Millions) 1952 12 $0.99 ($7.97) $0.08 ($0.66) 1978 23 $31.37 ($102.58) $1.36 ($4.46) 1979 $28.43 ($83.59) $1.24 ($3.63) 1980 24 $31.00 ($80.30) $1.29 ($3.35) 1981 $32.64 ($76.70) ($3.20) 1982 28 $58.41 ($129.08) $2.09 ($4.61) 1983 $63.79 ($136.50) $2.28 ($4.88) 1984 36 $21.81 ($44.72) $0.61 ($1.24) 1985 42 $26.79 ($53.04) $0.64 ($1.26) 1986 $28.74 ($56.05) $0.68 ($1.33) 1987 $27.70 ($52.08) $0.66 1988 43 $27.93 ($50.27) $0.65 ($1.17) 1989 $27.91 ($48.01) ($1.12) 1990 $27.69 ($45.13) ($1.05) 1991 71 $57.43 ($90.16) $0.81 ($1.27) 1992 $59.27 ($90.10) $0.83 1993 $60.09 ($88.94) $0.85 ($1.25) 1994 $60.13 ($86.59) ($1.22) 1995 $61.72 ($86.41) $0.87