Structure of Sports Business Lesson 3.2 – The Financial Structure of Sports Business Copyright © 2014 by Sports Career Consulting, LLC

The Financial Structure of Sports Business 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 success and turn a profit Copyright © 2014 by Sports Career Consulting, LLC

The Financial Structure of Sports Business LESSON 3.2 Intro to Basic SEM Principles 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 Copyright © 2014 by Sports Career Consulting, LLC 3

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure +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) Revenue Stream: The means for an organization’s cash inflow, typically as a result of the sale of company products or services Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.2 Intro to Basic SEM Principles Discussion Topic What revenue streams do you think sports organizations rely on to achieve profitability? Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure Revenue Streams For Sports Teams Ticket Sales Sponsorship Licensing and Merchandise Concessions Parking Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure Additional Revenue Streams For Sports Teams Luxury Suites Club / VIP / Premium Seating Copyright © 2014 by Sports Career Consulting, LLC

Luxury Suites & Premium Seating LESSON 3.2 Intro to Basic SEM Principles 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 Copyright © 2014 by Sports Career Consulting, LLC

Why would a franchise do that? LESSON 3.2 Intro to Basic SEM Principles 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? Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure 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. Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure Additional Revenue Streams For Sports Teams Television Contracts Additional media contracts (satellite, radio, internet) Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.2 Intro to Basic SEM Principles Television Contracts 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 Copyright © 2014 by Sports Career Consulting, LLC

Television Contracts Intro to Basic SEM Principles LESSON 3.2 Intro to Basic SEM Principles Television Contracts 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) Copyright © 2014 by Sports Career Consulting, LLC

Television Contracts Intro to Basic SEM Principles LESSON 3.2 Intro to Basic SEM Principles Television Contracts 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) Copyright © 2014 by Sports Career Consulting, LLC

Television Contracts Intro to Basic SEM Principles LESSON 3.2 Intro to Basic SEM Principles Television Contracts 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. Copyright © 2014 by Sports Career Consulting, LLC

Television Contracts Intro to Basic SEM Principles LESSON 3.2 Intro to Basic SEM Principles Television Contracts 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.” Copyright © 2014 by Sports Career Consulting, LLC

Television Contracts Intro to Basic SEM Principles LESSON 3.2 Intro to Basic SEM Principles Television Contracts 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. Copyright © 2014 by Sports Career Consulting, LLC 17

Additional Media Contracts LESSON 3.2 Intro to Basic SEM Principles 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) Copyright © 2014 by Sports Career Consulting, LLC

Additional Revenues Intro to Basic SEM Principles LESSON 3.2 Intro to Basic SEM Principles Additional Revenues The Green Bay Packers renovated Lambeau Field in 2003 with the goal of creating an added revenue stream by building an atrium that could host events (from corporate outings to weddings) year round. Thanks in large part to the number of events hosted in the atrium, Lambeau is enjoying its busiest years ever and the franchise is generating record profits. Thanks to record profits, the team was able to invest $140 million in atrium expansion and renovations in 2013 (work is expected to be completed in 2015) without turning to taxpayers to help with funding the project. Copyright © 2014 by Sports Career Consulting, LLC

Additional Revenues Intro to Basic SEM Principles LESSON 3.2 Intro to Basic SEM Principles 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) Copyright © 2014 by Sports Career Consulting, LLC 20

LESSON 3.2 Intro to Basic SEM Principles Additional Revenues According 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 Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure Sports Team Expenditures Facility Rental / leasing arrangements Staff / Player Salaries (Payroll) Marketing Investment in the Customer Copyright © 2014 by Sports Career Consulting, LLC

Television Contracts Intro to Basic SEM Principles LESSON 3.2 Intro to Basic SEM Principles Television Contracts The 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 Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure MORE Sports Team Expenditures General Operating Expense Stadium/venue/facility financing Information management/research Team expenses (travel etc.) Maintenance and security Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.2 Intro to Basic SEM Principles To gain a better understanding of the financial structure of sports business, let’s review the NFL’s Green Bay Packers’ financials Copyright © 2014 by Sports Career Consulting, LLC

Total revenue in the 2013-2014 season: $324 million LESSON 3.2 Intro to Basic SEM Principles Revenue Total revenue in the 2013-2014 season: $324 million National revenue from the NFL: $187.7 million Nike contract and NFL Network (television revenues are shared with all teams in the league) Local revenue: $136.3 million (Includes ticket sales, suite sales, premium seating sales, sponsorship etc.) Expenses Total expenses for 2013-2014: $298 million (18% increase) Player Payroll expense: (includes team expenses): $171 million Net Income / Profit $25.3 million Copyright © 2014 by Sports Career Consulting, LLC

LESSON 3.2 Intro to Basic SEM Principles PROFIT 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 Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure 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 Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure 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 Copyright © 2014 by Sports Career Consulting, LLC

Sports Business Financial Structure LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure 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). Copyright © 2014 by Sports Career Consulting, LLC 30