Forms of Business Structures  3 general methods for business organization.  Sole proprietorship  Partnership  Corporation

Sole Proprietorship  One single person owns the business.  Most common and simplest form of ownership.  Owner keeps all profits and suffers all losses.  Owner has unlimited liability.  Business income is taxed as personal income.

Sole Proprietorship  Limited ability to raise equity.  Based on individual’s level of wealth.  Makes it difficult to expand and grow.  Must sell entire business.  Limited use in sport industry.  Ownership and management are the same.

Partnership  More common form of ownership in sport industry.  Many teams are formed as partnerships or corporations.  A business formed by two or more individuals.  General vs. Limited Partnership

Partnership  Similarities to sole proprietorship.  Rights and responsibilities of all partners must be spelled out in partnership agreement.

Corporation  Becoming more popular in sport industry as industry grows.  It is a distinct legal entity composed of one or more individuals/entities.  What powers does a corporation have?

Corporation  Very complicated to start.  Must have articles of incorporation/bylaws  These lay out how corporation is owned and operated.  Has:  Board of Directors  Management  Employees  Board of Directors acts on behalf of ownership/shareholders.  Board is usually elected by shareholders.

Corporation  Management and board must always act on behalf of shareholders.  If they don’t, they may face civil/criminal action.  Ex. Enron, WorldCom, Tyco.  Shareholders have the right to sue management or Board of Directors.  Ex. Ascent Group and Colorado Avalanche/Pepsi Center sale.

Corporation  Profits are double taxed.  Corporation pays taxes on net income.  Shareholders pay taxes on dividends/capital gains.  Easy to transfer ownership  Easier to raise capital.

Corporation  Public vs. Private  Both issue shares of ownership.  Public company stock is bought and sold on public markets (NYSE/NASDAQ).  Publicly stated stock prices.  SEC requires public companies to make public more financial information.  Annual Report  10-K report  10-Q report  Sale of large blocks of stock by management and Board.

S Corporation  Special type of corporation.  Limit of 75 shareholders/owners.  Must be US residents.  Must not be other corporations/partnerships.  Only 1 level of taxation (personal income level). No double taxation.  Used to be a very popular form of sport team ownership.  Must hold annual stockholder meetings.  Can retain profits.  But, they have been replaced in some cases by:

Limited Liability Partnership/Corporation  LLP/LLC - New type of partnership.  Have become a common form of ownership in pro sport.  All partners have limited liability.  Taxed as a partnership.  Advantages of both partnerships and corporations.  Don’t need annual meetings.  Fewer corporate formalities/paperwork.  Deduct losses from personal earnings.  Profits subject to SS taxes and medicare taxes.

Ownership of Teams: Profit- Seeking  Professional sport teams are small to mid sized businesses.  Days of family ownership are slowly disappearing (Yawkey, Griffith, O’Malley)  Types of Team Owners:  Wealthy individuals: John Henry, Paul Allen, the Kraft’s, Daniel Snyder, Mark Cuban  Corporate: Comcast, Cablevision, Disney, Fox, Tribune, Anheuser-Busch

Goals of Sports Firm  Profit-maximizing?  Most owners have made $$ in other ventures  Teams are a “fun” investment  Differing goals? : team owners versus team management