1. Sport management

2. Terminology  Assets= Property or objects of value that can be converted to cash, e.g. equipment, real estate, automobiles, tools, etc.  Liabilities== money you owe to someone, a legal obligation to pay someone, e.g. car loan, mortgage  Equity- value of an asset after liabilities are paid, e.g. You owe $100k on your house and can sell it for $250k. You have $150k of equity in the house

3. Terminology  Owners Equity – Amount of $$ invested into the team or franchise.  Principal- Amt. of money borrowed  Interest- $$$ you are being charged to get the loan, i.e. borrow the money.  Amoritization Schedule – chart of monthly payments showing the amt of $$ going to pay off the principal and the amt of $$ paying interest. EXAMPLEEXAMPLE

4. terminology  Balance Sheet – shows assets, liabilities, and equity EXAMPLE  Income Statement – shows revenues, expenses, and profits over 1yr.  Bonds= large allocation of money lent over 20 yrs. Bondholder (bought the bond) is paid interest for money they gave to buy the bond ( can be sold in a secondary market). Principal is paid at the maturity date ( 20yrs.). Thus the bond holder earns interest and gets their money back after 20years. Risk is if the bond seller defaults and then you do not get your money back.

5.  Bond example- Eagles float a 20yr. Bond for 100 million dollars at 4% interest. The city of Phil gives the Eagles $120 million, Eagles gives the city a bond promising a 4% interest payment. Eagles pay 4% interest on the $120 mil. After 20 years, they give the $120 back to the city.  This gives the Eagles the cash needed to finance the stadium and 20 years to pay back the $120 mil (principal).  This was the old way stadiums were financed  As cities became cash poor, this ended & sponsorship/naming rights became the new way to finance a stadium

6.  Finance- how an org. generates funds to flow into the org. and how these funds get allocated and spent.  Revenues = money in from ticket sales, concessions, merchandise, media contracts, sponsorships, revenue sharing, etc.  Expenses = monies paid out- uniforms, equip, lawn/field maintenance, salaries, transportation, utilities, insurance, etc.  Revenue minus Expenses = Profit, i.e. monies gained or earned.

7. Terminology  Risk= uncertainty of the future  Default= unable to pay a loan  All financial investments have risk  Return on Investment (ROI)-  Initial cost & profit determine the ROI per time frame  Example: Invest $1,000,000 make $100,000 in profit in first year = ROI of 10%  Invest $1million, make $100,000 per year for ten years and the value of your investment increases by $1million then you made $2 million on a $1mil.  Investment over ten years or $200,000 on a 1 mil investment for a 20% ROI.

8. ROI Decisions in Sports  Free Agency – go for big names? What will be your ROI? Returns includes profit on increase ticket sales, merchandise, additional TV and radio money, etc.  Invest in Luxury Boxes?  Install New Electronic Video Screen (additional ad dollars)  Improve Turf- attract free agents, decrease injuries

9. Salary Caps  Hard Cap- Payroll limit is absolute- cannot be violated. Negotiated via the CBA. Typically ranges between 55-60% of league revenues.  (NFL, NHL)  Soft Cap- Has a cap but it contains exclusions- (such as signing bonuses) & penalties. Penalty- you can go over the cap but then you must pay a financial penalty to the league. e.g. MLB 22.5% 1 st violation, 30% 2 nd, 40% 3 rd, In 2005 Yankees paid $128 million luxury tax ( tax for going over the cap) NBA and MLB have soft caps.