1. Structure of Sports Business
Lesson 3.2 – The Financial
Structure of Sports Business
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2. 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
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3. The Financial Structure of Sports Business
LESSON 3.2
Intro to Basic SEM Principles
The Financial Structure of Sports Business
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4. The Financial Structure of Sports Business
LESSON 3.2
Intro to Basic SEM Principles
The Financial Structure of Sports Business
Despite selling out every home game and winning a NBA championship (including 13 home sellout playoff games), Miami Heat owner Mickey Arison told CNBC that the franchise lost money in 2012
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5. The Financial Structure of Sports Business
LESSON 3.2
Intro to Basic SEM Principles
The Financial Structure of Sports Business
After the season, NBA commissioner Adam Silver was quoted as saying a “significant” number of teams were losing money, leading many to speculate the league could be headed for another lockout when the existing collective bargaining agreement expires in 2017
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6. The Financial Structure of Sports Business
LESSON 3.2
Intro to Basic SEM Principles
The Financial Structure of Sports Business
A large gap exists in revenues between NHL franchises, something the league hoped to address in negotiations with the NHL Players Association in 2012 in an effort to help more teams achieve profitability (for an in-depth look at the NHL’s revenue model, click here
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7. The Financial Structure of Sports Business
LESSON 3.2
Intro to Basic SEM Principles
The Financial Structure of Sports Business
Last season, Doug Cifu, owner of the NHL’s Florida Panthers, claimed in an interview with CBC Sports to be losing $114,000 per day !!
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8. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
As a result of increasing revenue streams, inflated media rights fees and new means for generating revenues in professional sports, overall franchise values have risen exponentially in the past decade, a trend that is 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
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9. LESSON 3.2
Intro to Basic SEM Principles
Discussion Topic
What revenue streams do you think sports organizations rely on to achieve profitability?
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10. 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
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11. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
Additional Revenue Streams For Sports Teams
For most major league professional sports teams, television money is now a primary source of revenue, now even more lucrative than ticket sales which had always been the financial backbone for the majority of franchises
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12. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
Additional Revenue Streams For Sports Teams
It isn’t just the national television deals that are generating an influx of revenue for some teams; in many cases local television deals can be extremely lucrative as well. Local Major League Baseball deals reportedly average more than $60 million in annual revenue per team.
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13. 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
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14. 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
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15. 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?
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16. Why do you think they were lobbying for a new arena?
LESSON 3.2
Intro to Basic SEM Principles
Discussion Topic
The NBA’s Seattle Sonics made an aggressive bid to gain funding for a new arena from 2007 to 2008.
Why do you think they were lobbying for a new arena?
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17. LESSON 3.2
Intro to Basic SEM Principles
Discussion Topic
Key Arena lacked the modern day amenities that help to generate additional revenue for a team, such as luxury suites and club seating, putting the Sonics in a position where it was difficult to achieve profitability
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18. LESSON 3.2
Intro to Basic SEM Principles
Discussion Topic
Eventually, the Sonics, unable to reach an agreement for a new arena, were relocated by its new ownership group to Oklahoma City where they are now known as the “Oklahoma City Thunder”
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19. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
Tom Chuckas, president of the Maryland Jockey Club, said in an interview with The Associated Press: "I believe there's an opportunity for the Preakness to generate additional income, which in turn would flow through the rest of the year and improve the condition of the Maryland Jockey Club. To do that, there has to be additional amenities at Pimlico. Churchill Downs has 65 skyboxes that they sell to corporate partners and corporate sponsors. At Pimlico, I don't have any amenity like that."
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20. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
Teams today strive to create value wherever possible and the addition of premium seating options provides a lucrative revenue stream. AEG (owners and operators of the Staples Center which plays home to the LA Lakers, Clippers and Kings as well as concerts and other events) told Hollywood Reporter that the venue’s various premium seating areas generated over $100 million in revenue last year.
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21. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
Many teams are now taking seating areas that had been less desirable in the past and converting them to premium seating areas. In 2015, the New England Patriots and Pittsburgh Steelers turned end-zone seating sections into luxurious new “club” seating areas.
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22. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
According to the Boston Globe, the new indoor space behind the south end zone at Gillette Stadium (home of the Patriots) will be a “members-only” club with annual fees of $1,500 and a requirement to purchase a minimum of two memberships (fees are in addition to the cost of buying season tickets every year)
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23. 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)
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24. 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
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25. 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 three 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
season but terms were not disclosed)
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26. 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
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)
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27. 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.
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28. 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.”
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29. 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.
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30. 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 five-year period for $107.5 million (the deal was extended in 2012 through 2016 but terms were not disclosed)
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31. Additional Media Contracts
LESSON 3.2
Intro to Basic SEM Principles
Additional Media Contracts
CBS paid $6 billion for the rights to broadcast the NCAA Tournament (March Madness) over an 11 year period, a deal that ends in 2013 that also included the right to stream games over the Internet (the online broadcasts generated an estimated $60 million in ad revenue with its March Madness on Demand package in 2012)
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32. Additional Media Contracts
LESSON 3.2
Intro to Basic SEM Principles
Additional Media Contracts
The Yankee’s YES Network struck an agreement with Major League Baseball to make their games available on the Internet within the New York area. The franchise now gains a significant new revenue stream, from the millions of broadband users in the market who are not sitting in front of their televisions but are in offices and other locations with a laptop or a wireless device
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33. 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.
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34. LESSON 3.2
Intro to Basic SEM Principles
Additional Revenues
The Boston Red Sox created Fenway Sports Group, a marketing firm that develops publicity campaigns for such organizations as Boston College, NASCAR, online ads, and many more areas (and owns equity in other properties like Red Sox Destinations and Roush Fenway Racing)
They were profitable in their first year, and brought in more that $200 million.
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35. 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)
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36. 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
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37. Additional Revenues Intro to Basic SEM Principles
LESSON 3.2
Intro to Basic SEM Principles
Additional Revenues
Chadd Scott reported that, in 2015, Mississippi State unveiled projections to build residential lofts with views overlooking the Bulldogs’ baseball field available for year-round occupation
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38. 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
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39. 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
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40. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
Sports Team Expenditures
General Operating Expense
Stadium/venue/facility financing
Information management/research
Team expenses (travel etc.)
Maintenance and security
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41. 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
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42. Packers’ total revenue in the 2014-2015 season: $375.7 million
LESSON 3.2
Intro to Basic SEM Principles
Revenue
Packers’ total revenue in the season: $375.7 million
Key revenue streams:
National revenue from the NFL: $226 million
Which increased from last season thanks in large part to the NFL's new apparel contract with Nike and an increase in fees generated from additional carriage of the NFL Network (television revenues are shared with all teams in the league)
Local revenue: $149 million
(Includes ticket sales, suite sales, premium seating sales, sponsorship etc. and enjoyed an increase from the previous season in large part because of the addition of 7,000 seats which boosted ticket and concession revenues)
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43. (An 12.7% increase from the previous season) Primary expense (cost):
LESSON 3.2
Intro to Basic SEM Principles
Expenses
Green Bay Packers total expenses for :
$336.3 million
(An 12.7% increase from the previous season)
Primary expense (cost):
Player Payroll expense: (includes team expenses): $150 million
Net Income / Profit
Packers’ net income: $29.2 million
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44. LESSON 3.2
Intro to Basic SEM Principles
PROFIT
Green Bay Packers’ profit for the NFL season: $39.4 million, up 53.9 percent from last season
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45. 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
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46. 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
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47. 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).
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48. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
In 2015, Bruce Levenson sold the Atlanta Hawks for $850 million; ten years ago he acquired the franchise for $189 million
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49. Sports Business Financial Structure
LESSON 3.2
Intro to Basic SEM Principles
Sports Business Financial Structure
From 2014 to 2015, the average value of a NBA franchise (according to Forbes) skyrocketed from $634 million to $1.1 billion, a 74% increase in just one year. It is the biggest one-year gain since Forbes began valuing teams in the four major U.S. sports leagues in 1998.
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50. Blank Slide Available for Teacher Edits
LESSON 3.2
Intro to Basic SEM Principles
Blank Slide Available for Teacher Edits
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51. LESSON 3.2 REVIEW (ANSWERS)
Intro to SEM Business Principles
1) Explain the concept of revenue streams and why they are important to an organization
Revenue streams are the means for an organization’s cash inflow, typically as a result of the sale of company products or services. Without revenue, an organization cannot achieve profitability.
Copyright © 2015 by Sports Career Consulting, LLC

52. LESSON 3.2 REVIEW (ANSWERS)
Intro to SEM Business Principles
2) Understand the general financial structure of a sports franchise
Sports teams could rely on a number of
avenues for generating revenue:
Ticket sales, sponsorship, licensing and
merchandise, concessions, parking, fan
clubs, kid’s clubs, luxury suite sales,
premium and club seating sales,
television contracts and additional media
contracts (satellite, radio, Internet)
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