1. Financial Structure of Professional Sports Leagues

2. Team Sports
Professional team sports are finding it increasingly difficult to achieve financial success and turn a profit, due in large part to inflated athlete salaries.
FC Barcelona - $217 million, $8.7 million
New York Yankees $196 million, $6.2 million
Dallas Mavericks - $ 74 million
Miami Heat $74 million
Buffalo Sabres - $72.6 million
Boston Bruins - $64 million
FC Barcelona Team spending for season, average of 8.7 million per player, almost $1 million more than the survey’s second-place finisher
In the top 10, soccer clubs represent 7 of those spots
Hockey spends a significant amount less than other sports teams.

3. Revenue Streams
Traditional revenue streams to generate income include:
Ticket Sales
Sponsorship
Licensing & merchandising
Concessions
Parking
Fan clubs

4. Revenue Streams
Teams operating today have several additional revenue streams:
Luxury suite sales
Premium & club seating sales
Television contracts (e.g., ABC, CBS, CBC, CTV)
Additional media contracts (e.g., satellite, Internet, radio)

5. Costs Facility rental Staff & player salaries Marketing
General operating expenses

6. Distributing the Game
Individual teams within a professional league are separately operated businesses, but they are not in competition with each other as they would be in a free open market.
Each team is a member of a cartel.
A cartel is a combination of independent businesses formed to regulate production, pricing, and marketing of a product.

7. Cartels
The professional leagues (NFL, NBA, MLB, NHL, MLS) are all sports cartels
Pro leagues are independent sports teams grouped together and governed by a league agreement
The league controls the marketing mix of the team – product, place, price, promotion.
In most cases cartels are prohibited by federal anti-trust law.
Pro leagues are allowed to have cartels because of special legislation which exempts them from anti-trust laws.

8. Deciding Distribution
Regions with a large potential customer base are considered favourable for a team
Owners try to get public funds to subsidize the team
Tax paid subsidies have to be approved by the voters – often called corporate welfare

9. Attracting A Sports Team
Condition: there are fewer teams than a league can support (low supply, sufficient demand)
The lack of teams forces the cities to compete
Offering the best facilities at the best price helps the cities compete for teams
Until 1960, teams were responsible for their own playing facility
Now cities help support facilities through taxes
Canada could support 3 more sports teams, 5 min video to go with the article.
Relocating NHL teams to different cities or building new areans- article but video covers most of it (1min 37 secs in length)

10. It’s All About the Money
Some franchises sell the naming rights to their facilities - for large amounts of money (Eg: Air Canada Centre, Centre Bell, The LA Staples Center).
In the 1990’s tax payers began showing resistance to helping pay the bills for athletic facilities
The money a team makes from attendance, broadcasting rights, and concessions pays the salaries for the players
Player salaries continue to rise dramatically

11. It Takes Money
The economics of pro sports involves huge amounts of money and risk on the part of the owners
Few are willing to jeopardize their fortunes without the opportunity to profit from the venture
New stadiums offer luxury suites and upscale restaurants that increase the chances of profits, but these things do not guarantee attracting a team
New stadiums cost around $500 million plus approx. $100 million per year to operate.
New Cowboys Stadium Cost $1 billion
Air Canada Centre cost $265 million to build and was entirely privately funded.

12. Edmonton Oilers – Case Study
Rexall Place is the 3rd oldest arena in NHL (opened in 1974) 
The Oilers’ lease on Rexall Place expires in less than two years
Construction on a new building needs to be completed by the NHL season.
Forbes ranks the Oilers in the middle of NHL teams with a worth of US$212-million.
The Oilers routinely sell out their current home at Rexall Place

13. New Arena
The proposed new arena would seat 18,400 with restaurants, shops and enough space to hold parties and even beach volleyball tournaments.

14. Owner – Daryl Katz
ranks among the top 10 wealthiest Canadians (accodring to Forbes, he has a net worth of approximately $2.43 billion).
made his fortune through the Rexall Pharmacy chain.
Katz bought the Oilers team in 2008 for US$200-million.

15. The Problem
Katz and the city of Edmonton are deadlocked over funding for the new downtown arena pegged at $475-million but — when loan payments, land fees and surrounding amenities are factored in — is actually over $700-million and rising.
Katz has said he’s losing money on the Oilers in Edmonton and wants a public subsidy deal similar to the one given to NHL teams in Winnipeg and Pittsburgh.
need an annual $6 million public subsidy to keep the team “viable” in the Alberta capital. (taxpayers to help run the arena – not happy)

16. Who pays for it?
$125-million will come from a tax on tickets (about $5 to $6 a ticket).
the team pays $5.5-million a year in lease payments for three decades.
City pays for construction
the Oilers to run the arena and pay for its upkeep [estimated at $10-million a year],

17. Who makes the $?
Oilers keep all revenues from Oiler games, trade shows, concerts, and other events for 11 months out of the year. Concession sales alone are estimated at $20-million a year.
The team would also get naming rights for the rink (valued between $1-million and $3-million a year) and $20-million from the city over 10 years for unspecified advertising.

18. Solution? Deadlock?
Even with all that, the project would still be short by at least $100-million.
Both sides hope the provincial government will contribute, but Premier Alison Redford has said such a direct subsidy to a for-profit enterprise like the NHL is not in cards.

19. The Big Ticket – TV The biggest profit center is television revenue
TV revenue is generated through the sale of advertising time
Networks sell ad time and buy the right to air games
The NCAA established a new 14-year television, internet and wireless rights agreement with CBS Sports and Turner Broadcasting System to present the Division I Men’s Basketball Championship beginning in 2011 through 2024 for more than $10.8 billion.
The NFL has a billion dollar deal with Networks for 6 years (in the NFL commissioner video we watched last week)

20. Ratings – Getting Viewers
The cost per minute of TV advertising is based on the number of viewers
TV ratings are important in deciding which city gets a professional team
When 3 of the 14 biggest TV markets lost their professional football teams the ratings dropped considerably

21. Other Options
An alternative to the high cost of public financing is community ownership
The local government or the fans own the team – the Green Bay Packers sell stock for the support of their team
Currently public ownership is forbidden in most cases
Kitchener Rangers are a community owned team & until 1996 were volunteer based duties.

22. Changes in Rules
Rule changes are being made because of the high cost of franchises and the aging of owners
The NFL has more rules and controls than the other leagues
The MLB & NBA have syndicate ownership in some cases – something the NFL has tried to avoid

23. Vertical Integration in Sports
Sports teams vertically integrate by owning all levels
Minor league teams
Major league teams
Groups own different teams-
Maple Leaf Sports Entertainment– owns Air Canada Centre
Manages Toronto Marles & Toronto Maple Leafs
Manages Entertainment Events

24. The End!

25. Maxwell’s Music House http://maxwellsmusichouse