1. Lesson 3.2 – The Financial Structure of Sports Business

2. 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

3. LESSON 3.2 Intro to Basic SEM Principles The Financial Structure of Sports Business

4. LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure Revenue Stream: The means for an organization’s cash inflow, typically as a result of the sale of company products or services 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

5. LESSON 3.2 Intro to Basic SEM Principles Discussion Topic What revenue streams do you think sports organizations rely on to achieve profitability?

6. Revenue Streams For Sports Teams  Ticket Sales  Sponsorship  Licensing and Merchandise  Concessions  Parking LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure

7. Additional Revenue Streams For Sports Teams 1. Luxury Suites 2.Club / VIP / Premium Seating LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure

8. 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

9. 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?

10. 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?

11. 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

12. 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”

13. 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 in the their new Santa Clara football stadium

14. LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure An artist rendering of the club area for the new 49ers stadium

15. Additional Revenue Streams For Sports Teams 3. Television Contracts 4. Additional media contracts (satellite, radio, internet) 5. Additional Revenue (investments, stadium rentals for weddings) LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure

16. 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

17. 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 2015-16 season but terms were not disclosed)

18. 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)

19. 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.

20. 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.”

21. 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)

22. 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)

23. 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

24. 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.

25. 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. Additional Revenues

26. 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.

27. 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

28. Sports Team Expenditures 1. Facility Rental /Leasing arrangements 2. Staff /Player Salaries(Payroll) 3. Marketing 4. Investment in the Customer LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure

29. LESSON 3.2 Intro to Basic SEM Principles Television Contracts The driving issue for NHL owners as it related to last season’s 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 year, the NHL paid $1.87 billion to its players at an average player salary of around $2.4 million. Meanwhile, only 13 teams earned over $100 million in 2010-11 in a year where the average player payroll was nearly $60 million.

30. Sports Team Expenditures 5. General Operating Expense 6. Stadium/venue/facility financing 7. Information management/research 8. Team expenses (travel etc.) 9. Maintenance and security LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure

31. LESSON 3.2 Intro to Basic SEM Principles Copyright © 2013 by Sports Career Consulting, LLC To gain a better understanding of the financial structure of sports business, let’s review the NFL’s Green Bay Packers’ financials

32. LESSON 3.2 Intro to Basic SEM Principles Key revenue streams: National revenue from the NFL: $179.9 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: $128.1 million (Includes ticket sales, suite sales, premium seating sales, sponsorship etc.) Revenue Packers’ total revenue in the 2012-2013 season: $308 million

33. LESSON 3.2 Intro to Basic SEM Principles Packers’ net income: $43.1 million Expenses Green Bay Packers total expenses for 2012-2013: $253.8 million (A $5.2 million drop from the previous season) Primary expense (cost): Player Payroll expense: (includes team expenses): $136 million Net Income / Profit

34. LESSON 3.2 Intro to Basic SEM Principles Green Bay Packers’ profit for the 2012-13 NFL season: $54.3 million, a new record for the franchise! PROFIT

35. Intro to Basic SEM Principles Franchise Valuation Unlike industrial or financial business, which is generally valued on cash flow and assets, sport franchises are valued on their revenues for two reasons:

36. Franchise Valuation 1.For the long term, the operating expenses within each league are about the same for every team 2.Franchise revenues most closely measure the quality of a team's venue and track athletic performance, ultimately the two most critical elements in the evaluation of team’s overall value

37. LESSON 3.2 Intro to Basic SEM Principles Sports Business Financial Structure Professional sport team values have risen over the past decade and are expected to rise to unpredictable levels for the next few years

38. 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

39. 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

40. LESSON 3.2 REVIEW (ANSWERS) 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.

41. LESSON 3.2 REVIEW (ANSWERS) 2) Explain 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)