1. Chapter 14 14 Finance and Economics in the Sport Industry Timothy D. DeSchriver, University of Delaware Daniel F. Mahony, Kent State University C H A P T E R

2. Introduction Measuring economic size of sport industry Sport contributes a great deal to economies Sport industry is not immune to fluctuations in global economy Unethical and illegal financial behavior Growth and contraction of the sport industry

3. Current Financial Situation of U.S. Professional Sport Growth of segment Financial problems in segment Revenue sharing Media impact and revenue sources Formula for profitability Profit = Total revenues − Total costs (In)ability to control spending

4. Table 14.2

5. Current Financial Situation in U.S. Collegiate Athletics Rising costs Most programs fail to cover their costs Many athletics departments face difficult financial future Additional emphasis on the need to increase revenues Largest single source of revenue in collegiate athletics

6. Economics of Sport Scarcity Economic interaction Two areas of study –Macroeconomics –Microeconomics

7. Microeconomics and the Sport Industry Economic models explain behavior of producers and consumers Models describe how markets operate Supply–demand model –Demand and law of demand –Supply and law of supply –Market equilibrium –Market surplus and shortage

8. Table 14.3

9. Figure 14.1

10. Table 14.4

11. Figure 14.2

12. Figure 14.3

13. Economic Impact of Sport Events and Facilities Sport events bring a substantial amount of economic activity Spending stimulates local economies Sport economic impact studies –Estimates of the change in net economic activity in a community –Measure the increase in revenues, tax dollars, and jobs attributable to a sport event or facility (continued)

14. Economic Impact of Sport Events and Facilities (continued) Sport economic impact studies –Conducted by researchers –Disagreements and manipulations –Readers should ask these questions: Who conducted the research? How was the research conducted?

15. Overview of Financial Management Financial management falls into two areas –What to do with current financial resources –How to procure additional financial resources Financial manager must choose the method for distributing the money Key roles of the financial manager

16. Financial Statements Balance sheet Income statement –Revenues –Expenses

17. Sources of Revenues and Expenses for Sport Organizations Various revenues and expenses depending on the types of sport organizations –Geared toward sport participation –Seeking to make a profit –Focused on sport spectators

18. Sources of Revenues Unique in the Sport Industry Game attendance and ancillary purchases Media rights Sponsorships and endorsements Licensed merchandise

19. Sources of Expenses Unique in the Sport Industry Cost of sport facilities Cost of salaries

20. Careers in Financial Management for Sport Organizations Financial management jobs in the past Jobs today require sophisticated financial management skills Positions in financial operations Financial consulting firms and professionals Future employees need to understand skills and education required

21. Practical Application Critical thinking in sport finance and economics –Analyzing options, motives, and markets –Compensation of professional athletes Ethics in sport finance and economics –Madoff, Stanford, and Spano cases –Sport agent representation

22. Three Review Questions 1.What does the phrase economic impact mean and how can it be used in sport? 2.What are the different types of business structures in the sport industry? 3.What are the major sources of revenues and expenses in the sport industry?