Fiance in sport 1

Sport Industry

classification and measurement of size and scope is difficult

North American Industry Classification System (NASICS)

Used to measure and track the business economy of the US. Each business is classified as a part of a larger industry

Arts, Entertainment, and Recreation segment subsectors

1. live performances or events

2. Historical, cultural, or educational exhibits

3. Recreation or leisure activites

Finance

is the science of fund managment which includes three concepts

three concepts of finance

accounting, economies, stats

Finance incorporates three sectors

money and capital markets

investments

financial management

Two commonalities with other industries

value creation

revenue growth

Three differences from other industries

winning vs financial gain

celebrity status

community assets

Issues in finance that leagues are constantly trying to balance

revenue generation

revenue sharing

ongoing operating expenses

Five ways to finance the operation of sport

1. debt financing

2. equity financing

3. reinvestment of retained earnings

4. gov financing

5. gift fiancing

debt

borrowing money that must be repaid over time, usually w interest

equity

exchanging a share or portion of ownership of the organization for money

retained earnings

reinvestment of prior earnings

government

funding provided by federal, state, or municipal sources, including land use, tax abatements, direct stadium financing, state and municipal appropriations

gift

charitable donations, either cash or in-kind

construction of yankee stadium

debt

packers' renovation of Lambeau Field

equity

packers franchise preservation fund

retained earnings

tax- backed bonds issued by the city of arlington, TX to support AT&T stadium

government

donations totaling $85.4 million to texas a&m w most money going toward kyle field

gift

Three pro sports models exist

1. Single owner/private investor model

2. Multiple owners/private investment syndicate model

3. Multiple owners/publicly traded corporation model

League structures

1. single entity

2. distributed club ownership

Financial and economic factors affecting sport

1. Economic cycle

2. Television revenue

3. Real estate

4. Sustainability

5. Politics

Economic cycle

1.USOC

2.College Athletics

3.Women's Sports

4.NASCAR

Political impact

1.Sports Broadcasting Act of 1961

2.Tax Cuts and Jobs Act of 2017

3.Changes in collegiate models

Beneficiaries of New Facilities

Sports teams and owners, Leagues, Fans/patrons, Cities/municipalities can benefit from a new facility

Benefits to Municipalities

1.Public Good

2. Psychic Impact

Historical Facility Financing

Phase 1 - 1880s to the end of the Great Depression

Phase 2 - 1960 to 1979

57 sport and entertainment facilities were built

Public funding covered 83% of construction costs

Phase 3 - 1987 to present

90 new facilities over 20 years

Public financing covered about 71% of the costs

Since 2000, the public share has averaged 58%.

Trends in Construction Costs

1960 to 1994 - real costs of stadia rose, on average, 1.76% per year

Since 1990, real costs rose 2.3% 30% increase in growth rate

Public Funding of Stadiums and Arenas

1962-1994

- Real amount of public (tax) dollars spent rose

1995-2003

- Real amount of public (tax) dollars spent declined

- Arenas attract more events, so private financing is more feasible than it is for stadia/stadiums.

Two Other Public Cost Factors

Cost or opportunity cost of land and foregone taxes are not included.

Team leases are favorable to owners.

Historical Changes in Financing

Phase 1 - private sources of revenue

Phase 2 - general obligation bonds (GOBs)

Phase 3 - changing array of complex and creative financing methods:

Deficit Reduction Act of 1984

Tax Reform Act of 1986

Public Financing Principles

Equity principles

Vertical equity

Horizontal equity

Benefit principle

Efficiency principle

Equity principles

Vertical equity

Horizontal equity

Benefit principle

Efficiency principle

General obligation bonds

Revenue bonds:

Lease revenue bonds

Public Financing - Direct Revenue Sources

1.Sales tax

2.Tourism / food & beverage taxes

3.Sin taxes

4.Sale of government assets

5.State appropriations

6.Ticket or parking taxes / surcharges

7.Lotteries / gaming revenues

8.Player income taxes

9.Utility and business taxes

10.Reallocation of existing budget

Public Financing Indirect Sources

1.Land donations

2.Infrastructure improvements

3.Tax abatements

1.Land donations

2.Infrastructure improvements

3.Tax abatements

1.Contractually obligated income

2.Asset-backed securities

Programs that benefit community

1.Meet societal needs

●

2.Have the power to levy taxes:

Generate funds for operation and construction

●

3. Operate based on perceived needs

Financial Management Trends

1.Increased demand for services:

Public awareness of health and wellness needs

2. Increased variety of services and facilities

●

3. Designed to appeal to a broad demographic

Controversies over pricing

Pricing Paradox

is supposed to keep public programs affordable but lowered taxes have resulted in less money for programs

Sources of Funds

Tax subsidies support bonds for construction (69% of costs) support operations (52% of revenues)

Major Sources of Public Funding

Property taxes

Sales taxes

Excise taxes

Pay-as-you-go financing

Bonds

Property Taxes

Most often used to fund construction or operations

Real property

land and structures built on land

personal property

everything else that has value

tax rates

millage. total amount of mills levied by the city, county, school district, etc.

one mill =

1/1000 of a dollar (1/10 of a penny)

Assessing Property Value and Tax Due

Fair market value of property ☓ assessment ratio

Fair market value

value for which the property can reasonably be sold on open market, with a willing buyer and seller

Assessment ratio

percentage of resident's property that is subject to taxation

Assessed value

FMV ☓ assessment ratio

Property tax due

assessed value ☓ millage

Sales Tax

Second most common tax source for recreational funding, primarily for facilities

Bond Financing

To fund capital projects for community rec programs, Revenue bonds, General obligation bonds

Certificates of participation

Use of COPs is growing, especially in places where there are strict limits on borrowing.

Private Sources of Revenue

1.Fundraising

2.Grants

3.Advertising

4.Sponsorship

Joint use agreements

Formal agreements between parties outlining how facilities will be shared

Public school districts and community recreation programs

Public/private partnerships

Collaborations between public and private sectors

Example of a Successful Public/Private Partnership

The world's largest public tennis facility

The partnership between New York City and the USTA is a private-sector takeover

Athletic Department Fundraising

1.Operating expenses are increasing faster than operating revenues.

2.Cash contributions from alumni are the second-largest source of revenue.

3.Development department is becoming increasingly important.

Athletic department spending is growing ____ faster than university spending.

15%

Pressures on Development

1.Generate greater amounts of operating revenue

●

2.Raise funds for capital projects

●

3.Does giving to athletics impact giving to other programs on campus?

Endowments

Provide for programs in perpetuity and invested, and then only a portion of fund's annual return is used for the fund's specific purpose.

Make decisions that are imperative for league viability:

Financial survival

Concern for operating procedures

Structure of Leagues

Franchisee/franchisor

Commissioner, league office, and team owners

League collects revenues and distributes them to each club

Team owners sign players, arrange for a facility, etc.

Single entity structure

A single group or individual owns the league and all teams

Methods for AchievingCompetitive Balance

Player draft and supplemental player assignments

Salary slotting

Free agency and collective bargaining

Salary caps

Salary arbitration

Luxury tax

Revenue sharing

Salary cap:

Restriction on the maximum amount any team in a league can pay to players

Intended to balance teams' spending on players

Salary floor

Minimum salary level for a team

Base level of commitment

Salary (Luxury) Tax

Consequences for exceeding a salary cap or salary threshold

Required of teams whose payroll exceeds a set "tax level"

Emerging Revenue Sources

Luxury seating

Seat licenses

Ticket reselling

Variable ticket pricing

Securitization

what is the most important element of a capital campaign?

campaign case statement

campaign case statement

answers all the critical questions regarding the campaign and presents arguments for why an individual should support the campaign

six sections of a campaign case statement

1. institutional mission'

2. record of accomplishment

3. directions for the future

4. urgent and continuing development objectives

5. plan of action to accomplish future objectives

6. the institution's sponsorship

gift table rules

80/20

90/10

rule of thirds

80/20

based on past giving patterns, 80% of the needed funds will come from 20% of donors

90/10

90% of the total money needed for a campaign will come from 10% of the campaign's donors

rule of thirds

the top ten gifts to the campaign will account for 33% of the campaign's total goal; the next 100 gifts will account for an additional 33%, and the remaining gifts will account for the final third

endowned gift

funds donated to a department in perpetuity that are invested, with only a portion of the annual investment return used for the gift's specific purposes