Sport Finance Exam 2

Keywords for economic impact

are specific terms or phrases used to analyze and assess the financial consequences of sports events on local economies, including metrics such as job creation, tourism revenue, and infrastructure development.

Economic Impact of Sport

The net change in regional output, income, and employment that is due to new money flowing into the region from outside the region as a result of hosting a sport event or activity (or having a new team, company, stadium etc.).

multiplier effects

Direct, Indirect, Induced

Direct

First round effects of visitor spending, or initial dollars spent on good and services from local economy

Indirect

Ripple effects of additional recirculation of direct effect dollars by local businesses and government

Induced

Other ripple effects generated by direct and indirect effects, caused by employees of impacted businesses spending salaries and wages in other businesses

the larger a defined economy or more inter-industrial purchase amount industrial sectors…

the larger the multiplier

Types of Multiplier

output/outcome, income, employment multiplier

Output/ Outcome multiplier

the total change in output of all industrial sectors of the economy by the addition of a dollar (“sales multiplier”)

Income Multiplier

how much has changed in wages & salaries of households of a defined
economy as a result of an additional dollar spent (“earning multiplier”, most reliable)

Employment Multiplier

It estimates the change in full-time jobs (number of jobs created) in a
defined economy due to the addition of new money (least reliable)

Abuses in economic impact studies

1. Use of only sales/employee multipliers rather than income
multiplier
2. Use of incremental multiplier coefficients
3. Inclusion of Local Spectators
- Strict definition of economic impact: New money injected into an economy by visitors, media, external government entities, or banks from outside the community
4. Include Time Switchers and Casuals
- Time Switcher
- Casuals
- Expenditures by these visitors would have occurred without the sporting event

5. Omitting Costs in the Measurement of Benefits
- Opportunity Costs
 The value of the best alternative not taken into consideration
- Monetary costs (development of the site)
- Other costs
 On-site: the equipment, supplies, and labor costs
 Off-site: traffic congestion, road accidents, vandalisms, police and fire protection, environmental degradation, and so on

Leakage

money that leaves a local community or economy instead of staying and being spend locally

Hard taxes

• property tax & sales tax

• The burden of payment falls on most tax payers

• Harder to implement because they require voter approval

Soft Taxes

• the hotel tax, rental car tax, or sin taxes

• Influence small proportion of taxpayers

• No voter approval required

Tax rate

Once the tax base is determined, the local government
sets a tax rate to meet its revenue needs

Sin taxes

taxes imposed on the sale of alcohol and cigarettes

Bonds

promise by the borrower to pay back the lender a specified amount of money, with interest, within a specified period of time

Tax exempt: investors do not pay federal income tax on the interest they receive from the bond

General Obligation Bonds (GO Bonds)

An unconditional promise by the governmental unit to the bondholder to secure or pay back the interest and principlal owed

Non- Guaranteed Bonds

bonds issued by a sports organization or facility that are not backed by a government or another guaranteed source of repayment. Types are revenue and tax increment bonds/ tax incremental financing

Revenue bonds

Backed by revenue made from. the operation of the stadium or arena

Tax Increment Bonds

Secured by projected increases in revenues fro9m existing and new development in TIF (tax incremental financing) areas

1986 Tax Reform Act

To issue tax-exempt bonds…
 2 conditions (either one of them)…
 Can’t use tax-exempt bonds to finance the construction of sport
facilities IF
 More than 10% of the stadium’s service was consumed by a private business entity (such as a pro. Team), Or
 More than 10% of principal and interest payments came directly or indirectly from sports franchise revenues

Taxable bonds

• Private placement bonds

  • Paid by revenues generated by facility (similar to revenue bonds)

  • Can be issued by private companies

• Asset backed revenue bonds

  • A variation on private placement bonds

  • Only a portion of a new facility’s revenues is pledged.

Sources of revenue for sport venues

Premium seating, naming rights, PSL

Premium seating

Developing marking strategies to sell

Naming Rights

The growth in the number and financial magnitude of naming rights

Why companies purchase Naming rights

Differentiated exposure, opportunity to sell product, corporate hospitality

Components of the naming rights agreements

• Term or length of contract (renewal option)

• Consideration (amount and schedule of payments)

• Signage (how much( who pays), where, what kind, what size?)

• Promotional rights (use of team marks/players)

• Termination upon default

Personal Seat Licenses (PSL)

• Becoming one of the important revenue sources

• PSLs: purchasing the right to secure a particular seat

• Criticism against PSL

Tirends in ticket sales/ ticketing

• AI-power ticket sales
• Dynamic pricing, real-time price adjustments
• Texting….rather than calling
• The move to mobile/digital tickets
• Embracing secondary market
• Data capture and analysis
– To create customized/tailored offerings
• Bundling and packaging
• Mobile wallets and frictionless stadium entry
• Extra benefit for season ticket holders becomes even more important
– Exclusive Fan engagement experience.

Importance of Ticket Revenue

more options/competitions for consumers

Pricing Tickets things to consider

1. know your audience

2. tolerance zone

3. how much the similar event is priced

4. will there be pricing sensitivity? price elasticity?

5. does the event depend on ticket revenue?

Price Sensitivity

How much customers care about the price when deciding whether to buy something.

Price Elasticity

Measures how much the demand for a product changes when its price changes.

Strategies to improve ticket sales

• Pricing Tactics: Moving from cost recovery to value-oriented focus

• Bundling

• Variable pricing/ Dynamic pricing

Variable Pricing

Prices are different based on variables (e.g., the time of day/season, opponent, seat location) to either increase demand at off-peak or to maximize revenue during peak-use times

Dynamic Ticket Pricing

Adjust prices in real time to match fluctuation in consumer demand