Krls 105 FINAL
Lec 17: Economic and Intangible benefits of sport
Sport helps to Establishing the Geographic Area:
province, region, city
Usually goes to the funding source
Displaced spending: Spending that would occur in the area anyway
ex. If Edmonton had an NBA team, they would most likely cause people to spend money for the NBA team instead of the Oilers
Types of Economic impact analyses:
Expenditure approach: how much money is being spent
Estimate attendance at the event
Survey attendees to find spending associated with event (how much will people spend because of the event?)
Add a multiplier to account for the recirculation of money in the local economy
Multiplier: degree to which spending induces more spending (ex. you bought food, tipped waiter, waiter spends money somewhere and government taxes a portion)
Income approach
total payments to workers and suppliers in related industry
apply multiplier
errors in ANY calculation can bias results
Substitution effect:
if attendees spend money on an event instead of something else in the local economy
reallocates expenditures
No net increase in economic activity
A sport and leisure event can lower local economic income if spending is switched from other activities that have a higher multiplier
Time switching:
when someone has a plan to visit a city, but it is rearranged to accommodate an event
no new economic activity, just changes when it occurs
Casual visitors:
someone in the area for an UNRELATED PURPOSE but attends cause they’re in town
spending of Time switchers and Casual can only have money above what they would have otherwise spent counted for economic impact analysis
incremental visitors:
those who come for the purpose of the event
direct spending is attributable to the event
Participatory events can have a big impact because you are more likely to travel to participate instead of spectate
Indirect and induced spending:
indirect spending: recirculation of money in the economy after direct (ex. hotels, tickets) spending on the event
induced spending: how direct and indirect impacts affect earnings and employment
Multipliers:
helps estimate indirect and induced impacts (by extrapolating the ripple effects of a change in economic activity)
direct spending is recirculated in 5 ways:
Other private businesses in same economy
employees in same economy
local government
non local government
employees, businesses, etc (outside of local economy)
Leakages: spending that does not remain in the local economy (ex. Nonlocal government)
Issues with overestimation:
Crowding out
can discourage economic activity in areas that are already popular tourist attractions
where activity occurs in peak visiting times
new event taking over where the spending would otherwise occur
Reverse time switchers
people who leave because of the event
Solution to overestimation:
ignore local residents in impact estimates
exclude time switchers and casual
consider cost and opportunity costs
TOTAL Economic impact= direct spending + indirect spending + induced spending (household level)
Mega events:
costly infrastructure and operating costs
many estimates of OPERATING COSTS are exaggerated
due to measuring gross (just adding up amount of money), not net spreading
not considering LACK of spending elsewhere
Intangible benefits to sport
psychic impact: the emotional impact a community has by hosting an event
Impacts from people who are not directly involved in the event
can justify some of the subsidies needed to build infrastructure or to host an event
Contingent Valuation Method:
survey methodology
respondents ask their willingness to pay an increase in taxes to see an increase in public good (or avoid losing a public good)
Case study:Pittsburgh
1999 NHL penguins in bankruptcy
CVM study to see if WTP is high enough to buy team
51.5% of ppl want to keep the team
residents who lived in Pittsburgh during 1991 and 1992 cup years are willing to pay more
aggregate WTP was $48.3 million
CVM case study: Alberta Amateur Sport and recreation
WTP to expand sports and rec programs
WTP higher than for any pro sports team in US
suggests public goods value of amateur sport and rec higher than spectator sport
Main take aways:
be aware of inflated economic impact studies
Arguments are better made for moving economic activity, not creating it
justifying public subsidies for sport may be through tangible, not intangible, benefits
Lec 18: Sponsorship
The Promotion Mix:
Personal selling
advertising
publicity
incentives (sales promo)
sponsorships
All of these are interrelated
Sponsorship platform:
Platform: the central theme that the sponsor can develop a consistent promotional message
needed because sponsorship does not offer a direct message why a brand should be purchased
need to amplify the message to the audience (sponsorship ≠ sales)
trend is to have fewer sponsorships, but invest in more, leveraging each
How to leverage the sponsorship platform:
Two basic costs-
direct sponsorship investment
Indirect activation of the sponsorship
Typically, $1 in activation is spent for every $1 spent on direct sponsorship (ratio can vary over time)
Media involvement-
extent of anticipated media involvement needs to be negotiated
media is needed for a brand to have more awareness and image enhancement
3 ways to pursue media coverage:
negotiate tradeouts with TV Radio or newspaper
media pays to sponsor event in exchange for rights to sell other sponsorships
secure editorial coverage
properties buy a block of time from network, then sell time
the property purchases advertising time in exchange for title credits and mentions in promotions
Platform elements:
sigage
awards
internet
retail promotions
personalized service
licensing
Sponsorship commitment:
Long-term relationships leave legacies
3 year minimum recommended
2 reasons why sponsorships do NOT renew
sponsor management or market conditions may change
reduction in the impact of sponsorship
Alcohol sponsorship and Sport and recreation
sport fans drink beer
max beer consumption peak for ages 18 and 29
seen as better than tobacco
Packaging sponsorships
Creating different levels of benefit packages
Four types:
title sponsor
name is integrated in event
has input into organization of event
can result in increased costs
presenting sponsor
usually pays half or a quarter of what the title sponsor pays
given rights to associate within a specific product category
will try to narrow categories to increase the number of possible sponsors
c official sponsor
pays 10% of title fee
gives smaller companies an opportunity to sponsor
official supplier
does not have an obvious link to the event
offers goods or services to organization staging the event
Pricing sponsorships
has levels of types of benefit packages to allow potential sponsors to choose the level of investment
potential sponsors are presented top level first
acceptability of price will depend on other sponsorship opportunities available
do NOT price individual elements of a pricing package as will allow sponsor to try to cut out parts
Issues addressed in a sponsorship agreement
Official status
sponsorship category, rights, etc
Sponsorship fee
how much? when is it paid? refundable?
Title rights
how does sponsor’s name appear? awards? trophy presentations?\
TV exposure
who owns the rights
Public relations and media exposure
will athletes mention a sponsor in media reviews? will sponsor be named in media releases?
Logo Use
can sponsor make and sell merchandise? how can sponsor use organization’s logo or special logo developed for the event?
Signage
banners, ptaches, flags, how many? how big?
Advertising rights
how can the sponsor use the event for advertising purposes? can photos be used?
Athlete use
will athletes make personal appearances on behalf of sponsor? attend social gatherings? wear sponsor name?
Hospitality rights
Hospitality tent?
point of sale promotion
products on site? can sponsor run on and off site promotions
Direct mail lists
will mailing lists of ticket holders be made available to sponsors? promotions?
product sampling
space made available for product
Measuring sponsorship impacts
Media equivalencies quantifying:
duration of television coverage, including verbal and visual mentions
duration of radio mentions
press coverage (measured in column inches)
Media coverage was weighed to reflect
Relative attractiveness of different types of media coverage
quality of media coverage
amount of clutter
article length equated with advertising space (often inflated)
Issues of sponsorship impact on awareness:
recall is faulty
market leaders given credit for sponsoring
Conclusion:
Carefully planned strategies may yield ongoing sponsorship relationships
best approach to evauation is for sponsor to determine what it is looking for in terms of benefits
be sure to clarify all terms of sponsorship agreement in advance to avoid issues
Lec 20 Economics and Financing—sources of funding
Public sector funding: How public sectors pay for their investment in sports and rec infrastructure
Hard taxes
burden falls on most or all taxpayers
hard to implement because typically require voter approval
Soft taxes
hotel-motel (bed); rental cars; liquor or cigarette (sin); athlete (job taxes)
easier to impose a cause borne by a small group
places burden on a smaller group
many targeted at non-residents
Bonds: long term debt instruments that let local gov (public entity) borrow money from a lender (financial institution) for construction costs over an amount of time (with interest)
taxes are collected to pay for the bonds over a period of time
allows government issuing bonds to pay off the debt in installments over time instead of creating a large tax increase
MUST have 3 elements
upfront payment
fixed rate of interest (ex. 6%)
maturity date—point where the bond must be repaid in full
Serial retirement schedule: bonds sequenced with different maturity dates so that multiple bonds will be paid off over time
Graduated seral retirement schedule: annual principle payment increases over a duration of borrowing period
Try to align maturity date longer than life of a project (align lease length)
Hard tax example: General property tax
primary source of money for local government
used because of other taxes ( business, sales, income) might actually reduce tax base
property is immobile so easier to tax
principle of ability to pay (more valuable property= can pay more= pays more tax)
benefit tax (improves property ex. planting trees)
must pay cause you can have a tax lien placed on the property (government will own it again)
when property values go up, city can reduce tax rate
when used to fund capital projects, a referendum is almost always required
Tax base: total value of all assessed bases in an area
Tax rate: the rate you multiply by how much you charge for taxes
Hard tax example 2: General sales tax
largest single source of money for many US states
rate is usually 3%-10%
can be used by cities and countries in the US
more area covered by tax = more revenue generated = more dispersion of the tax burden
Soft tax example: Tourist taxes
2 ways:
hotel/occupancy tax
Also called bed taxes
2%-5%
used in US to fund major sports facilities
car rental tax
average 8% in US
problem- half of car rentals may be from local residents
justified cuz tourists will be beneficiaries of infrastructure development
can be unpredictable source of revenue due to fluctuations in tourism market
Soft tax example 2: Sin taxes
alcohol and cigarettes
issue with this tax: costs borne by those who cant afford it
Soft tax example 3: Player taxes (jock taxes)
visiting players pay a tax for work done while in designated area
non resident players pay tax
usually defined in terms of “duty days”, rate of 1% - 4%
some US states raise up to $10M a year this way
ALBERTA— visiting NHL players pay based on games played in AB, as well as home based players in Calgary and edmonton (this was discontinued)
City of Pittsburgh—1% tax on players used to service debt on sport stadiums
Debt financing: how to borrow money
borrow money from a lending institution, then debt serviced through installments over a set period
revenue from hard or soft taxes pledged to repay debt
downside: interest costs
upside: payments spread out = less annual tax burden
better method in a POLITICAL PERSPECTIVE
more equitable to taxpayers— if paid upfront would burden taxpayers of today who might never use the facility in the future
General obligation bonds: an unconditional promise to pay debt
usually secured through property taxes
statutory debt ceiling: limit on amount that governments can borrow
lower interest rate (cuz guaranteed)
since all taxpayers bear the burden, must get approval through a referendum
Certificates of obligation
does not require voter approval
unconditional promise to repay
public hearing is announced
citizens can request a referendum
retired over a designated period
done when investment is needed quickly!
Non-guaranteed debt
used cuz people did not like guaranteed debt
debt repaid by revenue streams, but the government is not obligated to make up shortfalls
advantages:
voter approval not required
does not count against government debt’s ceiling
if revenues to repay debt drawn directly from the project, then those benefitting from the project pay for it
Cities generally agree to make up shortfalls with general revenues to:
reduce investor risk and lower borrowing rate
defaulting would damage the city’s reputation in investment markets
Non-guaranteed debt revenue bonds
where revenues from facility used to repay debt—”user pay”
no vote required
does not count against debt ceiling
higher interest rates are not guaranteed
can only use in facilities that turn a profit
may result in higher user fees
Certificates of participation: debt instruments for financing capital projects by the local government.
intermediary organization (ex. nonprofits) sells certificate of participation to financial institutions
Finanical institution delivers funds to intermediary organization
intermediary organizations pays builders to construct facility using certificate of participation funds
Builder delivers facility to intermediary organization who holds title
intermediary organization signs lease with Facility Operator
Facilty operator pays lease fee to intermediary organization that is enough to cover annual debt charges on Certificate of participations
intermediary organization pays financial institution debt charges on financial institution’
when certificates of participation are paid off, title usually transfers to facility operator
bank may also sell certificates of participation, called “participation shares” in the project
Tax incremental financing
used to facilitate urban development
cities or other entities allowed to create district (tax increment financing (TIF) districts) to allow them to use public funds, tax benefits, or other financial tools to support private or public development projects
tax increment bonds secured by increase in property taxes area
need to establish property value of property values at time of development
compare with value of property AFTER development
TIF districts exist for a set amt of time (ex 15-25 years)
when used for sports facilities, facility viewed as centerpiece or catalyst for broader development
Advantages of tax incremental financing:
No tax increases required
when TIF dissolved city receives additional tax revenues
Disadvantages of tax incremental financin
incremental increases in tax base used to service debt
does not address increased infrastructure demands within the district (police, fire, roads, etc)
risk that development will not occur at anticipated rate, or appraised development not high enough
community revitalization levy (CRL)
same logic as TIF
proposed to fund part of new area development in Edmonton
Private planning placement bonds
organization developing the facility issues long term, fixed rate certificates to private lenders
can include private pension funds, insurance companies
secured by facility revenues (similar to revenue bonds)
sometimes guaranteed by a private party (such as team owner)
Asset backed securitization
variation on private-placement bonds
most credit worthy streams are bundled and sold to private investors
does not require all revenue from a facility to be pledged to debt service
ex of sources—naming rights, concessions contracts, corporate sponsorship deals
future cash flow from these sources essentially sold to investors
Conclusions:
many ways to finance sport and recreation infrastructure
can find a model that fits best for a given project
if one is entrepreneurial, a creative way of developing a buisness opportunity may be availible through these models
Lec 21: Government: Public Private Partnerships
Public Private partnerships are increasing costs and decreasing public want for subsidies
Value systems:
Public - long term values that benefit the people (social, intangible benefits)
private- looking to get PAID (looking for financial return)
Constraints:
Public:
bureaucracy (takes longer to make decisions), accountability (ppl want to know where their money is going), transparency, slow
private:
entrepreneurial, confidential, fast-acting
there can be public investments in private economy
Governments give land to promote private development
“priming the pump” to spur development
Incentives for private sector to work with public:
access to land
low cost development capital
zoning and permits
tax incentives
Incentives for pubic sector to work with private:
management expertise
reduced labour costs
adaptability to scale of service (cheaper to buy in bulk)
reduced liability risks (all on the private sector)
Leasing for the PUBLIC SECTOR:
usually public entity owns facility and leases out to private
buyout clauses: a contractual thing that lets one party terminate their contract by paying a predetermined amt to the other party
under conditions
Leaseback arrangements:
public leases back from commercial sector
can access equipment and facilities without upfront money
construction from private sector
private sector builds, city rents out the place for use
Example on the slide
Public sector takeovers:
public takes over private facility
can do it when the asset would otherwise disappear or sport and rec opportunities will not be provided other places in the community
can allow public purchases of asset at greatly reduced prices
Private sector takeovers:
public passes on the burden of operations
Private sector pump priming: (incentives for the companies)
developer encourages public spending so facility increases demand and property values
developer then gets rid of tax burden on land, increases other development
public gets free land to build course, and can make the project financially sustainable
example on slides
Expansion of existing public facilities:
private businesses invest money for renovations, improvements, or expansions
construction must be up to standard
multiparty arrangements:
Quasi-government agency (operates outside of direct government control but receives government funding or support and performs functions that are typically considered public services.) created to govern partnership
usually a special authority or commission
Conclusion:
can be controversial, but allow both public and private sectors to build and access amenities they may not be able to
can be hard to comprimise between different values
complex
design is case specific
Torts, Liabilities, and Risk
Tort: A private or civil wrong against a person, to property, or to ones reputation
can be intentional or unintentional
most common in sport and rec: assault, battery, defamation, invasion of privacy, negligence
Risk: chance of injury
Risk management: reducing the chance of injury, damage, or loss
Negligence and liabilities
2 legal terms associated with risk management
Negligence: behaviour or action that falls below a reasonable standard of care
liability: when a person or organization is responsible for the negligent conduct, results in compensation
likely in problems with unreasonable risk
4 elements that must be proven to show NEGLIGENCE:
duty: a relationship must exist where there is duty owed to protect or not expose a person to unreasonable risk
The act: whether or not there is a breach of duty
cause: The breach is the actual cause of the harm
damage: the actual damage that has occurred
Doctrine of the respondeat superior: where an employer is liable for the negligence of an employee
not liable when employee acts outside of responsibility
gross negligence = liable
Good samaritan laws: when a citizen assists an injured party out of the goodness of their heart and NOT cause of duty
GS law protects people from negligence but not gross negligence
Governmental immunity: when public institutions have immunity from certain negligent acts
Standard of care: expectation that an individual will act according to the standards of their profession
determined by foreseeability: could a professional have foreseen the exposure to risk?
Primary assumption of risk:
Consent of the injured party
1.participation was free and voluntary
2. individual consents to risks inherent in the activity/integral to activity
3. knowledge of activity (risk can be implied or expressed in the from of a waiver/informed consent)
Secondary assumption of risk
the persons own behaviour contributes to injury
failure to heed warnings
Reasonable risk: an activity that is norm/inherent part of the event or game (you would expect it)
unreasonable risk: type of activity that is not part of the event or game (ex. fan attacking a player)
warnings and participation forms
Criteria for an effective warning:
obvious and direct
specific to risk
understandable by the party being warned
located at point of hazard, or at appropriate time
Risk management in sport and recreation management
risk management = REDUCING risk
cant change inherent nature of activity
responsibility to everyone in an organization
Intentional torts
Disturbance of intangible interests: invasion of privacy, defamation (can be argued that they are simply telling the truth)
interference (physical) with the person
participant vs participant
negligence
civil assault or battery = intentional tort
reckless disregard
player intends by interference to cause injury by acting recklessly
criminal assault or battery
must have malicious intent
hazing
employment torts
Negligent hiring — need criminal background checks
Negligent supervisor —cant ignore employee conduct
negligent retention— must discharge unfit employee
Risk management to avoid tort liabilities
phase 1: analysis and control
identify risks
estimate frequency and severity
determine approaches to control risks (alternative control approaches)
phase 2 Statements of policy (types of insurance to cover; travel restrictions
operational practices and procedures
implementation of plan
risk manager — designate individuals
employee involvement—saftey committee
manual— procedural guidelines
information/documentation system— forms, etc
public relations
monitoring
Alternate control approaches:
avoidance: discontinue practice
transference: shift liability to someone else
retention: accept risk and costs
reduction: reduce exposure to risk in operations
Conclusion:
legal issues are case specific
must plan to protect from personal and organizational liability
impacts everyone in industry, as either participant or service provider
Media and the sports business
Media: two meanings:
the means of mass communication: Tv, radio, newspaper, internet
people whose job is to spread info (editors and journalists
Nexus: the core or center of connection between two or more things
sport and media are NOT two industries that come together
programming input of sport and media
sport viewed as programming that can target specific demographics
Value of sports programming is tied to league’s teams and athlete’s market reputation and legitimacy
Ad flow chart:
Sports teams, events, leagues → Programming → media providers → ad slots → advertisers (consumer product producers) → slot fees → media providers → rights fees → sports teams
Mass communication: process where media delivers visual, audio, and/or written messages to a large audience
FEEDBACK IS SLOW
info spread by mass media shapes how we make sense of the world
Elements of mass media:
commercial — most media organizations are profit driven
Audience — large, anon, different
content — words, sounds, imgs
organization— source of content (who is producing the message)
Research perspective on mass media
practices—decsion making and production work by specific media members
text — the form of the product (newspaper article, tv program)
audience —who consumes and interprets product
Media convergence: the increasing integration of mass communication, telecommunication, in the delivery of media content
sports media is available on internet and TV!
Historical relationships between media and sport
first US sports mag: 1820
games were ‘recreated for the radio
TV emerges in 1950
American football league survives due to tv contract
telstar satellite launched in 1962
media growth:
25% of all US TV is sport related
EPSN gets $8 per sub per month
most popular cable sport: auto racing
most popular network sport: football
broadcasters compete for tv rights and content/analysis/etc
how sports benefit newspapers
safe ideological content (not political or religious so you wont risk some people getting offended and leaving
promotes civic boosterism (promotes local teams)
allows newspaper to build civic identify (sense of belonging)
Sports as news
hard news: records and events
soft news: scoops and exclusives (outside of the sport)
orthodox rhetoric: authorial subjectivity/journalist as celeb (you watch someone give their opinion)
reflexive analysis: critique (covers bad things about the industry)
how sport is televised
they choose what parts to show to carry a narrative
new viewers and employees become socialized into it (like they make their own terms and stuff)
what is ESPN?
created by Rasmussens
sept 7 1979
first sporting event shown on ESPN was slow pitch softball
24 hour broadcasts on sept 1 1980
now its own form of entertainment
tries to license phrases for cultural expressions
news anchors become cultural icons
Increasing rights fees case study: Silna brothers
NBA merges with the ABA and wanted to fold 4 teams
Silna brothers negotiated to keep 1/7 of the visual media rights of 4 ABA teams
made hella money, NBA wants to renegoiate
why are sports important to broadcasters?
advertisement and program sponsorship revenue
driving subscription penetration
public service obligations
Ratings: % of Tv households tuned into a program
share: % of TV households actually using the program (actually watching)
General media trends
decling ratings (people stream instead)
erosion of 18-34 male demographic
new tech and platforms
decline of newspapers
Conclusions:
longstanding relationship between sport and the media
both have increased economic value of the other
media revenues become increasingly greater portion of sport and recreation organization’s revenue
productproduces itself has become “mediated” and a product itself
Fans and consumer behaviour
parts of Communication communities:
Spectators— watch live
viewers—watch thru other forms of media
readers — follow sports news online or via newspapers
competitors —those who engage in competitive sport
fitness participants — engage in activities for fitness reasons
nature participants
Social identity: we define ourselves by affiliations to social groups.
team or sport identification represents one type of self identity
people are motivated to have a positive social identity
seek association with successful others to enhance their self esteem
highly identified fans are more likely to attribute wins to players and losses to bad reffing or fate
team identification and sponsorship
fans that support a team’s sponsors because they align with the goals and values of the team
determinants of Demand:
consumer preference
income
price of goods
income effect: an increase in income can change the quantity of goods that consumers will demand
substitution effect: find something that’s the same but cheaper
price of other goods
Fans
facility comforts, venue and parking access, more than ticket prices
team allegiance related to personal civic identity
if team allegiance is not geographically based identity associated with logo and colours
Consumer theory model of attendance:
consumer preferences
economic determinants
quality fo viewing
contest characteristics
supply capacity
motives for watching sport on the TV
fanship dimension (fan of sport, athlete, league)
learning dimension (learn sport starts)
release dimension (let off steam from stressful days)
companionship dimension (watch with friends and family)
filler dimension (fill time)
fan loyalty
player
team
few substitutes if fan of team
sport
watches minor league and national teams
few substitutes
types of Fan Motivation
temporary
fan but not part of their self identification
only fan during season
BIRGing motivation: Basking in Reflected Glory, individuals associate themselves with successful others
CORFing: Cutting Off Reflected Failure, distance themselves from unsuccessful others
local
identifies with geographic area
devotion leaves with displacement
devoted
increased degree of attachment
fan is closer to their sense of self
not most critical or central part of self definition
fanatical
being a fan is part of self identification
behaviour accepted by significant others
dysfunctional
being a fan is their primary method of self identification
can engage in violent or disruptive behaviour
identification interferes with normal life
Traits of sensation seeking people:
thrill seeking
experience seeking
bored easily
seeks out new intense experience
risk
Fan’s support issues with ticket prices
ticket prices have gone up cuz of increased salaries
MRP THEORY (Marginal Revenue Product theory): salaries will only increase if
MRP (Marginal Product) increases (they will be more productive)
Fans increase willingness to pay (increases MR (marginal revenue))
fans (ticket buyers) drive players salaries
fans issue with allegiance
social identity and group norms
brand loyalty
brand communities
purchase intentions
Canada vs US hocke fans
more positive impact of violence and fighting on US attendance
Canadian fans value QUALITY of opponent
US fans goes to see the best player
Gender differences in sport
men prefer combative sport
women are more likely to self identify as sports fans, but not as much as their self identity
men spend more time discussing sport (more self reported and actual knowledge of sport)
Issue—displacement of fans
fans feeling left out
marginalization of “traditional” fans
seeking new experiences at expense of established fans
corporization of the entertainment product