Lesson 3.

2 – The Financial
Structure of Sports Business
Intro to Basic SEM Principles
LESSON 3.2

The Financial Structure of

Sports Business

Professional team
sports are finding
it increasingly
difficult to achieve
financial success
and turn a profit
Intro to Basic SEM Principles
LESSON 3.2

The Financial Structure of

Sports Business
Intro to Basic SEM Principles
LESSON 3.2
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
Intro to Basic SEM Principles
LESSON 3.2

Discussion Topic

What revenue streams do you

think sports organizations rely
on to achieve profitability?
Intro to Basic SEM Principles
LESSON 3.2
Sports Business Financial Structure
Revenue Streams For Sports Teams

 Ticket Sales
 Sponsorship
 Licensing and Merchandise
 Concessions
 Parking
Intro to Basic SEM Principles
LESSON 3.2
Sports Business Financial Structure

Additional Revenue Streams For Sports Teams

1. Luxury Suites

2. Club / VIP / Premium Seating

Intro to Basic SEM Principles
LESSON 3.2

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
Intro to Basic SEM Principles
LESSON 3.2

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?

Intro to Basic SEM Principles
LESSON 3.2

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?
Intro to Basic SEM Principles
LESSON 3.2

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
Intro to Basic SEM Principles
LESSON 3.2

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”
Intro to Basic SEM Principles
LESSON 3.2

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
Intro to Basic SEM Principles
LESSON 3.2

Sports Business Financial Structure

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

Additional Revenue Streams For Sports Teams

3. Television Contracts

4. Additional media contracts

(satellite, radio, internet)

5. Additional Revenue
(investments, stadium rentals for
weddings)
Intro to Basic SEM Principles
LESSON 3.2

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
Intro to Basic SEM Principles
LESSON 3.2

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)
Intro to Basic SEM Principles
LESSON 3.2

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)
Intro to Basic SEM Principles
LESSON 3.2

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.
Intro to Basic SEM Principles
LESSON 3.2

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.”
Intro to Basic SEM Principles
LESSON 3.2

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)
Intro to Basic SEM Principles
LESSON 3.2

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)
Intro to Basic SEM Principles
LESSON 3.2

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
Intro to Basic SEM Principles
LESSON 3.2

Additional Revenues
Additional Revenues
Intro to Basic SEM Principles
LESSON 3.2

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.
Intro to Basic SEM Principles
LESSON 3.2

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
Intro to Basic SEM Principles
LESSON 3.2
Sports Business Financial Structure
Sports Team Expenditures

1. Facility Rental /Leasing arrangements

2. Staff /Player Salaries(Payroll)

3. Marketing

4. Investment in the Customer

Intro to Basic SEM Principles
LESSON 3.2

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

Intro to Basic SEM Principles
LESSON 3.2

To gain a better understanding of

the financial structure of sports
business, let’s review the NFL’s
Green Bay Packers’ financials

Copyright © 2013 by Sports Career Consulting, LLC

Intro to Basic SEM Principles
LESSON 3.2

Revenue
Packers’ total revenue in the 2012-2013 season: $308 million
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.)
Intro to Basic SEM Principles
LESSON 3.2

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
Packers’ net income: $43.1
million
Intro to Basic SEM Principles
LESSON 3.2

PROFIT

Green Bay Packers’ profit

for the 2012-13 NFL
season: $54.3 million, a
new record for the
franchise!
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:
 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
Intro to Basic SEM Principles
LESSON 3.2

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
Intro to Basic SEM Principles
LESSON 3.2

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
Intro to Basic SEM Principles
LESSON 3.2

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
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.
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)