Sports Management

Reference: Excerpts from the book “Principles and Practice of Sports Management”, by Lisa P. Masteralexis, Carol A. Barr, and Mary A. Hums.

Pro Sport Structures

Not all professional sports are organized in the league structure. Sports such as golf or tennis developed and continue to operate today using a different organizational structure. Sometimes referred to as professional tournament sports. Variations of the tournament structure can be found in golf, tennis, track and field, and in multisport events such as triathlons and the Olympic and Paralympic Games.

League Value and Earnings

Current estimates by Forbes magazine of the value of individual professional team sport franchises list the average NFL team’s value at $1.1 billion, the average NBA franchise at $509 million, the average MLB franchise at $605 million, and the average NHL franchise at $282 million.

Annual Product Sales

Total annual licensed-product sales by league are NCAA at $4.6 billion, the NFL at $3 billion, the MLB at $3.1 billion, the NBA at $2 billion, the NHL at $887 million, NASCAR at $882 million, and the MLS at $394 million.

(licensed products are products that companies manufacture and sell that require the leagues permission to use their name, logo, or trademark on the companies products)

Broadcasting Contracts

Example broadcasting contracts include the NCAA:  In 2010 – 14 year, $11 billion agreement with CBS and TNT for March Madness. And the MLB: In 2012 – 8 year, $12.4 Billion agreement with ESPN and TBS (an average of $52 million a year to all 30 teams)

Sports marketing

The purpose of sports marketing is to create demand. If the marketer can cause a consume to want a product, then that marketer has been successful. To accomplish this, marketers must identify customer wants and needs and then identify ways to satisfy them.

Sports marketing includes the marketing of:

1. Products, such as equipment, apparel, and footwear
2. Services and experiences such as attendance at a sporting match
3. Entities, such as leagues, teams, or individual athletes

Sporting events

Sports broadcasting

Includes broadcasting sporting events, first on radio, then on television, and now on the Internet and handheld devices.

At any professional sporting event there are many cameras, varied camera angles, video highlights, instant replay, crowd mics, commentary, sideline interviewers. The idea is that if a viewer doesn’t give a damn about the game, they might still enjoy the program.

Sponsorship vs Endorsement

Sponsorship is when corporations pay for the right to affiliate or directly associate with an event for the purpose of deriving benefits related to that affiliation. Coca-Cola has been a sponsor of the Olympic Games since 1928.

Sponsorship is a marketing tool used by businesses where they pay for some or all the costs involved in a project in return of recognition. Sponsors aim to be associated with events and projects that are directly linked to their target audience.

Endorsement on the other hand has a much more personal twist. When someone is endorsed by a brand they are publicly saying that they ‘recommend’ or ‘suggest’ you try a particular product because they think it’s good.

For example, Nike was a main sponsor of the 2014 World Cup, but that doesn’t mean that all the teams and players involved in the competition like or use their brand. Nor it means that FIFA recommend you use Nike. Adidas, one of Nike’s biggest competitor also sponsored the World Cup and both only benefit from having their brand being exposed to potential consumers. They sponsor the event, invest money in the competition and in return are able to showcase their brand to the world.

However, Nike also have endorsement deals with influential athletes that use their brand and believe it is the best product. Here the value comes from that athlete’s influence in generating sales through a recommendation. Now, the same athlete would not be able to be endorsed by Nike and Adidas at the same time for that results in a conflict of interest. Endorsement deals have to come across as authentic to consumers.

“Official” product

Spalding was the first marketer to capitalize on the term “official” as it relates to a sport product, when his baseball became the “official baseball” of the National League in 1880 (Levine, 1985). Having secured the “official” status, Spalding then marketed his baseball as the best because it had been adopted for use in the National League, the highest level of play at that particular time. In the consumer’s mind, this translated to the following: “Why choose anything but Spalding? If it is good enough for the National League, it must be superior to any other product in the market.”

Fan identification

Defined as the sense of oneness with or belongingness to an organization

Basic Financial Flows in a Sport Organization

Revenue

The primary business of organization in the spectator sport sector is to provide entertainment through the staging of athletic contests. The selling associated with these events is the primary way in which sport teams raise funds. These funds are called revenues. Revenues may come from a variety of sources including ticket sales, concession and merchandise sales, media contracts, and sponsorship revenues, to name only a few. With sponsorships, other companies try to use the broad appeal of the sport industry to market their own products. For college athletic programs, funds may also come from non-revenue sources, such as budgetary allocations from the university to the athletic department.

Expenses

1. Uniforms and equipment
2. Player travel, including transportation and hotel accomodation
3. Facility related costs
   1. Facility must be staffed on game day with
      1. Ticket takers
      2. Ushers
      3. Concession workers
   2. Electricity is used to provide lighting and to run equipment
   3. Facility must be cleaned after an event
   4. The playing surface must be maintained
4. For major pro teams, all of the above costs are secondary to the single biggest expenditure item: player salaries.

Assets

Assets are anything that an organization owns that can be used to generate future revenues. For spectator sports, a team’s stadium is an important asset because it provides the team a venue at which to stage games, which in turn allows the team to earn various types of revenue. New stadiums tend to have dramatic and immediate effects on a franchise’s revenue steam.

One of the most important assets that major professional sports franchises possess is their membership in the league to which they belong. For example, the NFL’s popularity as a league is so high that prospective franchise owners will pay large sums of money simply to join the league. The owners of the NFL’s most recent expansion franchise, the Houston Texans, paid the NFL an expansion fee of $ 700 million (SportsBusiness Journal, 2006). This fee was paid just to “join the club” and to enjoy all the future financial benefits that such membership in the NFL may bring; it did not include money for such large-scale expenditures as stadium construction and player salaries.

For some assets, such as stadiums, professional teams have been very successful in convincing local governments to pay for all or part of the costs of the facility. Of the 121 sports facilities in use in 2010, it is estimated that 78% of all construction costs came from government (i.e., taxpayer) sources (Long, 2013).

Other financial considerations

Professional sports leagues are considered monopolies. That is, these leagues face no direct competition for the products and services they produce. For example, the NBA is currently the only seller of elite-level professional basketball in North America. Fans who enjoy watching the highest caliber of professional basketball must watch the NBA’s version of the product because no other league supplies a comparable product. Again, compare this situation to the golf club industry, where a consumer shopping for a new set of clubs has a wide range of manufacturers from which to choose.

The issue of revenue disparities across schools and conferences is part of a larger issue that economists have recently begun to study— namely, the competitive balance problem.

In an attempt to better deal with these underlying causal factors, professional leagues have introduced a number of “financial” mechanisms to alter competitive balance. One of these mechanisms is a salary cap. Both the NFL and the NHL have “hard” caps, while the NBA has a “soft” cap. With the hard cap, the team payroll limit is an absolute and cannot be violated. A hard cap has been used in the NFL since 1994 and in the NHL since 2005. These hard caps are the result of negotiations between the leagues and their players’ associations. The hard cap limit is typically set as a percentage of league revenues, usually between 55% and 60%. The philosophy behind the hard cap is that it will constrain all franchises to spend about the same amount on payroll (hard caps usually include a minimum payroll as well), presumably ensuring that franchises are fielding relatively equally balanced teams on the field. In essence, a hard cap prevents large market teams from using their natural financial advantage to buy the best teams. With a soft cap, a payroll limit is still set, but teams can exceed this limit through various types of “exclusions.” For example, one type of exclusion is situations in which teams sign their own free agents, as opposed to another team’s free agents. Given this fairly wide array of exclusions, there is generally a much wider disparity in payrolls across teams with a soft cap than there is with a hard cap. The NBA has had a soft cap since 1984 and made history that year when it was the first league in the modern era of professional sports to implement any type of salary cap. Revenue sharing is another financial mechanism intended to foster greater competitive balance. With revenue sharing, teams in the league agree to share certain types of revenues among themselves. For example, all four major professional leagues share national television revenues equally. However, the relative significance of this sharing revenues differs across leagues, with the NFL being the only league where national television revenues account for a large portion of total league revenues. In the other three leagues, “local” revenues (such as gate receipts and local television) are much more crucial.

Finally, a luxury tax has been used as a mechanism to influence competitive balance. Both the NBA and MLB have a form of a luxury tax. With a luxury tax, a payroll threshold is set prior to a season. Teams that exceed this threshold pay a tax on the excess amount. In baseball, for example, team payroll thresholds under the existing CBA are $ 178 million in 2012 and 2013 and $ 189 million from 2014 to 2016 (the last year of the agreement). Teams are taxed at a rate of 17.5% for a first violation of the threshold, 30% for a second violation, 40% for a third violation, and 50% for four or more violations. The luxury tax works somewhat differently than salary caps or revenue sharing, in that it is focused solely on changing the behavior of high-payroll teams, such as the New York Yankees. The Yankees have been the only team to exceed the threshold every season since the tax was introduced in 2003.

Professional Leagues

North America is home to five preeminent professional leagues: Major League Baseball (MLB), the National Basketball Association (NBA), the National Football League (NFL), the National Hockey League (NHL), and Major League Soccer (MLS). As of 2013, those five leagues included 141 franchises. Each year new leagues, such as the Arena Football League (AFL), Major League Lacrosse (MLL), the National Lacrosse League (NLL), the Women’s NBA (WNBA), and the National Women’s Soccer League (NWSL), emerge— some survive, and others do not. The minor leagues in baseball, basketball, soccer, and hockey are far too numerous to list here.

Positions in Leagues

• League commissioner – The head of the league
• Team owner – Individuals, groups of individuals, or companies who have owned and operated part or the entire professional sports organization. They pocket all the profits.
• Team general manager – Responsible for the daily activities of a ports team or organization, the general manager handles all the team’s contracts, players and coaches.
• Team front office – The front office is made up of two sides that manage the organization, the sports management and operations side and the business management and operations side. If we focus on the sports management side, the hierarchy includes GM, assistant GM, Director of scouting, Director of player personnel, Administrative staff, Interns, etc. The business side has a different structure.
• Team coaches
• Team athletes
• Team trainers
• Team doctors