Lecture 44: Business of SportSport and the EconomyToday’s professional and college sports are structured, organized, and quantified.Result of move from agrarian to industrialized society over past century.Sport has adopted corporate structure. Athletes became workers; team and bottom line emphasized.Bottom line—both winning and losing and profit and lossIndustrialization led to sport consumers.Owner of Professional SportsMajority are wealthy, powerful males (white males in most cases)Small number of teams owned by public and organizations.Ex) Green Bay PackersHistorically, owners loved the game and promoted the sport.Tom YawkeyOwned Boston Red SoxGot involved because he loved the game and was trying to promote the sportOwned an Island in SC near Georgetown called South Island. He passed away and gave island to SC now it’s a wildlife reserveNow it’s a business investment or means of promoting other products, with many financial advantages despite lost revenueTax breaksMaking Money From Pro SportsInvestments: Average value of an NFL team in 1998 was $288 million; now it is $1.04 billion. Over the past 15 years, NFL franchises have increased in value more than 500%.Appreciation: the value of the increasesClippers sold for ap proximately $2Billion but originally bought in the low MillionsTeam usually appreciates and the players depreciateTaxes: Revenue lost offsets other profits.Depreciation: Players are assets who are depreciated.Revenue sharingNFL best known for revenue sharingMLB least willing to shareCollege sports—SEC selling media rightsTicket sales: These account for 23% of NFL revenue.Stadium revenues: Owners earn money from luxury boxes, concessions, parking.Media revenue: Revenue from TV ranges from 15% to 60% of team’s revenue.Overall most important componentFees are paid to license team merchandise.Naming rights sold: See table 4.2 on page 55.Enron in Houston, TX—where the Astros played, accounting scandal—negative thoughtsSpeedway in Charlotte, sponsored by Lowes Motor SpeedwayAccidents happened, negative towards LowesFinancing of StadiumsNew stadium costs: Several hundred million dollars. Since 1991, new baseball and football stadiums have relied on public funds for more than two-thirds of the costs.Public (tax payers, fees), private (investors), or combination of fundsPublic: Sales tax, proximity and beneficiary taxes (tax on a business that is in the same area as the stadium), bed tax (hotels/motels), bonds (investment strategy), tax increment financing (some entity (local school districts) may give up their tax base)Private: Owner or league contributions, bank loans, local business loans, personal seat licenses (PSLs—first used by Carolina Panthers; pay money to keep the opportunity to continuing buying season tickets for the same seat)Pros of Building a Stadium With Public FundsTeam can promote the city.Revenue increased for local businesses.Media attention increases tourism.Create local jobsNot high paying jobsCons of Building a Stadium With Public FundsMoney can be used for alternative purposes such as better public education, better city infrastructure, low-income housing for poor.Team may threaten to leave (blackmail) if city doesn’t provide stadium.Sport as a MonopolyOwners control competition and sales.Monopolies—Antitrust lawsLeagues collude to eliminate new leagues.Players can negotiate with only one team.New or expansion teams have to pay large fees and need approval to relocate.Owners cannot individually sell merchandise.Jerry Jones, Dallas Cowboys—wanted to sell his own merchandise and keep money to himself, NFL said no you’re apart of our organization, NFL working as a monopolyPlayers’ Rights and CompensationPlayers can negotiate with only one team.Kurt Flood—contested the reserve clause which said the team controls what you do and he took MLB to court and that’s where free agency came fromSalary caps or earnings are based on performance and limit wages.Average length of a professional sport career is less than 10 years.That includes anyone who gets paid to play a sport at any level—this estimate includes someone who has golfed for 40+ years and people who only played for half a seasonMaking it to the pros does not mean an athlete is set for life.Most pro athletes are not set for life when they are done with their careersCollege Sports as MoneymakersUniversity athletic departments are run as businesses with enormous budgets.1991 the budget for Gamecock athletics $19 million2004--$46 Million2014-- $90 millionBig programs can increase enrollment and contributions to other departments.Colleges can receive money from ticket sales, licensing fees, corporate sponsors, and television rights.Students often have to pay an athletic fee.Here at USC we pay an activity feeDiscussion: Do you think college football and basketball coaches should be able to earn more than college presidents?Key PointOnly about 30% of Division I (FBS) men’s football and basketball and less than 20% of women’s sport programs operate in the black.Operate at a profitThe median net loss for all colleges in Division I (FBS) is $7.2 million U.S. annually.Only 19 out of 119 colleges in Division I (FBS) had positive net revenue from athletics.Now at 125Recreational Sports as MoneymakersWith increased leisure time, recreation increases.Sales of sport equipment in United States average US$50 billion per year.Leagues earn participation fees.Communities use funds to maintain public recreational areas.Discussion: How much do you spend on recreational sports?Tom Regean—SPTE Professor at USCWhat can of economic impact sport has in certain areasFall 2013- Spring 2014 USC Athletics had an economic impact of $199 million in the Midlands area2,329 Jobs created in the areaSPTE 110 1st Edition Lecture 4 4: Business of Sport  Sport and the Economy- Today’s professional and college sports are structured, organized, and quantified.- Result of move from agrarian to industrialized society over past century. - Sport has adopted corporate structure. Athletes became workers; team and bottom line emphasized. o Bottom line—both winning and losing and profit and loss- Industrialization led to sport consumers. Owner of Professional Sports- Majority are wealthy, powerful males (white males in most cases)- Small number of teams owned by public and organizations.o Ex) Green Bay Packers - Historically, owners loved the game and promoted the sport.o Tom