Funding of sport test 1

interest coverage ratio

a measure of a firm's ability to pay the interest on its debt. sometimes called the times interest earned ratio

debt ratio

a measure of an organization's leverage, sometimes referred to as the debt-to-assets ratio

total asset turnover ratio

a measure of how efficiently a company is utilizing its assets to make money

inventory turnover ratio

a measure of how often a company sells and replaces its inventory over a specified period of time, typically a year

net profit margin ratio

a measure of the effectiveness and efficiency of a company's operations

return on equity ratio

a measure of the rate of return a company's owners or shareholders are receiving on their investment

double-entry bookkeeping

a method of recording financial transactions where each transaction is entered or recorded twice, once on the debit side of the accounting records and once on the credit side

statement of cash flows

a report that tracks cash in and cash out of an organization and provides data as to whether a company has sufficient cash on hand to meet its debts and obligations

balance sheet

a snapshot of the financial condition of an organization at a specific point in time

generally accepted accounting principles (GAAP)

a standard set of guidelines and procedures for financial reporting

income statement

a statement of a company's income over a specified period of time, typically issued on an annual or quarterly basis. Also called a statement of earnings or profit and loss statement

earnings before interest and taxes (EBIT)

a useful measure of income or profit

different structures of league

single entity; distributed club ownership

different models of pro sport team

single owner/private investor model; multiple owners/private investment syndicate model; multiple owners/publicly traded corporation model

sustainability

- venue construction and usage; Overbuilding of publicly finance venues in a metro area ---NY - five arenas soon with two of existing four already losing money ---Phoenix - US Airways and Jobbing.com ---Columbus, OH Over-requiring for mega events -$43 billion in China for Olympics ---National Stadium (Bird's Nest) one event in 2009 -10 new stadiums built in S. Korea for World Cup not used today -Lillehammer - 40% of hotels build for Winter Olympics bankrupt a few years after the games

television revenue

-Guaranteed form of long-term revenue -Helps insulate leagues with long-term deals from changes in economy

expenses

funds flowing out of an organization as costs of doing business

multiple owners/private investment syndicate model

group of individuals pool resources to purchase franchise

leverage

how a company chooses to finance its operation with debt versus equity. A company that relies extensively on borrowing money is considered to be heavily leveraged. such a company faces greater risk of financial problems than one not so reliant on debt

Economic depression

An extreme recession, lasting 2 or more years

revenues

income generated from business activities, such as the sale of goods or services

cost of goods sold (COGS)

those costs that are directly attributable to the production of goods or products, including raw materials and labor costs

North American Industry Classification System (NAICS)

A classification system used by the U.S. Census Bureau to measure and track economic activity in the United States. The sport industry is not classified as a distinct industry and is scattered across at least 12 different NAICS-defined industries

Economic cycle

A cycle consisting of 4 stages- growth, peak, recession, and recovery--and typically lasting for just under 6 years

single-entity structure

A league structure in which owners purchase shares in the league rather than in an individual franchise

Debt financing

A method of raising capital in which an organization borrows money that must be repaid over a period of time, usually with interest

Retained earnings

A portion of earnings that a firm saves in order to finance operations or acquire assets

Financial management

A sector within firms that is concerned with the acquisition and use of funds to meet the goal of wealth maximization

Sherman Antitrust Act

An 1890 law that forbids contracts or other actions among businesses that would restrict competition

Multiple owners/publicly traded corporation model

An ownership model in which a franchise is governed by a board of directors who are elected by shareholder vote. The board of directors appoints the team's senior management. With the exception of the Green Bay Packers, this model is not currently used in the United States.

Multiple owners/private investment syndicate model

An ownership model in which individuals pool their resources to purchase a franchise and incorporate as a partnership, LLC, or the like. The most common model of team ownership

Single owner/private investor model

An ownership model in which one individual owns the firm

Gift financing

Charitable donations, either cash or in-kind, made to an organization

Equity financing

Financing in which an organization exchanges a share or portion of ownership for money

Government financing

Funding provided by federal, state, or municipal sources, including land use, tax abatement, direct financing, state and municipal appropriations, and infrastructure improvements

Money markets

Markets for highly liquid, short-term securities

Capital markets

Markets for intermediate or long-term debt, as well as corporate stocks

Wealth mamization

Maximizing the overall value of the firm. This is the goal or outcome of financial management for most organizations

Sustainability

Meeting today's needs without compromising future generations' ability to meet their own needs

real estate

Owners real estate brokers/partners to help fund private construction costs; LA Live is an example ---27 acres around Staples Center ---Owned by Anschutz group Collapse in real estate market has hurt teams ---St. Louis Cardinals ---Dallas Cowboys/Texas Rangers ---Barclays Center

Investments

Security choices made by individual and institutional investors as they build portfolios

Gross domestic sport product (GDSP)

The market value of a nation's output of sport-related goods and services in a given year. This includes the value added to the economy by the sport industry, as well as the gross product originating from the sport industry

Gross domestic product (GDP)

The market value of all final goods and services produced within the borders of a country, state, country, or other region in a year

Economic growth

The part of the economic cycle when the economy is increasing in real terms (faster than the rate of inflation)

Finance

The science of fund management, applying concepts from accounting, economics, and statistics

current ratio

a formula that measures a company's ability to meet its current liabilities with its current assets

multiple owners/publicly traded corporation model

a franchise is governed by a board of directors who are elected by shareholder vote, board of directors them appoints the team's senior management

fiscal year

a 12-month period over which a company budgets its money

acid-test ratio

a formula of a company's ability to meet its current liabilities with its current assets, not including inventory

accural basis accounting

an accounting method that recognizes income when it is earned and expenses when they are incurred, rather than when the money is exchanged

cash basis accounting

an accounting method that recognizes transactions when money is either received or paid out

price-to-earnings ratio (P/E ratio)

an estimate of how much money investors will pay for each dollar of a company's earnings, used widely to measure corporate starting point for franchise valuation

owners' equity

an estimate of the ownership value of a company. also called shareholders' equity or stockholders' equity

market value

an estimate of the value of a company according to the stock market

credits

an increase to a liability or equity account, entered on the right-hand side of a ledger

debits

an increase to an asset or expense account, entered on the left-hand side of a ledger

contingent liabilities

debts that may or may not occur

distributed club ownership

each individual franchise has its own ownership group; -League-wide revenues collected and distributed to teams -League structured as a non-profit governed by representatives from teams --Commissioner appointed to run daily operations --Can own affiliated profit entities (NFL Enterprises and NFL Properties) Conflicts -Large market v. small market -League and club (territories) -Player and league -Antitrust law governs many disputes -MLB largely exempt (Federal Baseball v. National League, 1922)

long-term liabilities

liabilities due after one year

current liabilities

liabilities due within one year

accounts receivable

money owed by a company's customers

single entity

one group or individual owns league and all teams -Used frequently with new or start-up leagues (ABL, WNBA, MLS, XFL) Advantages --Antitrust does not apply - collusion not possible Can place players on preferred teams -Salary costs are constrained - no open market as contracts signed with league Drawbacks ---Little economic incentive at club level ---Been challenged in court under Sherman Antitrust Act ---Forbids contracts or other actions among businesses that restrain trade

single owner/private investor model

one individual owns the firm

politics

sport and government intertwined; tax law changes

liquidity

the ease and speed with which an asset can be converted to cash

liabilities

the financial obligations or debts owed by an organization to others

T-accounts

the method accountants have historically used to track revenues and expenses and to create accounts to be entered on balance sheets

assets

what a company owns, including items such as cash, inventory, and accounts receivable