Sport Finance Midterm

Debt service

is cash required over specific time for repaying principle and interest on the debt

How much more do the top 8 NFL teams generate then the bottom 8 teams

$100 million

Estimate total economic activity related to the production and consumption of organized sport

$480-$620 billion

NCAA requirements for admission to the highest level of NCAA membership, Football bowl subdivision

- Award 90% of the allowable 85 footbal scholarships -Mantain average football home attendance of 15,000 over 2-year period - allowed to award maxium of 85 football scholarships

Estimate size of sports industry in US, global, & annual sport advertising spending (US). 2017

- US, 519.9 bill -Global, 1.3 tril -Sport ad in US, 37.7 bil

Sports market will grow at what annual rate through 2021, what are the 4 key segments

-3% -media rights, gate revenues, sponsorship and merhandising

MLB revenue sharing

-50% of revenue sharing will go to players salaries -55-45% split -teams contribute 31% local reveunes to pool -15 largets markets wont recive revenue shares

NBA salary cap exceptions

-Bird Exception- roster previous 3 years, max salary of 5 years -Mid-level exception- no tax teams $5mil up to 4 years -Early Bird Exeption- re-sign own free agent up to 175% of prior contract if on roster two years

Percentage of where revenue comes from? colleges

-Cash contributions alumni/others- 30% -Ticket sales- 28% -Payments from conference- 17% -local marketing income- 10%

Three types of economic impacts (ex fl/ga)

-Direct impact, first round effect -Indirect impact, ripple effect recirculations of intial dollars -induced impact, futher ripple effect

What is Asset-Backed Securitization (ABS)

-Interests in receivables are packages & sold in the form of securities -method to raise captial for provate owners share of facillity construction cost -fastest growing activity in captial market

How do you calculate player tax? (jock tax/ LeBron example)

-Tax collected by calculating # of duty days in particular states/cities. Tax is assessed on portion of salary earned -EX: Lebron game 7 in CA, makes 23.3M, average 229 duty days ($101,310.04 per duty day),3 duty days, salary per duty day times amount of duty days, then times .133 (CA tax), CA collects $40,422.70

How does ABS benefit owners?

-Use spefic streams for collateral -higher ratings from agencies. lower interest rates -Investors care about the companies who will be paying contacts

what is true about the NFLs revenue sharing policy

-analysts predict the the league will distribute as much as $100 million to each team by the seasom. -60 (owners)-40 (players) spilt, 60% home team & 40% to common pool

Franchise appreciation (big four facts)

-annual growth rate 8.4% 2000-2012 -MLB has poor anual growth -NBA &NHL solid annual growth -NFL teams have highest value (1.1billion) average

NHL revenue sharing

-based on NBA BRI -50/50 split (used to be 43/57 owners/players)

What is equity and who does it benefit?

-concerend with fairness ( who pays, who gets in new stadium construction) -sports teams/owners, leagues, fans, cities municipalities benefit

Ways to finance operation

-debt financing: borrowing money that must be repaid over time (usually interest) -Equity: Owners exchange shares of ownership for money -Goveremnt funding: federal, state, or municipal sources (land tax, tax abatements), direct stadium fiancing -Gifts: donations (cash or in-kind made to organization)

How are financial management of sport organization differs from other industries

-diverse objectives of owners -reveune sharing & other coooperation -parity of competion

What do sports mangers consider for venue security

-fans will be sensitive to disruption of their ecoerience -utilizing tech-enabled solutions & rely on digital solutions -state of art tech (biometric recognition & electronic fingerprinting

2011 last NFL CBA

-guaranteed floor (89% of cap over 5 years) -signing bonus, FA, uncapped year (non-negoitables) -Salary Cap is determined by & of revenue (40% local team revune, 55% national media, 45% ventures)

What are the two major factors in D1-A programs total expenses nearly tripled the past 30 years?

-increase in tution costs -Gender equity

Debt ratio calculations

-lower debt ratio is prefferred for sports organizations (new stadium will drive teams debt ratio) -total liabilites divided by total assests gives you debt ratio -Most US professional leauges demand teams debt ratio to not exceed 30%

Three ways that property taxes increased

-rasing value of the tax base -increasing tax rate -raising both the value of the tax base & tax rate

Three types of multipliers of economic impact

-sales (increase in business turnover) -income (impact on residents) -employment (momey made leads to companies able to hire more)

Single entity

-single group or indivual owns league - Ablilty to control player costs -New/start up leagues -MLS, WNBA, AFL

Distributed club ownership

-used by big four -indivual franchise has own ownership (structure as non-profit orgs governed by reps from each team) -have for profit entites

How are financial management of sport organizations similar from other industries

-value creation -revenue growth

Four eras of facility fiancing

1. Civic developement era 2.Public Subsidy era (1970-84) 3. Transitional era (1984-94) 4. Fully loaded era (1995-present)

NFL salary cap equation defines ALL revenue into three categories

1. League media revenue 2. NFL ventures revenue and postseason revenue 3. Regional sport network television revenues

Five trends related to sport finace- owners are overly concerned with to maximize profits and lower risks and liabilitites

1. protecting fans/security 2. Winning the hearts and wallets of millenials 3. Flexibility and customization of ticketing 4. The digital coin 5. Rethinking the student-athlete

Five creative accounting principles

1.owners and dependents receive salaries or fees from the teams 2. Owner controls the team, the stadium, and the team broadcast and television outlets, multiple opportuinites to create accounting losses by shifiting revenues among the entities 3. Tye of corporate structure used by franchies (subchapter S corp) 4. Roster depreciation 5. Signing bonuses

Current roster depreciation

100% over 15 years

average lifespan of sport stadiums

20-30 years

How many divisions are in the NCAA, and which division has the most athletes?

3 divisons, most athletes are in divison 3

old roster depreciation (till 2004)

50% over 5 years

What perecent of new stadiums have been financed with car rental and hotel tax since the 90s

75%

Total expenses of D1 programs have nearly tripled over the past 15 years because of

Arm race, gender equity, increase in tuition costs

What is net economic change

Benefits accured from event minus cost of hosting = net economic change

How is the NBA salary Cap determined and what is the luxury tax?

Cap is determined by BRI, league implements a luxury tax that is increased on an escalating scale in increments of $5 million starting at 1.50 for every $1 over.

Economic Impact

Defined as the net economic change in the host economy that results from visitor spending attributed to a sport event or facility

Fully loaded era

Escalating facility cost + owner demands = Fully loaded arenas= increased reveune generation

Early bird

Exeption aloows teams to re-sign one of its own free agents up to maxium salary level of 5 year if player on roster previous three years. This execption provides a powerful incentive for star players to stay with their current teams

According to Rosenstaub

Four-Fiths of money spent attending games would occur in absence of team

Four types of bonds

General obligation bonds, Revenue Bonds, Certificates of Participation, Special authority bonds

NCAA generated revenue sources vs allocated revenue sources

Generated- ticket sales, NCAA & conference distibution, contributations alumni & others Allocated- student fees, direct gov support, direct/indirect insitutional support

Biggest challenges to live sporting event attendance

HD TV & high-ticket prices

Main advantage of Subchpter S corp for team ownership

Profits flow through the business to the shareholders and are taxes only once, as ordinary income to the shareholders and taxes only once, as ordinary income to the shareholders

Government financing options include

Land tax, tax abatements, direct stadium financing

LTBEs

Likely to be earned incentives

What should the ratio/% of student athletes be for title IX under 1st prong

M-52% F-48%

list the four major sport leagues from highest to lowest fan cost index

NFL, NHL, NBA, MLB

Biggest reason that equity financing is not used to finance sport facilities

Owners do not want to open up their books/finanicals to outside investors

Which multiplier provides most accurate measurement of indirect economic impact?

Personal income

600 total athletes, 52% women enrolled, 47% of athletes. What is the M/F ratio, current number, and how many more women athletes need to be added to be exact compliance?

Ratio- 53 to 47 should be 52-48 Current number- M 318 to F 282 Additional women- 62

Three prongs of title IX

Substantial proportionality, continued improvemnets, meeting the needs and ablilities of the underrepresented sex

Why minor league baseball has continued to thrive over past two decades?

The emphasis of providing family-affordable entertainment

A sport organization option for raising funds are based on its business structure, as is the personal legal liablility of its managers and employees T/F

True

Time-switcher

a person visiting Pheniox during winter/spring who attends a Cubs spring training game

Luxury tax

a surcharge put on the aggregate payroll of a team to the exent to whcih it exceeds a predetermined guideline level set by the league. Teams that exceed the soft cap of the league.

The key to any economic benefit from new sports venue

abliltiy to simualate new, "export" dollars

Revenue bonds

are non-guaranteed bonds. These are repaid from the revenue produced by the project or dedicated taxes such as hotel motel or auto rental taxes. (two most common)

Certificates of participation bond

are non-guaranteed bonds. When a goverment entity buys the facility and leases it to the general public. Monies generated from the leases are used to repay the debt. Use leasing power of local goverments to secure long-term financing

Special authority bonds

are non-guarentedd bonds. Offered by a special public aithorities organization with public powers. They similar to the general obligations. Do NOT require a public vote. Stadiums are being funded using this.

How much is the NFL franchise tag?

average top 5 players at postion

Example of soft tax

bed tax (hotel/motel)

Public-Private participation model

city acts as intermediary by recruiting a private operator for the facility

Title IX definition

equatity for genders,

General obligation bonds

full faith (must be paid in full) and credit obligation bond. Repaid by general property taxes. Require voter approval.

Two traditional sources (hard tax) for tax revenue

general sales tax and property tax

Economic disconnect

growing divide between middle-class & blue-collar families and the cost of attending professional sporting events

Operating Income (OI)

higher OI reveales a company has minimal profitablility, & OI provides potenial investors with how much revenue will become profit

Common tactic used by supporters to misrepresent the full cost of new facilities. (ex Bengals presenting $400mill project)

interest costs assoicate with borrowing 400mil

Purpose of Economic Impact

measure the broader economic benefits that accrue to a community;essentially, how much residents receive in return for their investment

Two stadium trends used to enhance the bottom line

mobile ticketing and inclusive/exclusive areas

Why do leagues have a salary cap?

parity

"Sanders Provision" loophole NFL

prorating large siging bonuses over the lenght of players contracts rather then accounting for the entire amount

Substantial proportionality

requires that women athletes recieve participation opportunities and resources proportionate to the women in the student body at large

Most common approach used by analyst for determining the market value of sports franchise

reveune multiple

Economic business model of MLS

single-enity

NBA have a hard or soft cap? lucury tax?

soft cap, yes

Tax abatement

sport franchise don't have to pay property taxes for a period of time in order to help boost the economy

two acts passed in the tranistional era of facility financing?

tax reform act of 1984 (use of tax-exempt bonds to fiance sport facilities), Deficity reduction act of 1984 (prohibited use of tax-exempt bonds to finacne luxry boxes)

What decade has the greatest stadium boom

the 90s

Opportunity cost (economic impact)

the economic gains that would be realized from an alternative investment

Operating subsidies are sources of reveune foregone by the goverment entities that they would normally expected to receive as defined by lease agreements between the goverment entity (stadium owners) and the teams who play in them T/F

true

Schools are permitted to count "emerging sports" toward meeting the minimum eligibility requirement for Division 1 and 2 status. T/F

true

Importance of economic impact

useful in both analyzing community development and betterment both economically and socially

what is tax base

value of all the assessed values within a particular jurisdiction

Three collective bargaining agreements considered none negotiable

wages, hours, work conditions

What was NBA luxury tax until 2011 CBA

was $1 for every $1 over