SMGT 3550
What aspects of time value of money must professional sport organisations and athletes consider when negotiating contracts?
Important to understand the present and future value of money, as well as how the buying power of money changes over time. $500 now will buy more than $500 in 20 years. Important to understand inflation and need to negotiate contracts that take into account the inflation of money over time.
How does incremental based budgeting differ from program planning budgeting? Zero-based budgeting?
Incremental Based - The next year's budget will be based off of the previous years budget and will increase/decrease in percentage increments. Program Planning - Bases expenditures on programs/departments of work (e.g. marketing department) and looks to incorporate goals and outputs of program. Zero-Based - Each budget starts at $0 and you then go through and establish the needs of each team/department, rather than basing the budget off of a previous years. This method leads you to question whether certain costs are necessary - can help save money.
What valuation approach relies on prices that similar assets sell for in the marketplace? a. Income approach b. Market approach c. Cost approach d. Synergistic approach
b.
When an organization borrows money that must be paid back over time, usually with interest, what kind of financing is being used? a. Equity b. Debt c. Gift d. Retained earnings
b.
When citizens decide to raise their taxes to fund two new sports stadiums rather than to raise taxes for something such as education, they missed a chance to improve the educational system. What is this known as? a. A marginal cost b. An opportunity cost c. A fixed cost d. A variable cost
b.
When sport leagues do not expand into a market that can support a franchise, or when they create rules to limit the movement of existing franchises, which of the following economic concepts is being applied? a. Demand b. Scarcity c. Price d. Equilibrium
b.
Which of the following is an indirect source of public financing? a. lottery proceeds b. tax abatements c. sales tax revenue d. tourism tax revenue
b.
Which of the following refers to the purchasing power of a dollar? a. Nominal value b. Real value c. Future value d. Present value
b.
Which has the greater impact on financial management: the structure of a league or the structure of a team?
League structure: make specific rules all teams need to follow, salary caps, revenue sharing
How does money flow from the NCAA to its member institutions?
Through conferences; and each conference has its own criteria when determining distribution
According to the syllabus, week 4 will focus on the topic of risk. True False
True
The rate of return is the gain or loss on an investment over a period of time. True False
True
What are some of the disadvantages of equity financing, specifically for sport teams?
Using equity financing would lead to financial information becoming public, meaning fans could complain about under-spending on player talent or new stadiums. Having too many equity owners also can lead to issues within the organisation, specifically is some are focused on winning as opposed to others focused on maximising profits.
Why are an athletic department's development efforts so critical?
Will offset the rising expenses of operating an athletic department & help reduce the department's reliance on allocated revenues
A series of equal payments or receipts made at any interval of time is referred to as which of the following? a. Lump sum b. Cash inflow c. Cash outflow d. Annuity
d.
An indirect source of public financing is infrastructure improvements. a. True b. False
a.
Give examples of ways in which a sport team majority owner could violate fiduciary duties and financially harm the minority shareholders.
1. Could allocate an unfair salary to themselves 2. Hire a coach/sign players that the team cannot afford
What are five forms of financing, and how is each used in sport?
1. Debt Financing - borrow money from lending institutions to finance operations. 2. Equity Financing - sports organisation sells shares to help fund expenses. 3. Retained Earnings - reinvestment of prior earnings 4. Government Funding - taxes that contribute to stadium operations. 5. Gift Financing - alumni donating to college sports team.
What is capital budgeting? What is the purpose of the post audit in the capital budgeting process?
Capital budgeting is the process of evaluating, comparing and selecting capital projects to achieve the best return on investment over time. The post audit compares project's actual results to the predicted results and attempts to explain any differences. This helps us to learn for next time and improves forecasting techniques used to estimate future cash flows.
What is the difference between induced and indirect economic impact? Provide an example of each.
Direct - people spending on the actual event Indirect - the re-spending of the inital direct spending, e.g. business who gets direct money spends money to buy local products etc. Induced - looks at how the direct and indirect economic impact affects earnings and employment, e.g. event leads to more hospitality jobs as more restaurant staff needed
What methods can a company use to raise capital? Explain each one by providing an example from the sport industry.
Equity Financing - The method of raising capital by selling company stock to investors (give example) Debt Financing - When a firm raises money for working capital by selling bonds, bills, or notes to individual and/or institutional investors (give example)
The single-entity structure is used by MLB, the NBA, the NHL, and the NFL. True False
False
________ is the science of fund management. It applies concepts from accounting, economics, and statistics.
Finance
What are some causes of overestimating the economic impact of a sporting event? Of underestimating? Provide three causes of each.
Overestimating: Unethical analysts, loss of other visitors due to hotels being full, opportunity costs Underestimating: Locals may spend more than usual, taxes may not be accounted for, visitors may visit city again in the future.
During which phase of facility construction where most sport facilities built with private dollars? a. Phase 1 b. Phase 2 c. Phase 3 d. Phase 4
a.
How can a stadium or arena be built without putting too much financial burden on a local government? Offer three financing options that do not put excessive burden on local governments.
Privately financed Ticket or player income taxes Tourism taxes (hotels, car rental, food and beverage, etc.) Selling asset-backed securities and naming rights
What must players and agents understand about risk? How should agents structure a deferred compensation contract?
Risk of time - as time goes on, risk increases proportionally. As a salary is deferred over time, the risk increases. Important to understand that money may be guaranteed with a deferred contract, however if organisation is no longer financially viable then player may never be paid in full. Agent should try to front-load deferred salary contracts. Agent should also ensure that money in contract is equal to the amount of risk that goes along with the deal, e.g. if a player signs a 10 million dollar contract with 7 million deferred, the 7 million amount must increase as the length of deferred payment grows to account for growing player risk.
How do professional sports leagues use the concept of scarcity when locating franchises?
Scarcity is the limited availability of a commodity. Leagues create scarcity by not expanding into every metropolitan area that could potentially support a franchise. Leagues also have internal rules that restrict franchise movement in an effort to maintain scarcity.
In order for investors to purchase stock in a company, they will require a return of at least a certain amount. The amount investors require depends on which of the following? a. All of these options b. Production opportunities c. Time preferences for consumption d. Risk e. Inflation
a.
Of the following capital budgeting methods, which one ignores the time value of money as it fails to take into account the cost of capital? a. Payback period b. Discounted payback period c. Net present value d. Internal rate of return e. Modified internal rate of return
a.
Of the following, which is not an adjustment made to determine the value of a specific ownership interest? a. All of the answers are adjustments. b. Synergistic premium c. Controlling interest d. Marketability
a.
Risk increases as the length of time funds are invested increases. What is this known as? a. Risk of time b. Level of risk c. Risk premium d. Liquidity premium
a.
This ratio measures how an organization finances its operation with debt and equity. a. Debt ratio b. Current ratio c. Quick ratio d. Total asset turnover ratio
a.
Typically, owners in a specific industry compete for wealth maximization. Owners in sport might not be interested in this goal. Rather, they may be interested in __________. a. Both of these answers are correct. b. Winning championships c. Protecting a community asset
a.
What is a measure of risk or uncertainty of time? a. Discount rate b. Development rate c. Inflation rate d. Interest rate
a.
Which approach to valuation is also referred to as a discounted cash flow analysis or a discounted cash flow approach? a. Income approach b. Market approach c. Cost approach d. Synergistic approach
a.
Which of the following is NOT a form of equity financing? a. a loan b. retained earnings c. government funding d. gifts e. donations
a.
Which of the following is the depreciation method that is most aggressive at allocating loss of useful life to the early years of the asset's use? a. Double-declining balance b. Straight-line c. Units of production d. None of the options are correct
a.
Which of the following is the number of years required to recover the initial capital investment of an organization? a. Payback period b. Discounted payback period c. Net present value d. internal rate of return e. Modified internal rate of return
a.
What is determined by comparing the risk of one asset to another? a. Risk of time b. Level of risk c. Risk premium d. Liquidity premium
b.
For all sport and entertainment organizations, __________ financing may include land use, tax abatements, direct facility financing, and infrastructure improvements. a. Debt b. Government c. Equity d. Gift
b.
The main disadvantages of forming a business under a ______________ structure is that there is double taxation of profits, and the cost of forming the business and operating the business is higher than other structures. a. Sole proprietorship b. C corporation c. Limited liability corporation (LLC) d. General partnership
b.
The sale of naming rights has little to do with getting a new stadium financed and completed. a. True b. False
b.
This ratio is an indication of whether an organization can meet its current liabilities (those due within a year) with its current assets. a. Quick ratio b. Current ratio c. Total asset turnover ratio d. Inventory turnover ratio
b.
The _________ of a bond is the face value, or amount of principal that the bond is worth at maturity. a. maturity b. coupon value c. par value d. current yield
c.
This financial statement tracks cash in and cash out of an organization over a specified period of time. a. Income statement b. Balance sheet c. Statement of cash flows d. Budget
c.
This type of financing includes charitable donations, either cash or in-kind, made to an organization and is the primary source of operating and investing income for major college sport programs. a. Government b. Debt c. Gift d. Equity
c.
Which of the following is the final step in the capital budgeting process? a. Determine the incremental cash flow of a project b. Select the capital budgeting method c. Conduct a post-audit analysis d. Determine the initial cost of the project
c.
Which of the following is today's value of a future cash flow? a. Real value b. Nominal value c. Present value d. Future value
c.
Which term is used to describe "the financial decisions and activities of an individual or household including budgeting, insurance, mortgage planning, savings and retirement"? a. Corporate Finance b. Public Finance c. Personal Finance d. Microeconomics
c.
Which type of bond is a form of public finance paid off solely from specific, well-defined sources such as hotel taxes, ticket taxes, or other sources of public funding? a. General obligation bonds b. Auction-rate bonds c. Revenue bonds d. Lease revenue bonds
c.
Which valuation method calculates the cost to re-create the business or asset? a. Income approach b. Market approach c. Cost approach d. Synergistic approach
c.
One source of risk is current economic conditions. Of the following, which is impacted by changes in current economic conditions? a. Capital finance b. Operating budgets c. League loan pools d. All of the above
d.
The choices that individuals and organizations make regarding financial management are influenced by which of the following? a. Demand b. Scarcity c. Price d. All of the options listed are correct
d.
To be at "arms' length" means that _____________. a. There is no familial relationship. b. The parties have no financial relationship. c. Neither party has an ownership interest in the other. d. All answers are correct.
d.
What term is used to describe the tendency for youth sport families to combine travel for competitions with travel for pleasure/leisure? a. travel ball holiday b. work/study trip c. spring break d. tournication
d.
Which of the following is a profitability ratio that measures what percentage of an organization's total sales or revenues was net profit or income? a. Market value b. Interest coverage ratio c. Return on equity d. Net profit margin
d.
Which of the following is calculated by investigating changes in the Consumer Price Index (CPI)? a. Discount rate b. Interest rate c. Business activity rate d. Inflation rate
d.
Which of the following is sold by either a government agency or a non-profit corporation set up to build a facility? a. Asset based security b. Contractually obligated income c. Tax increment financing d. Certificate of participation
d.
Which of the following is the amount earned annually from the interest payment compared with the price of the bond? It is typically expressed as a percentage return. a. Maturity b. Coupon rate c. Par value d. Current yield
d.
As facility projects can often lead to non-normal cash flows, it is recommended that which of the following be used when developing a capital budget? a. payback period b. discounted payback period c. net present value d. internal rate of return e. modified internal rate of return
e.
The initial cost of a capital project is the actual cost of starting the project adjusted for which of the following? a. Any installation, delivery or packaging costs b. Discounts to the initial price c. The sale of existing equipment or machinery d. Taxes e. All of these answers are correct.
e.
The _________ shows the organization's income over a specific period of time.
income statement
A ____________ is a combination of financial assets held by an investor.
portfolio
Economics is a ____________ science that studies the production, consumption and distribution of goods and services.
social