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
