Sports Finance and Management

Real Estate, Media, and the New Business of Sport, Second Edition

Jason A. Winfree, Mark S. Rosentraub, Brian M Mills, Mackenzie Zondlak

• Publisher: Taylor & Francis
• Year: 2018
• ISBN:
  9781351645973
• Edition: 2
• Topic: Business
• Subtopic: Business General
• Index: Business

As the sport business continues to evolve, so too, does Sport Finance and Management. The first version of this book took an in-depth look at changes in the sport industry, including interconnecting financial issues between teams and their associated businesses, the nature of fan loyalty influences, and the impact of sponsorship on team revenues. This second edition updates each of these elements, introduces relevant case study examples in new chapters, and examines the impact of changes in facility design, media opportunities, and league and conference policies on the economic success of teams, the salaries earned by professional players, and the finances of collegiate athletics.

Chapter 1

Redefining the Sport Business Industry

Introduction

The sport business continues to be defined by dramatic changes, which means Sport Finance and Management is far different today than it was just a few years ago. Indeed, the sport business has changed so quickly that a second edition of this book is warranted to ensure students have the insights, skills, and knowledge needed to compete for jobs in the industry. For example, in 2017 Forbes concluded that every National Football League (NFL) team was worth at least $1.6 billion and the league-wide average was more than $2.52 billion; just four years earlier, the average value of an NFL team was $1.17 billion. Across a period of 48 months, the value of the average NFL team more than doubled. In 2017, Forbes valued 18 of the National Basketball Association’s (NBA) 30 franchises at or above $1 billion, and the league’s average franchise value was $1.36 billion, which is more than double what it was just three years earlier. In the summer of 2015, the National Hockey League (NHL) required an expansion fee of $500 million for its newest franchise, the Las Vegas Golden Knights. The commissioner noted in 2017 that if another team, the Carolina Hurricanes, for example, was to be sold, the selling price should also be approximately $500 million. Finally, the United States’ fifth major professional sport, Major League Soccer (MLS), has reportedly sold franchises for $150 million.

This book is designed to provide extensive insight into the changes that are driving the explosion in team values and the impact of those asset prices on athletes and every other aspect of the business of sport. Our goal is to give students and practitioners the knowledge needed to succeed in this rapidly shifting business world. This second edition provides greater coverage of business areas that even a few years ago were just emerging or were far less dominant than they are today.

The financial returns from sport have always been a function of the ways in which owners could use their franchise to leverage or “activate” different revenue streams. What began as a business that sold only tickets for admission and beer (initiated by the Cincinnati Red Stockings, North America’s first professional team, now the Reds) now includes various premium seating products (suites and club seats or seating in other club areas), social seating (non-fixed seating in areas of a venue that look more like a neighborhood pub or restaurant), other new seating options and accommodations for fans with young children, numerous naming and advertising opportunities, real estate development (inside and adjacent to a venue), non-sport (entertainment) and non-team (other games or matches) events at a venue, and the 24/7 delivery of content through various media platforms. These changes are not limited to the four or five major sport leagues in North America. The financing of collegiate sport has also undergone substantial shifts and that has created new opportunities and issues for universities. It was reported in 2016 that the Big Ten Conference distributed $32.4 million to its 11 oldest members; this financial success convinced the universities of the Big Ten Conference to give the conference’s executive director a $20 million future bonus payment (Berkowitz, 2017).

The magnitude of these financial gains illustrates the insights and skills that students need to compete for jobs in the rapidly changing industry. Students need to have a greater understanding of the ways in which teams, universities, and cities benefit from the leveraging of sport and the venues used by teams. In many ways, the changes in the sport world that have led to the enhanced value of teams and university athletics (for some conferences) are a result of the business philosophy pioneered by the Disney Corporation and Walter O’Malley at Dodger Stadium in Los Angeles.

So, what was this new, innovative business philosophy? As will be discussed in the sections and chapters that follow, the Disney Corporation and the Dodgers designed their attractions to appeal to vastly different fan or market segments to ensure everyone visiting had a great experience. For the Dodgers, this meant that fans would leave the ballpark having had a great time even when the team lost a game (Podair, 2017). Disneyland (1955), and then Disney World (1971), as well as Dodger Stadium at the Chavez Ravine (1962), were designed to provide those families and individuals with distinct preferences, with specialized amenities capable of making each visit a great one. This commitment to the fan experience now defines every aspect of the sport and hospitality business. The targeted approach to fan segments is evident in today’s venues’ diverse seating areas and the various experiences offered to both casual and committed fans. It is also demonstrated by teams’ usage of an almost endless list of media platforms and the different types of content used to connect each fan segment with the players and franchise. Today’s newest venues, as will be discussed in later chapters, feature several different clubs, restaurants, and exhibits to ensure every game is an exciting, varied, and valuable experience for all visitors. The success of this business philosophy has contributed to the elevation of professional sport franchise values across the board.

Today’s team executives must understand that while many fans attending games are intently focused on the playing action, this is just one segment of a team’s expansive fan base. Other fans may want to enjoy the game while also spending time mixing with their friends in a social atmosphere, sometimes referred to as social seating. An extreme example of redesigning a venue to appeal to different fan segments is illustrated by the University of Central Florida’s (UCF) decision to offer fans “beachfront” seating at its stadium (UCF Knights, 2015). UCF’s provision of beachfront seating, for fans interested in social seating options, is an example of how a team or athletic department can design one part of its stadium to appeal to the needs of a specific fan segment. The Cleveland Indians are another example. In 2015, the team opened clubs with non-fixed seating that look similar to what is available at neighborhood sports bars, restaurants, and pubs, replacing what had previously been several large and unappealing sections of outfield seating.

Some might think appealing to more casual fans, such as families, would be unorthodox, if not blasphemous, but nothing could be further from the truth. Today’s teams must be proactive in creating unique and varied experiences for each of their fan segments – casual or otherwise – in order to compete with fans’ alternative option: to watch games from the comfort of their homes in extreme clarity (with the help of ever-improving HD television technology). Young adults with children are interested in entertainment options that accommodate their kids while also saving parents’ money on babysitters. One way to get these fans to a venue is by providing a children’s play area that is fun for the kids and provides parents with a place where they can watch both their children and the game. The San Diego Padres were pioneers in this effort with the placement of a giant sandbox beyond the right center field fence and special seats allowing parents to watch both their children playing and the game. The Cleveland Indians also turned several suites into daycare and play areas for young children (known as the Kids Clubhouse) to attract families to games. Many teams now routinely provide families with various smaller-scale amusement and other family-friendly options, just as the Disney Corporation has mixed low-impact rides for younger children into the Magic Kingdom.

Teams also offer special spaces and amenities to appeal to businesses that utilize teams, games, and events as vehicles for marketing their services and products to clients, or to reward employees. Private suites with space for meetings and for entertaining clients and employees have been included in the design of venues since the 1980s. Club seat sections were added in the late 1980s and 1990s. These areas have a reserved club area where a firm’s clients and employees can be entertained around tables in an area adjoining special seating areas. The newest venues now include opera- or theatre-style seating (private booths with four to six seats) adjacent to a private dining area. The newest venues also include several club and social seating options to appeal to different segments of a team’s fan base.

Disneyfication and the Battle for Discretionary Income

There is an urban legend regarding Walt and Roy Disney’s business approach to entertainment. It is said that when the brothers saw the real estate development around Disneyland and the amenities that other (outside) developers offered to visitors to their Magic Kingdom, they decided if they built another park they wanted enough real estate to offer all of the activities people enjoyed when they visited their anchor amenity. The Disney brothers wanted to offer every visitor to their theme park(s) (specifically, any visitor in any segment of their overall customer base) the full range of amenities that could complement their vacation or day-trip. The vision was to have enough Disney-owned real estate – it’s always about the land – to offer different segments of consumers anything and everything they could enjoy: hotels, retail centers, meeting spaces, evening entertainment, numerous other entertainment parks, etc. In a sense, the Disney brothers wanted to turn the Disneyland concept into a Disney World of activities. Walt Disney World Resort (Orange and Osceola Counties, Florida) was the fulfillment of that vision, and so began the concept of integrating a full set of amenities across a large “footprint” of real estate anchored by a major attraction. This management strategy became identified as the Disneyfication of entertainment experiences.

At the Walt Disney World Resort, these other amenities were positioned as new experiences and were anchored by an even larger Magic Kingdom than the one built in Anaheim. The Walt Disney Corporation changed the scale and focus of the hospitality industry by concentrating on every visitor’s total experience before, during, and after a visit. In essence, the corporation’s vision was the blueprint for the entertainment districts and neighborhoods that are now part of real estate strategies anchored by arenas, ballparks, and stadia across North America and Europe. These new districts have involved as much as 50 or more acres of new development and real estate investments of more than $1 billion. What has been developed is similar to what has been employed by the Disney Corporation. Where the Disney Corporation is focused on serving tourists on vacations or those attending conventions with their families, team owners use the excitement of sport to create districts that capitalize on people’s interest to live, work, or “play” at businesses and restaurants surrounding a sport venue. In effect, the goal is to create a Wrigleyville – the neighborhood surrounding the legendary home of the Chicago Cubs – around every new venue. Sport districts have now become a goal for many teams, and these new neighborhoods or developments include residential spaces, park areas, retail establishments, and offices for businesses that want to benefit from the proximity to an arena, a ballpark, or a stadium. The focus on residential development is an effort to capitalize on people’s desire to live and work in the neighborhoods where events take place. These neighborho...