Financial Management in the Sport Industry

Matthew T. Brown, Daniel A. Rascher, Mark S. Nagel, Chad D. McEvoy

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000351736
• Edition: 3
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

Now in a fully revised and updated third edition, this essential textbook introduces the fundamentals of sport finance and sound financial management in the sport industry. It is still the only textbook to explain every aspect of finance from the perspective of the sport management practitioner, explaining key concepts and showing how to apply them in practice in the context of sport.

The text begins by covering finance basics and the tools and techniques of financial quantification, using industry examples to apply the principles of financial management to sport. It then goes further, to show how financial management works specifically in the sport industry. Discussions include interpreting financial statements, debt and equity financing, capital budgeting, facility financing, economic impact, risk and return, time value of money, and more. The final part of the book examines financial management in four sectors of the industry: public sector sport, collegiate athletics, professional sport, and international sport. It provides an in-depth analysis of the mechanics of financial management within each of these sport sectors. Useful features, such as sidebars, concept checks, practice problems, case analysis and case questions will help students engage more deeply with financial techniques and encourage problem-solving skills. This new edition includes a completely new chapter on international sport, reflecting the globalized nature of the modern sport industry, as well expanded coverage of current issues such as digital media finance, recent legal cases affecting collegiate sport, and the central importance of collective bargaining.

Financial Management in the Sport Industry is an essential textbook for any undergraduate or postgraduate course in sport finance, and an invaluable supplement to any course in sport business or sport management. It is also an important reference for all sport management practitioners looking to improve their understanding of finance.

The book is accompanied by updated and expanded ancillary materials, including an instructor's manual, PowerPoint slides, and an image bank.

PART I

Finance Basics

Chapter 1Introduction to Sport Finance

Chapter 2Analyzing Financial Statements and Ratios

Chapter 3Risk

Chapter 4Time Value of Money

Chapter 1

Introduction to Sport Finance

Matthew T. Brown

KEY CONCEPTS

capital markets

debt financing

distributed club ownership model

economic cycle

economic depression

economic growth

equity financing

finance

financial management

gift financing

government financing

gross domestic product (GDP)

gross domestic sport product (GDSP)

investments

money markets

multiple owners/private investment syndicate model

multiple owners/publicly traded corporation model

North American Industry Classification System (NAICS)

retained earnings

Sherman Antitrust Act

single-entity structure

single owner/private investor model

sustainability

wealth maximization

INTRODUCTION

Why is an understanding of financial management important? Consider the example of the construction of a new stadium or arena. This area of sport finance is often in the news because a new stadium or arena directly impacts local residents, businesses, and government. Here are a few examples:

•Allegiant Stadium, home of the Las Vegas Raiders, opened in 2020 at a cost of $1.9 billion. The domed venue seats 65,000 and offers 70 premium suites and 6,000 club seats. The stadium’s capacity can be expanded to 72,500 for special events like the Super Bowl.

•The City of Columbia, South Carolina, paid approximately $29 million to build Segra Park to bring minor league baseball back to the state’s capital. The $35 million ballpark opened in 2016 and seats 8,000 for baseball games and 14,000 for concerts. The city used revenues from its hospitality tax to pay off bonds used to finance the new stadium’s construction. The Savannah Sand Gnats announced in 2015 that they would relocate to Columbia for the 2016 season. Hardball Capital, the team’s owner and manager of the stadium, contributed approximately $6 million toward construction costs.

•In 2020, the Texas Rangers replaced Globe Life Park, built for $191 million in 2004, with Globe Life Field. The $1.1 billion stadium features a retractable roof, with seating for 40,300 fans. It has 12 suites located behind home plate and an additional 71 long-term suites and 16 party suites.

•Tottenham Hotspur Stadium, which opened in London in 2019, seats 62,303. Home to Tottenham Hotspur Football Club of the English Premier League (EPL), its retractable pitch made it the first purpose-built stadium for the National Football League (NFL) in Europe. The £1 billion ($1.31 billion) venue was privately financed by the club, primarily via a £637 million senior loan from a group of banks that included Bank of America Merrill Lynch, Goldman Sachs, and HSBC. The loan had a maturity date of April 2022. In 2019, the club converted £525 million of the loan into bonds in the US with maturities ranging from 15 to 30 years.

•For the Minnesota Twins, a new stadium meant access to previously unavailable revenue. The Twins shared the Hubert H. Humphrey Metrodome with the Minnesota Vikings. The facility was poorly designed, not only for watching a baseball game but also for generating baseball revenue. The Twins received almost nothing from luxury suite rentals; rather, the money from luxury suite sales went to the Vikings. The City of Minneapolis kept a portion of revenue generated from parking, concessions, and in-stadium advertising. In their new ballpark, Target Field, the Twins have kept almost all revenue, including revenue from naming rights, premium seats, and luxury suites. The average ticket price for a premium seat when the stadium opened was approximately $52 per game. A membership fee of $1,000 to $2,000 was also charged to premium seat ticket holders for access to the exclusive club areas within the stadium (Roberts & Murr, 2008).

•Texas A&M University expanded and renovated Kyle Field, its football stadium, in a $450 million project. More than 20,000 seats were added, bringing the stadium’s capacity to more than 102,000 and making Kyle Field the largest stadium in the Southeastern Conference (SEC).

•SoFi Stadium, home of the Los Angeles Rams and Los Angeles Chargers of the NFL, opened in 2020. The new stadium became the permanent home for the two recently relocated teams. The $5 billion stadium is part of Hollywood Park, a 298-acre sports and entertainment complex built in Inglewood, California. In addition to being the home of two NFL teams, the venue will host the Super Bowl in 2022, the College Football Championship Game in 2023, and the opening and closing ceremonies of the Olympic Games in 2028.

These examples represent the revenue side of constructing new venues—the large price tags of which put them in the news. But what about other financial management issues related to a facility’s construction, for example, how the revenue is shared and how ongoing operating expenses will be met? To consider these issues and how they can impact a community, let’s look at the Indianapolis Colts. Lucas Oil Stadium, the replacement to the RCA Dome, immediately generated new revenue for the Colts after the team moved into its new home; however, none of the new stadium-g...