Financing Sport eBook

Third Edition
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The new edition of Financing Sport further solidifies its standing as the most authoritative text on sport finance. Authors Dennis R. Howard and John L. Crompton have completely reorganized and revised this popular textbook in FiT's Sport Management Library.

This edition provides detailed coverage of the current financial issues and challenges facing managers in professional, collegiate, and non-profit sport agencies. Expert practitioners also provide content in key areas such as ticket sales, licensing, and media sales.

Contents

Acknowledgments  •  xvii Introduction  •  1

SECTION I: SPORT FINANCE TRENDS AND CHALLENGES

Chapter 1...... •  Operating in the New Economic Reality............................. 21

Chapter 2...... •  Challenges Facing College Sports........................................ 49

Chapter 3...... •  Challenges Facing Professional Sports.................................. 79

Chapter 4...... •  Trends in Sport Facility Financing..................................... 131

SECTION II: ECONOMIC RATIONALES FOR PUBLIC INVESTMENTS IN SPORT VENUES AND EVENTS

Chapter 5...... •  Principles of Economic Impact Analysis............................ 183

Chapter 6...... •  Costs: The Rest of the Economic Impact Story                   235

Chapter 7    •   Alternate Justifications for Public Subsidy:

Structural Capital............................................................. 267

Chapter 8    •   Alternate Justifications for Public Subsidy:

Social Capital................................................................... 287

SECTION III: PRIMARY SOURCES OF CAPITAL FUNDING

Chapter 9...... •  Sources of Public Sector Funding...................................... 329

Chapter 10  •  Implementation of Public-Private Partnerships                   391

SECTION IV: REVENUE FROM ENTERPRISE SOURCES

Chapter 11  •  Revenue Sources From Sports Venues................................ 447

Chapter 12 •  Ticket Sales and Operation............................................... 499

by Gregg Olson

Chapter 13 •  Commercializing Media Rights......................................... 525

by Lee H. Berke

Chapter 14 •  The Sale of Licensed Merchandise..................................... 557

by Rick Van Brimmer

Index  •  585

About the Authors  •  601

Detailed Contents

INTRODUCTION......................................................................................... 1

The Boom Years: The 1990s and Early Millennium Years.................................. 1

The Great Recession......................................................................................... 5

Grim Consequences for Many American Families........................................... 6

Still Digging Out......................................................................................... 7

Sports: No Longer Recession Proof.................................................................... 8

Looking Ahead................................................................................................ 13

Organization of the Book................................................................................ 13

References...................................................................................................... 16

CHAPTER 1: Operating in the New Economic Reality................................. 21

Introduction................................................................................................... 21

Operating in a New Economic Reality............................................................. 22

Ferocious Competition for Consumers’ Time and Money................................. 24

The Impact of Television on Live Attendance.................................................... 25

TV Ratings Up, Attendance Down.............................................................. 28

Emergence of Regional Sports Networks...................................................... 28

TV’s Complex Relationship with Sport........................................................ 29

Cutting Through the Clutter.......................................................................... 30

Growing Dependence on Affluent Households: $100k and Up......................... 31

Thinning Fan Base..................................................................................... 32

Can’t go Back to the “Good Old Days”............................................................. 33

Doing More With Less................................................................................... 34

The Emergence of Mixed Martial Arts............................................................. 35

Globalization.................................................................................................. 40

Summary....................................................................................................... 46

References...................................................................................................... 47

CHAPTER 2: Challenges Facing College Sports............................................. 49

The Financial Status of Intercollegiate Atheltics............................................... 49

The Organization of College Sports............................................................. 49

Participation Patterns for Men and Women................................................. 52

Grim Financial Realities.................................................................................. 55

The Cost Control Struggle.......................................................................... 64

Television to the Rescue.............................................................................. 69

The Impact of Title IX.................................................................................... 71

Summary....................................................................................................... 73

References...................................................................................................... 76

CHAPTER 3: Challenges Facing Professional Sports................................... 79

Growth of Professional Sports.......................................................................... 79

Major Leagues............................................................................................. 79

Minor Leagues............................................................................................ 81

The Status of Women’s Professional Sports Leagues........................................ 86

Other Successful Sports Properties............................................................... 90

The Economic Reality of Professional Sports..................................................... 91

Team Financial Statements........................................................................... 93

Controlling Player Costs.............................................................................. 98

National Football League....................................................................... 101

National Basketball Association.............................................................. 104

Major League Baseball............................................................................ 111

National Hockey League........................................................................ 114

Creative Accounting....................................................................................... 116

Roster Depreciation Allowance................................................................... 117

Franchise Appreciation................................................................................... 119

Drivers of Franchise Values............................................................................ 121

Summary...................................................................................................... 126

References..................................................................................................... 128

CHAPTER 4: Trends in Sport Facility Financing....................................... 131

The Sports Facility Boom.............................................................................. 131

Measurement Challenges........................................................................... 134

Description of the Trend Tables.................................................................. 137

The Evolution of Facility Funding............................................................. 140

Who Pays and How Much?............................................................................ 148

Cost Sharing Trends for Arenas............................................................... 148

Cost Sharing Trends for Stadiums........................................................... 150

Factors Contributing to Increased Team/

Owner Investment in Major League Facilities..................................... 153

The Equity Issue....................................................................................... 156

Factors Contributing to Continuing Public Subsidies...................................... 160

Owner Leverage......................................................................................... 161

The Community Power Structure.............................................................. 165

The Shift From General to Selective Taxes.................................................. 172

The Rational for Public Subsidy..................................................................... 172

Trends in the Minor Leagues.......................................................................... 174

Trend in Colleges.......................................................................................... 175

Summary...................................................................................................... 177

References..................................................................................................... 179

CHAPTER 5: Principles of Economic Impact Analysis................................ 183

The Rationale for Economic Impact Analysis................................................. 184

A Study’s Sponsors Expect to Get What They Pay For.................................... 187

The Fundamental Principles of Economic Impact Studies............................... 190

Accurate Participation Numbers................................................................ 192

Exclusion of Local Residents and Local Sources of Funds............................ 192

Spurious Rationales.................................................................................. 196

Two Caveats.............................................................................................. 198

Exclusion of Time Switchers and Casuals................................................... 200

Use and Abuse of Multipliers........................................................................ 202

The Multiplier Concept............................................................................ 204

Constituent Elements of a Multiplier........................................................ 206

Operationalization of the Multiplier.......................................................... 207

Influence of a Community’s Size and Business Structure on Multipliers...... 208

Interpreting Sales and Income Multipliers.................................................. 211

Interpreting Employment Multipliers....................................................... 213

Illustrations of the Implications of Abusing

the Fundamental Principles of Economic Impact Analysis................... 215

Mischievously Expanding the Project Scope................................................... 222

The Magnitude of Economic Impact From Sport Projects............................... 223

Professional Sport Franchises..................................................................... 223

Mega Sports Events.................................................................................. 227

Community Sports Tournaments............................................................... 229

Summary..................................................................................................... 230

References.................................................................................................... 232

CHAPTER 6: Costs: The Rest of the Economic Impact Story.................... 235

Costs: The Rest of the Ecomic Story............................................................. 235

Society-Wide Costs....................................................................................... 238

Strategic Underestimation of Capital Costs

and Overestimation of Revenue Streams............................................. 240

Omission of Interest Costs............................................................................ 241

Land and Infrastructure Costs....................................................................... 242

Forgone Property Taxes................................................................................. 244

Operation and Maintenance Costs................................................................. 245

Event Costs.................................................................................................. 247

Displacement Costs...................................................................................... 250

Leavers..................................................................................................... 251

Avoiders................................................................................................... 252

Place Switchers......................................................................................... 254

Replacement Costs................................................................................... 255

Opportunity Costs....................................................................................... 256

Distribution Issues................................................................................... 260

Summary..................................................................................................... 261

References.................................................................................................... 263

CHAPTER 7: Alternate Justifications for Public Subsidy:

Structural Capital.................................................................................... 267

Introduction................................................................................................. 267

The Concept of Structural Capital................................................................. 268

The Principle of Cumulative Attraction......................................................... 270

Clostering.................................................................................................... 274

Rejunation Through Mega Events................................................................. 276

Integration: A Key to Effective Rejuvention.................................................... 280

The Conflicting Goals of Public and Private Interests................................. 282

Summary..................................................................................................... 284

References.................................................................................................... 285

CHAPTER 8: The Alternate Justifications for Public Subsidy:

Social Capital.......................................................................................... 287

Social Capital............................................................................................... 287

Enhancing a Community’s Brand Equity....................................................... 287

Awareness................................................................................................. 287

Image....................................................................................................... 289

The Role of Major League Status in Image Creation................................... 291

Competency and Excellence Transfer.......................................................... 293

The Mediating Role of the Media............................................................. 296

Attracting Businesses.................................................................................... 298

Attraction From Increased Awareness......................................................... 298

Attracting Talent....................................................................................... 298

Facilitated Networking at Sport Facilities................................................... 299

Facilitated Networking at Mega Events...................................................... 300

Attracting Tourists........................................................................................ 301

Community Pride......................................................................................... 303

Social Cohesion............................................................................................ 309

Measuring Social Capital Benefits.................................................................. 312

The Contingent Valuation Method........................................................... 314

Results From CVM Studies....................................................................... 315

Direct Payment: An Alternate Approach to Paying for Social Capital........... 319

Summary..................................................................................................... 320

References.................................................................................................... 323

CHAPTER 9: Sources of Public Sector Funding.......................................... 329

General Taxes............................................................................................... 330

General Property Tax............................................................................................................ 330

General Sales Tax.................................................................................................................... 337

Selective Taxes.............................................................................................. 338

Tourist Taxes............................................................................................. 339

Sin Taxes.................................................................................................. 340

Jersey Tax.................................................................................................................................. 342

Player Income Tax.................................................................................................................. 342

Ticket Surcharges..................................................................................... 345

Debt Financing............................................................................................ 346

The Use of Tax-exempt Bonds................................................................... 349

Full-faith and Credit Obligations.............................................................. 356

General Obligation Bonds..................................................................... 356

Conducting a Bond Campaign.............................................................. 358

Certificates of Obligation...................................................................... 361

Nonguaranteed Debt................................................................................ 361

Revenue Bonds..................................................................................... 362

Certificates of Participation................................................................... 367

The Public Trust Model........................................................................ 369

The Public-Private Partnership Model................................................... 370

Tax Increment Financing (TIF) Bonds................................................... 370

Taxable Private Activity Bonds............................................................... 379

Asset-backed Revenue Bonds................................................................. 380

Mechanics of Selling Bonds........................................................................... 383

Bond Ratings........................................................................................... 383

Financial and Legal Advisors...................................................................... 385

Summary..................................................................................................... 386

References.................................................................................................... 389

CHAPTER 10: Implementation of Public-Private Partnerships.................. 391

Introduction................................................................................................. 391

Challenges in Facilitating Public Private Partnerships..................................... 391

Reconciling Value Systems........................................................................ 392

The Unfair Competition Issue................................................................... 395

Legal Principles Relating to Unfair Competition by the Public Sector..... 400

Legal Principles Relating to Unfair Competition

by Nonprofit Organizations.............................................................. 401

The Complementary Assets of Public Agencies

and Private Sports Enterprises........................................................... 405

Public Sector Assets.................................................................................. 406

Land Bank............................................................................................ 406

Low-cost Capital................................................................................... 410

Tax Waivers........................................................................................... 411

Control Over Permit and Zoning Processes............................................. 411

Private Sector Assets.................................................................................. 414

Management Expertise.......................................................................... 414

Reduced Labor Costs............................................................................ 418

Adaptability to Scale of Service.............................................................. 419

Reduced Liability Risks........................................................................ 420

Public-Private Partnership Models................................................................. 421

Public Sector Leasing................................................................................ 421

Leaseback From the Private Sector............................................................. 423

Public Sector Takeovers............................................................................. 429

Private-sector Takeovers............................................................................. 430

Private-sector Pump Priming..................................................................... 431

Expansion of Existing Public Facilities....................................................... 433

Multiparty Arrangements.......................................................................... 435

Summary..................................................................................................... 440

References.................................................................................................... 442

CHAPTER 11: Revenue Sources From Sports Venues................................. 447

Introduction................................................................................................. 447

Premium Seating.......................................................................................... 448

High-yield Inventory................................................................................ 450

Illustrations of the Most Recent Premium Seating Options......................... 453

Challenges in Premium Seating................................................................. 458

Person Seating Licenses (PSLS)...................................................................... 462

The Growth and Magnitude of Seat License Programs................................ 462

How PSLs Work....................................................................................... 465

Naming Rights............................................................................................. 470

Professional Sports Venues........................................................................ 470

The Growing Value of Naming Rights Agreements.................................... 471

Challenges Ahead..................................................................................... 475

Shirt and Team Naming Rights.................................................................. 479

College Sports Venue Naming Rights........................................................ 482

High School Venue Naming Rights........................................................... 485

Why Companies Buy Naming Rights........................................................ 485

The Potential for Controversy.................................................................... 488

Key Elements of Naming Rights Agreements............................................. 489

Method of Payment.............................................................................. 490

Length of Agreement............................................................................ 492

The Impact of Naming Rights’ Partner Failings......................................... 493

Summary..................................................................................................... 494

References.................................................................................................... 497

CHAPTER 12: Ticket Sales and Operation................................................. 499

Introduction................................................................................................. 499

The Challenge.............................................................................................. 501

The Evoulution of Ticketing......................................................................... 502

Ticketing Moves Into the Electronics Age...................................................... 505

Ticket Sales Department Organization.......................................................... 509

The Ticket Sales Process................................................................................. 511

Season Tickets........................................................................................... 511

Mini-season Ticket Plans........................................................................... 512

Group Tickets.......................................................................................... 514

Single Tickets........................................................................................... 515

Pricing Tactics: Moving From Cost Recovery to Demand-Oriented Focus........ 516

Ticket Services.............................................................................................. 521

The Sales Escaltor......................................................................................... 521

Customer Relationship Management............................................................. 522

Summary..................................................................................................... 523

References.................................................................................................... 524

CHAPTER 13: Commercializing Media Rights............................................ 525

Introduction................................................................................................. 525

The Business of Television and Media............................................................ 527

Television Ratings and Shares.................................................................... 528

Total Return............................................................................................. 532

Sports Media Outlet..................................................................................... 533

National Broadcast and Cable Networks.................................................... 533

Regional Sports Networks......................................................................... 535

Digital Media: Broadband, Wireless, and Tablets....................................... 537

Syndicators............................................................................................... 539

Local Television and Radio........................................................................ 539

Marketing and Managing Broadcast Rights.................................................... 540

Direct Sales of Rights................................................................................ 541

In-house Production................................................................................. 542

Revenue Sharing....................................................................................... 543

Sports Television and Media Contracts........................................................... 545

National Football League.......................................................................... 545

Major League Baseball.............................................................................. 546

National Basketball Association................................................................. 547

National Hockey League........................................................................... 548

NASCAR................................................................................................. 548

National Collegiate Athletic Association...................................................549

The Olympic Games................................................................................ 550

Gold and Tennis....................................................................................... 552

Boxing and Mixed Martial Arts................................................................. 552

International Sports.................................................................................. 553

Summary..................................................................................................... 553

References.................................................................................................... 555

CHAPTER 14: The Sale of Licensed Merchandise...................................557

Introduction................................................................................................. 557

Licensing Basics........................................................................................ 559

The Licensing Process............................................................................... 561

Collegiate Licensing...................................................................................... 562

Professional Sports League Licensing...........................................................563

Licensing Administration Models.................................................................. 566

Professional Leagues.................................................................................. 566

Collegiate Licensing.................................................................................. 566

Agency Representation.......................................................................... 566

In-house Management.......................................................................... 567

Choosing a Model................................................................................ 567

Administration and Oversight................................................................... 568

Contracts.................................................................................................... 570

Enforcement...............................................................................................570

Labeling................................................................................................... 572

Customs................................................................................................... 572

Retail v. Swap Meet.................................................................................. 572

Online Counterfeiting.............................................................................. 573

Corporate Social Responsibility..................................................................... 573

Growth and Trends....................................................................................... 574

Summary..................................................................................................... 576

References.................................................................................................... 577

APPENDIX: Sample Provisions of a License Agreement........................578

Consideration............................................................................................... 578

Audit........................................................................................................... 579

Marketing.................................................................................................... 580

Approval of Products and Promotional Materials........................................580

Termination................................................................................................. 581

Infringements............................................................................................... 583

Indemnification............................................................................................ 583

Insurance..................................................................................................... 583