Financing Sport
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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