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Chapter 14

Chapter 14. C H A P T E R. 14. Finance and Economics in the Sport Industry. Timothy D. DeSchriver, University of Delaware Daniel F. Mahony, Kent State University. Introduction. Measuring economic size of sport industry Sport contributes a great deal to economies

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Chapter 14

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  1. Chapter 14 C H A P T E R 14 Finance and Economics in the Sport Industry Timothy D. DeSchriver, University of Delaware Daniel F. Mahony, Kent State University

  2. Introduction • Measuring economic size of sport industry • Sport contributes a great deal to economies • Sport industry is not immune to fluctuations in global economy • Unethical and illegal financial behavior • Growth and contraction of the sport industry

  3. Current Financial Situation of U.S. Professional Sport • Growth of segment • Financial problems in segment • Revenue sharing • Media impact and revenue sources • Formula for profitability Profit = Total revenues − Total costs • (In)ability to control spending

  4. Table 14.2

  5. Current Financial Situation in U.S. Collegiate Athletics • Rising costs • Most programs fail to cover their costs • Many athletics departments face difficult financial future • Additional emphasis on the need to increase revenues • Largest single source of revenue in collegiate athletics

  6. Economics of Sport • Scarcity • Economic interaction • Two areas of study • Macroeconomics • Microeconomics

  7. Microeconomics and the Sport Industry • Economic models explain behavior of producers and consumers • Models describe how markets operate • Supply–demand model • Demand and law of demand • Supply and law of supply • Market equilibrium • Market surplus and shortage

  8. Table 14.3

  9. Figure 14.1

  10. Table 14.4

  11. Figure 14.2

  12. Figure 14.3

  13. Economic Impact of Sport Events and Facilities • Sport events bring a substantial amount of economic activity • Spending stimulates local economies • Sport economic impact studies • Estimates of the change in net economic activity in a community • Measure the increase in revenues, tax dollars, and jobs attributable to a sport event or facility (continued)

  14. Economic Impact of Sport Events and Facilities (continued) • Sport economic impact studies • Conducted by researchers • Disagreements and manipulations • Readers should ask these questions: • Who conducted the research? • How was the research conducted?

  15. Overview of Financial Management • Financial management falls into two areas • What to do with current financial resources • How to procure additional financial resources • Financial manager must choose the method for distributing the money • Key roles of the financial manager

  16. Financial Statements • Balance sheet • Income statement • Revenues • Expenses

  17. Sources of Revenues and Expenses for Sport Organizations • Various revenues and expenses depending on the types of sport organizations • Geared toward sport participation • Seeking to make a profit • Focused on sport spectators

  18. Sources of Revenues Unique in the Sport Industry • Game attendance and ancillary purchases • Media rights • Sponsorships and endorsements • Licensed merchandise

  19. Sources of Expenses Unique in the Sport Industry • Cost of sport facilities • Cost of salaries

  20. Careers in Financial Management for Sport Organizations • Financial management jobs in the past • Jobs today require sophisticated financial management skills • Positions in financial operations • Financial consulting firms and professionals • Future employees need to understand skills and education required

  21. Practical Application • Critical thinking in sport finance and economics • Analyzing options, motives, and markets • Compensation of professional athletes • Ethics in sport finance and economics • Madoff, Stanford, and Spano cases • Sport agent representation

  22. Three Review Questions • What does the phrase economic impact mean and how can it be used in sport? • What are the different types of business structures in the sport industry? • What are the major sources of revenues and expenses in the sport industry?

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