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
Chapter 14
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
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
Table 14.2
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
Economics of Sport
• Scarcity
• Economic interaction
• Two areas of study
– Macroeconomics
– Microeconomics
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
Table 14.3
Figure 14.1
Table 14.4
Figure 14.2
Figure 14.3
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)
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?
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
Financial Statements
• Balance sheet
• Income statement
– Revenues
– Expenses
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
Sources of Revenues Unique in the
Sport Industry
• Game attendance and ancillary purchases
• Media rights
• Sponsorships and endorsements
• Licensed merchandise
Sources of Expenses Unique in the
Sport Industry
• Cost of sport facilities
• Cost of salaries
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
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
Three Review Questions
1. What does the phrase economic impact
mean and how can it be used in sport?
2. What are the different types of business
structures in the sport industry?
3. What are the major sources of revenues
and expenses in the sport industry?