Chapter 2
Sports and Entertainment
Means Business
2.1 Sports and Entertainment
Economics
2.2 Risk Management
2.3 Business Ethics
2.4 Financial Analysis
Sports and Entertainment Marketing
© Thomson/South-Western
Winning Strategies
EMI
 one of the largest music content providers
 cost savings achieved through outsourcing
of manufacturing
 in 2005, income grew due to legitimate
sales of digital music
 the music industry embraces ever-changing
technology and helps drive the economy
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Lesson 2.1
Sports and Entertainment
Economics
Goals
 Define profit and explain the profit
motive.
 Describe types of economic utility.
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Terms
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profit
profit motive
economics
economic utility
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THE PROFIT MAKERS
 profit
 the amount of money remaining from
revenues after all expenses are paid
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 revenue
 the money a business receives from the
sales of goods and services
 profit motive
 making decisions to use resources in ways
that result in the greatest profit
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Cultural Opportunities for
Profits
 Worldwide distribution revenue is
critical for movie profits.
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 Marketers must understand the markets
in which sales occur.
 China has a tremendous movie market.
 the government censors movies for
content
 pirated movies diminish theater sales
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 In addition to U.S. ticket sales, name two
other large sources of revenue for U.S.
film studios.
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ECONOMICS
 economics
 the study of how goods and services are
produced, distributed, and consumed
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 macroeconomics
 the study of the economics of the entire
society
 microeconomics
 the study of the relationships between
individual consumers and producers
 Sports and entertainment marketers are
focused on microeconomics.
 relationships with consumers
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Sports and Entertainment
Economics
 economic utility
 the amount of satisfaction a person
receives from the consumption of a
particular product or service
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Types of Utility
 form utility
 when the physical characteristics of a product or
service are improved
 time utility
 making the product or service available when the
customer wants it
 place utility
 the product is available where it is wanted
 possession utility
 the product or service is available at an affordable
price
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 List four types of economic utility.
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Lesson 2.2
Risk Management
Goals
 Define risk and describe the categories
and classifications of risk.
 Name and describe four strategies for
risk management.
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Terms
 risk
 risk management
 liable
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RISKING IT ALL
 risk
 the possibility of financial gain or loss or
personal injury
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Categories of Risk
 natural risk
 occurs from unavoidable weather
conditions
 human risk
 dishonest customers and employees
 inadequately trained employees
 economic risk
 occurs due to changes in the economy
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Additional Classification of
Risk
 gain or loss risk
 speculative risk
 either a gain or loss could result
 pure risk
 a chance of an event occurring that could only
result in a loss
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 controllable risk
 if a loss can be prevented or the likelihood
of its occurrence reduced
 uncontrollable risk
 nothing can be done to prevent the risk
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 insurable risk
 a pure risk for which the chances of loss
are predictable and the amount of the loss
can be estimated
 uninsurable risk
 the chance that a dollar loss could occur
 the amount of the loss cannot be
estimated
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 What is meant by a controllable risk?
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MANAGING RISK
 risk management
 preventing, reducing, or lessening the
negative impacts of risk by using the
strategies of risk avoidance, risk insurance,
risk transfer, and/or risk retention
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Risk Avoidance
 Sports and entertainment marketers
need to plan to avoid risky situations.
 liable
 the business is legally responsible for
damages that occur
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Risk Insurance
 risk insurance
 pays for predictable losses
 premium
 cost of insurance
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Risk Transfer
 Some risks can be transferred to
another company or even to the
consumer.
 contracting with third parties for services
 including releases from liability on event
tickets
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Risk Retention
 risk retention
 assuming the cost of an uninsurable risk
 risk retention groups
 similar businesses facing similar risks pool
resources
 resources are distributed to members that
have a loss
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 Briefly describe four strategies for
managing risk.
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Lesson 2.3
Business Ethics
Goals
 Define ethics.
 Discuss the impacts of unethical
behavior.
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Terms
 ethics
 principles
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DO ETHICS COUNT?
 ethics
 a system of deciding what is right or wrong
in a reasoned and impartial manner
 Business should be conducted with
integrity, trust, and fairness.
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Ethics and Character Matter
 principles
 high standards of rules and guidelines
 character development
 a progression in behavior where people
advance from childish behavior to mature
behavior based on principles
 Young people need good role models.
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 How does a person’s character develop?
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Character Development
 Young Child – Bad Behavior =
Punishment, Good Behavior = Reward
 As we mature others expectations
begin to influence or decisions
 More difficult today for Children to
develop character – Lack of good role
models
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BUSINESS BEHAVIOR
 People and businesses should act
ethically while pursuing a profit.
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Seeking an Advantage
 Sometimes it is hard to continue to act
ethically when you observe people
who receive a benefit from acting
unethically.
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When Being Bad Profits
 Only fans can really influence the
behavior of ethically challenged
athletes and celebrities.
 Leagues issue fines to players to help
curb unethical behavior
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Effective and Ethical
 Good decisions are both ethical and
effective.
 Good decisions are the right choices for
the long term.
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 How can the bad behavior of celebrities
be controlled?
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Ethical Athletes
 NBA Lockout 1998
 Hakeem Olajuwon – Credited with saving
the season
 Billy Hunter – PA Negotiator
 Shaquille O’Neal & Jayson Williams
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Ethics and Profits
 “Everybody is doing it” – Does not
improve marketability of a product
 Unethical behavior can undo the best
marketing plans
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Lesson 2.4
Financial Analysis
Goals
 Discuss sources of funding and
revenue for sports and entertainment
businesses.
 Describe four tools for financial
analysis.
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Terms
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return on investment
forecast
budget
balance sheet
income statement
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IT TAKES MONEY
 Profit is the primary purpose of sports
and entertainment marketing.
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Finding Funding
 Investors generally provide the funding
for an event to cover all the costs that
must be incurred before tickets are ever
sold.
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 return on investment
 the income from a venture that is
distributed to investors
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Money Sources
 Funds to repay investors are raised
through
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ticket sales
broadcast rights
licensing
facilities
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 Name three sources of revenue from
sports and entertainment.
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WHERE IS THE MONEY?
 forecast
 a plan that predicts the expenses to be
incurred and the revenues to be received
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BUDGETS
 budget
 a plan for how available funds will be spent
 The purpose of a budget is to control
costs so they do not exceed the funds
available.
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Financial Statements
 balance sheet
 net worth = assets – liabilities
 shows net worth at a specific point in time
 income statement
 shows revenues and expenses for a
specific period of time
 reveals company’s profit or loss
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 What is the purpose of a forecast?
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PERFORMANCE INDICATORS
EVALUATED
 Communicate pricing strategies for supply
and demand.
 Analyze relevant data to determine varying
ticket prices for home games.
 Explain the need for and use of additional
revenue from higher-priced tickets.
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 Demonstrate knowledge of appropriate
pricing strategies.
 Explain the benefits of increased revenue
for consumers of foot-ball tickets.
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Did you know…
 G and PG rated movies sell more
tickets than R movies?
 Using younger up and coming actors
can be a good money-making asset for
filmmakers?
 Salaries, Advertising, etc…
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THINK CRITICALLY
1. Why have an increasing number of
universities varied ticket prices to games
based upon the opponent?
2. Why must universities consider the consumer
before raising ticket prices?
3. If games become to expensive to attend,
what other options do consumers have to
watch the games?
4. How much revenue would be generated from
the seven games if ticket prices were $40 all
season long?
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