coursera sports business course module 1
TRANSCRIPT
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Sports Leagues and Teams I:
Structure and Economics
Prof. Kenneth L. Shropshire
The Global Business of Sports
Module 1.0
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Begin with the end in mind. Stephen Covey, The 7 Habits of Highly
Effective People, Habit #2
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The Global Business of (team)
Sports: 7 Modules
1. Sports Leagues and Teams I: Structure and
Economics
2. Sports Leagues and Teams II: Globalization,
Leadership and Ownership
3. Economic Drivers I: Media Rights
4. Economic Drivers II: Stadiums and Arenas5. Athlete Compensation, Agents and Unions
6. The Olympics and FIFA World Cup
7. Global Success Strategies
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What we will cover Goal: to analyze the multibillion dollar global team sports business
and contemplate: a truly global, successful sports league.
Initial Focus:
1. Module 1:
History and structure of leagues
Leagues and teams: focus on revenues
League models
NFL examples
Revenue and sharing
Manchester United revenues
Valuation
Delivery throughout?:
Multiple segments per lecture (1.1, 1.2, etc.)
check-in quizzes intermittently
Discussion forums throughout
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My Background
Professor, Legal Studies Department,
Wharton School, University of Pennsylvania Director, Wharton Sports Business Initiative
Special Counsel, Duane Morris LLP
Executive, Los Angeles Olympic OrganizingCommittee, 1984 Olympics
Law Degree, Columbia University Economics Degree, Stanford University
(American Football Scholarship)
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Lecture 1.1
History ofSports
Business
CurrentLeagues
LeagueStructures
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The History of Sports Business
Ancient Greek Athletics Cincinnati Red Stockings
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776BC
Athletai of Ancient Greece compete in Ancient Olympic Games
until 393 AD (this was revived in 1896 as the Modern Olympics)
1883 Home Nations (currently the RBS 6 Nations)
1888 The Football League (currently Barclays Premier League)
1903 Tour de France
1963 Fuball-Bundesliga
Timeline: International League Examples
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1869 Cincinnati Red Stockings
1871
National Association of ProfessionalBaseball Players
1876 National League
1901 American League
Timeline: U.S. Leagues
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1917 National Hockey League
1920 National Football League
1937 National Basketball League
1946 - BAA
1949 NBA; merger of NBL/BAA
Timeline: U.S. Leagues
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Beyond Merger
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How did they avoid this fate?
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Global Sports Business Size
Source Size ($ billion) Description
Sports Business Journal
(SBJ)
213 + Size of industry in
2007
A.T. Kearney 480-620 Size of industry in
2011
PricewaterhouseCoopers
(PwC)
145.3 Annual revenue by
2015
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Overview of International Leagues The following are some leagues in the
international scene:
Football:
English Premier League (20 teams); La Liga(20 teams); Bundesliga (18 teams); Serie A (20teams); Ligue 1 (20 teams); Dutch Eredivisie(18 teams); Russian Premier League (16teams); Portuguese Liga (16 teams); ScottishPremier League (12 teams); BrasileiroPetrobras (20 teams) Primera Division de
Argentina (20 teams); Liga MX (18); J. League(18 teams); K-League Classic (14 teams)
Basketball:
Euroleague Basketball (16 teams) + manydomestic leagues
Basketball (16 teams) + many domestic
leagues
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Overview of International LeaguesBaseball:
Nippon Professional Baseball (Japan), 12
teams 2 minor professional leagues: Eastern, 7
teams, Western, 5 teams
Korean Professional Baseball (9 teams)
Plus leagues in Australia (6 teams), Mexico(16 teams), D.R. (6 winter teams + 28 MLB-
affiliated summer teams), Puerto Rico (5teams), China (7 teams), Venezuela (8teams)
Others:
Super rugby (15 teams 5 each from AU,
NZ, SA)
Indian Premier League (9 city teams)
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Overview of Current U.S. Status
Number of teams in Big Four team sports:
32 NFL, 30 NHL/MLB/NBA
NASCAR, WTA, LPGA, PGA, ATP in individual sports
http://en.wikipedia.org/wiki/File:ATP_World_Tour.pnghttp://en.wikipedia.org/wiki/File:PGA_Tour_logo.svghttp://en.wikipedia.org/wiki/File:Ladies_Professional_Golf_Association.svghttp://en.wikipedia.org/wiki/File:WTA_Tour.pnghttp://en.wikipedia.org/wiki/File:NASCAR.svg -
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Plus the following 62 start-up leagues and nichesports: 22 affiliated (17) and independent (5) Baseball
Minor Leagues, 237 teams 11 Basketball Leagues, 141 teams 9 Football Leagues, 81 teams 6 Hockey Leagues, 121 teams 9 Soccer Leagues, 139 teams 3 Lacrosse Leagues, 21 teams
Team Tennis (WTT), 8 teams Softball (NPFL),4 teams 6 Motorsport series 3 Volleyball leagues/tours 3 Golf tours Action sports tours/events, horse racing,
rodeo (PBR, PRCA), fishing, billiards, bowling,boxing, MMA (UFC, Bellator)
Overview of Current U.S. Status
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How to get to the next level?
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Four Successful League Structures
Closed
Open
Superleague
Single-entity
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Overview of Global League Structures
and Revenue Sharing Information
Closed sports leagues as socialist cartels Cooperation across leagues
Higher degree of socialist behavior
(mainly redistribution of wealth)
appears to create stronger leagues
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Overview of Global League Structures
Open, promotion and relegation model
(e.g. EPL) Teams ascend or descend league
hierarchy based on performance
Facilitates competition, but unlikely to
be adopted in US because of $$
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Overview of Global League Structures
Superleague structure, as in Union of
European Football Associations,Champions League
Highly profitable, but decidedly
capitalistic (rich teams get richer)
Media Break: Podcast:
What if your favorite team gets
relegated to the minors?
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Overview of Global League Structures
Single-entity structure, MLS model
Control by a single operating company
protects against reckless behavior especially
in the startup phase
As leagues mature, they move away from
this model
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Recap
Weve discussed the history of the sportsbusiness industry, the emergence of some
leagues, their structures and overall size.
Next well take a look at some of the major
revenue sources and methods of sharing
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Lecture 1.2
Leaguerevenues
EPL &NFL
Teamrevenues
ManchesterUnited Case
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League revenues (U.S. and others)
0
1
2
3
4
5
6
7
8
9
10
Revenue ($bn)
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Global Leagues Revenue Sources
Ticket sales
Sponsorship, licensing andmerchandising
Media (Module 3)
Stadium or Arena Revenues (Module 4)
Case: Green Bay Packers Financials 2012
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Case: Green Bay Packers Financials, 2012
Line Items Figure
Revenues
National Revenue (National TV revenue,
Road-game share, Other national NFL
revenue)
$171.6 M
Local revenue $130.4 M
Total revenue $302.0 M
Expenses
Player Costs $155.4 M
Operating expenses (excl. Play cost above) $103.9 M
Operating profit $42.7 M
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Case: Measuring Financial Success
Amount (
millions_2011)
Total Revenues 13,169
Total Expenses 14,835
Operating Loss 1,666
Financial Success:
Difficult to determine because of data collection and analysis
The simple way to think about it is:
Revenues = Tickets Sales + Broadcast + Sponsors/ Commercial +Stadium related rev. etc.
Expenses = Player Salaries + Operating Exp. + Non-operating exp. +
Transfer costs, etc.
Profits = Revenues - Expenses
Example: European Soccer Leagues
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Case: National Football League (NFL)
In order to understand the revenues and
expenses of this type of business, we willanalyze some of the categories we have
from the Green Bay Packers in more depth
from both a team and league perspective
Sponsorships
Team expenses
Revenue sharing
NFL L S hi 2012
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NFL League Sponsorships, 2012SPONSOR CATEGORY
Gatorade Isotonic Beverage
Pepsi Soft Drink
Anheuser-Busch Official Beer
Papa Johns Official Pizza
Campbells Soup Soup
Dairy Management Inc. Dairy, Milk, Yogurt, Cheese
Quaker Hot Cereal
Mars Snackfood Chocolate & Non-chocolate Confectionery
Frito-Lay Salted Snack/Popcorn/Peanuts/Dips
NFL League Sponsorships 2012
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NFL League Sponsorships, 2012
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Team Structure
Lets take a step back to the team level:
How do teams generate revenues? Where do teams spend?
What makes some teams in some leagues
successful and others not?
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Team Revenues, Expenses and Success?
-Licensing
-Sponsorship/Advertising
-Concessions/Parking
-Ticket sales
National vs. local
-Merchandising
-Revenue sharing model
-Player salaries & development
-Staff compensation
-Team and game related
-General and Admin
-Marketing
-Facility
-Debt Service
-Championship
-Revenues
-Fan base
-Player comm
-Brand Equity:culture
Revenue Sources?
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Revenue Sources? Luxury suites & Club seats
Advertising
Sponsorships
Naming rights
Stadium club
Other game/ non-game related
Local TV and radio
Broadcast/ cable television
Satellite television
League Network
Radio (e.g., satellite, broad
Digital Media (e.g. League
Gate
Club seats
Concessions Novelties and programs
Parking
Merchandise
Consumer products/ licens
Sponsorship
International Postseason gate
Hospitality (e.g. Superbow
Events (e.g. Draft, Kickoff)
Youth
Local National
Individua
l
Corporations
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The Worlds 5 Most Valuable Sports Teams?
Team Value ($ billion) Owner
Manchester United 2.23 Glazer familyReal Madrid 1.88 Club Members
New York Yankees 1.85 Steinbrenner family
Dallas Cowboys 1.85 Jerry Jones
Washington Redskins 1.56 Daniel Snyder
Forbes 2012 Estimates
Relevant news article
Forbes The Worlds 50 Most Valuable Sports Teams
Case: Green Bay Packers Financials, 2012
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y ,
Line Items Figure
Revenues
National Revenue (National TV revenue,
Road-game share, Other national NFL
revenue)
$171.6 M
Local revenue $130.4 M
Total revenue $302.0 M
Expenses
Player Costs $155.4 M
Operating expenses (excl. Play cost above) $103.9 M
Operating profit $42.7 M
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Source
Average Team Revenues, 2010-11
0 50 100 150 200 250
NFL (2010)
MLB (2010)
NBA (2010-11)
NHL (2010-11)
Revenue ($ million)
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Ticket prices compared: U.S. Leagues
League Average Ticket Price ($)Highest ranked (Team
abbreviation - $)
Lowest
abbrevi
NFL 2011 77.36 NYJ-121 CLE-54
MLB 2011 26.91 BoSox-53 PIT-15
NBA 2010-2011 47.66 LAL-95 MEM-23
NHL 2011-2012 57.10 TOR-124 DAL-30
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Recap
We discussed revenue sources,
expenses, and various measures
of success. Next we will focus on
revenue sharing.
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What is Revenue Sharing?
Best overall example is League Thinkwe all do
better together as opposed to separately. But
how this is executed varies across leagues.if it
exists at all
Central Issues in Revenue
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Central Issues in Revenue
Sharing Revenue pool composition
Central revenues (paid directly to league)
Local revenue pools (paid directly to clubs)
Alternative allocation rules used to distribute sharedrevenues
1. Larger allocations to teams with low localrevenue generating capability
o MLB
2. Equal allocation to all teams in league
3. Larger allocation to teams with high revenues or
most winso EPL allocates national television revenues via
a formula that better-performing team on thefield receive the highest allocations, whichincreases the absolute revenue differencesbetween clubs
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Oth L l R ?
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Other Local Revenues?
Other local revenues (luxury box premiums,
local media contracts, local advertising and
sponsorship/signage revenues, naming rights,
etc.) are generally not shared on a line-item
basis in the NBA, NFL, or NHL.
MLB same 34% local calculation noted
When new revenues emerge
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When new revenues emerge
NBA Jersey sponsorships?
Revenue division? Likely to be collectively
bargained by the business
Would be added to basketball-related income
50% of which NBA players would receive as
their salaries
Case: Jerry Jones vs. the NFL
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Case: Jerry Jones vs. the NFL
In 95, Jones entered into local contracts
with Pepsi and Nike, despite the Leagues
deals with competing companies
The NFL sued Jones for $300 million
Jones countersued for $700 million,
claiming the NFL prevented teams
from marketing themselves
Jones and the NFL settled, allowing Jones
and other owners to pursue localsponsorship deals
For example, Coors and Pepsi are the
official beer and soft drink of the
NFL, but individual teams may have
deals with Budweiser and Coke
Goal: Competitive Balance
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Goal: Competitive Balance
More in Module 5
Player allocation draft
free agency
Spending limits
Salary caps
Luxury taxes
Financial Fair Play
Comparison: Team focus in the EPL
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Comparison: Team focus in the EPL
Lets focus on the principal revenues of a top
team in the English Premier League (EPL) Manchester United Sponsor Deals
Case: Manchester United
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Case: Manchester United
Manchester United Sponsor Deals
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p
Man. Utd. Commercial Revenue 2012-13
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Man. Utd. Commercial Revenue, 2012 13Sponsor Category Annual V
Nike Kit supplier
Aon Shirt sponsor
Chevrolet * to be shirt sponsor- 2014 Auto $18.9 (
DHL Logistics
Hublot Timekeeper
Bwin Online game and betting
Singha Beer
Casillero Del Diablo Wine
Thomas Cook TravelSmirnoff Responsible drinking partner
Toshiba Medical Systems Medical
STC Integrated telecomm. (Saudi Arabia)
PCCW Integrated telecomm. (Hong Kong)
Turkish Airlines Airline
Man. Utd. Commercial Revenue, 2012-13
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Sponsor Category Annual ValuEpson Office equipment $2Mister Potato Savory snack $2Yanmar Global $2
TM Integrated telecomm. (Malaysia) $2
Globacom Integrated telecomm. (Nigeria, Ghana, Benin) $2
Viva Kuwait Integrated telecomm. (Kuwait) $2
MTNIntegrated telecomm. (South Africa, Zambia, Rwanda,
Uganda, Swaziland, Botswana)$2
AirtelIntegrated telecomm.
$2(India, Sri Lanka, Seychelles, Bangladesh)
Zong Integrated telecomm. (Pakistan) $2
Globul Integrated telecomm. (Bulgaria) $2
Mamee Noodles (Asia, Oceania, Middle East regions) $2
Viva Integrated telecomm. (Bahrain) $2
Turk Telekom Integrated telecomm. (Turnkey) $2
,
(Turkey)
Case: Valuation?
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Los Angeles Dodgers and Manchester Un$2.15 billion: purchase price $3.09 billion: mark
Purchased by group of investors led
by Magic Johnson under Guggenheim
Baseball Management
Potential Regional Sports Network like
Yankees (YES Network) Real Estate development
Glazer family took compan
2005 with an LBO of $1.47
now done an IPO on NYSE
Raised $100 million which
compared to the likes of Fawhich raised $16 billion on
Media Break: News Article
Manchester Utd IPO
Dodgers Acquisition: Magic Johnson and Stan Kasten (CEO Guggenheim) spe
Dodgers Stadium
Recap
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Recap
Weve analyzed the revenuesources of leagues and teams, had
our initial focus on how revenues
are shared drawing examples from
the U.S. and Europe
For more information
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For more information
A few interesting documents*:
Bundesliga Report 2013
Financial analysis of the league and its successes
PwC: Changing the game. Outlook for the global sports
market to 2015
Brand Finance: The worlds most valuable football brands
2013
W.R. Hambrecht & Co Professional Sports Market and
Franchise Value report
* Reports available in PDF form on the course site
For more information
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For more information
Relevant news articles
Premier League finances: the full club-by-clubbreakdown and verdict
'The lowest of lows': Wigan's relegation after
years of escapes "heartbreaking" says boss
Martinez
For more information
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For more information
Relevant video clips
Top 20 Richest Football Clubs in Europe Forbes The Worlds 50 Most Valuable Sports
Teams
NFL and the Superbowl Revenues
Manchester Utd IPO
Dodgers Acquisition: Magic Johnson and StanKasten (CEO Guggenheim) speak at Dodgers
Stadium
Inside Sports TV Deals and overall revenues for
2012 forecasts
For more information
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Textbook Reading (recommended)
For more information
The Business of Sports Chapters 2, 3 and 6
Next Module
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Next Module
Continue our examination of
teams and leagues focusing onglobal popularity and presence (as
opposed to revenues), leadership
and ownership. Also continuing
the bigger question regarding
achieving success globally.