Terminology
Revenues definition
primary way in which sports teams/organizations raise funds
Expenses definition
money that flows out of an organization, usually incurred to generate revenues
What is finance
How an organization generates the funds that flow into that organization
How these funds get allocated and spent once they are in the organization
Ticket sales, concessions, merchandise sales, media contracts, sponsorship revenues
Expenses examples
Player/coach salaries, uniforms, equipment, player transportation, facility bills
Money organizations typically have that can be used to increase the value of their assets and organization as a whole
Investment expenditures
Profit definition
difference between revenues and expenses, was revenues more than expenses
Debt definition
amount of money an organization borrows (loans)
Example of an investment expenditure decision
Ski Resort
Expand its facilities and add new runs and lifts
Upgrade and modernize existing runs and lifts
Acquire a ski resort in another state to diversify the owner’s assets
Baseball Team
Look into the free agency market and sign a star player
Upgrade the luxury suites in the stadium
Install a state-of-the-art scoreboard in the stadium
Replace existing natural grass with artificial turf
Assets definition
anything an organization owns that can be used to generate future revenues (stadiums, league memberships)
Default definition
if an organization cannot pay off its debts - can force organization into bankruptcy
Organizations use this to calculate the expected dollar value return on each investment option
Return on investment (ROI)
Owner's equity definition
the amount of owner’s own money that they have invested in the organization (often used to purchase an organization’s assets)
Interest definition
fees assessed by banks or lenders when organizations borrow money - they are legally obligated to pay back all borrowed money plus interest
What 2 estimates are calculated for return on investments (ROI).
Calculate the initial cost of each investment option
Estimate the magnitude of the revenues that each investment option will generate