Introduction to Finance in Sports Management

The business of sports is one of the largest businesses in the world today. Across the world, there is a wide variety of leagues across different sports that generate a lot of wealth as well as media attention. The turnover of big leagues in different sports runs into billions of dollars annually.

Prominent examples of this exemplary business opportunity include English Premier League for soccer, NBA for basketball as well as Indian Premier League for Cricket.

These sports leagues operate in different parts of the world for different sports. However, they have one thing in common. All of these sports events are able to grab headlines because of the involvement of celebrities as well as the mind-boggling amount of money involved.

Conservative estimates made by Price Waterhouse Cooper in 2015 valued the global sports management industry at $95 billion! It is likely that the industry may have grown manifold since then.

On the one hand, the big numbers such as player auctions and advertisement revenues make headlines whereas, at the same time, other subtle but more important aspects of financial dealings in sports management are not understood either by the layperson or even by financial experts.

This module will make an attempt to delve deep into the nitty-gritty of the financial aspects of sports management.

What Makes Finance in Sports Management Unique?

Why is the financial aspect of sports management different from the financial aspect of any other community? Sports companies also incur expenses, earn revenues, raise debt, and make investments just like other companies. However, there are certain special aspects of sports management that make it more complicated as compared to other businesses.

The issue of finance in sports management is complicated because it encompasses several different domains.

Firstly, it needs to be understood that financial success cannot be achieved in sports management by using financial metrics to drive decision-making. This may be surprising to financial managers in other industries who are used to making financial decisions based on numbers alone. However, when it comes to sports management, a deep understanding of the complexities of the game and experience with how financial decisions influence field outcomes is also required.

The financial aspect of sports management covers almost the entire industry. Some examples which show the breadth and depth of finance in the industry are as follows:

  1. It is important to realize that the financial aspect plays a very important role in talent scouting. The talent scouts who try to source young talent for the team have to understand and adhere to a budget. They also need to understand competitive forces while drafting contracts for players. Talent scouting does not work in a vacuum. Any decision made on the field can be traced back to a budget.

  2. The teams as well as the league itself also have to make a lot of executive decisions when it comes to the financial aspect of sports management. Sports management is an incredibly complex industry.

    The revenue mix of different leagues and teams can vary quite a lot. Also, the sources of funding for different teams and leagues can also be quite different. Hence, it is important for the finance manager to be properly trained and experienced in the field of sports management. Decisions that work in other industries can backfire and cause unintended consequences in the sports management industry.

  3. Also, the accounting for sports management is quite complex. This complexity is because of multiple reasons. Sports management contracts involve revenues and expenses across different time periods and different geographies. The financial aspects of many contracts are related to uncertain external outcomes. We will discuss this complexity in detail later in this module.

  4. A lot of financial management in other industries depends upon the analysis built on empirical data. This is because in other industries most of the large companies are publicly listed. Hence, there is ample data available about the activities of these companies in the public domain. However, this is not the case when it comes to sports management.

    There are a lot of large corporations which operate in the sports management field. However, very few of them are publicly listed. This means that their data and financial information continue to remain private and hence are not available for analysis.

  5. Last, but not the least, the motive of the owner of the sports management company varies quite widely.

    There are some owners who have invested in sports management franchises with the objective of wealth maximization. However, there are some others who just invest in such businesses in order to acquire or maintain their celebrity status.

    There are others who also invest in such organizations in order to ensure the upliftment of the game or even the overall community.

    Hence, even though all companies operate in the same space, their motives are quite different. This also means that their decision-making methodology will also be quite different. Some companies will make decisions purely based on financial data whereas others may be more concerned about other metrics which cannot be measured in financial terms.

The fact of the matter remains that the financial aspect of the sports management industry is not well understood even by most financial experts. In the next few articles, we will educate the reader by explaining the concepts in more detail.

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Sports Management