writing

MSA 643

Sport Finance and Budgeting Belhaven University

Unit 2

Basic Financial Concepts

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 This unit will assist the student to understand

where revenue comes from for sport enterprises.

 Additionally, this unit will distinguish between

revenue and expenses, while understanding the

objectives of an accounting system

 Lastly, this unit will provide literature that will

assist the student to understand the difference

between cash and accrual accounting systems.

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Introduction

 Basic Financial Concepts

 Revenues and Expenses

 Overview of Accounting Concepts

 Economic Versus Financial Analysis

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Topics

 Appreciate all the various expenses that affect a

sport enterprise.

 Describe the difference between finance and

accounting.

 Understand the basics of T-accounts and general

data-entry techniques.

 Explain the need for accuracy in accounting and

financial data.

 Explain the importance of audited financial

statements.

 Appreciate the difference between sport finance and

sport economics.

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Objectives

 Scriptures: Luke 14:28-29, 1 Timothy 6:9-10, &

James 4:13-21

 In relation to this unit’s title: basic financial concepts, this

biblical applications will analyze the importance of

financial planning, and how negative usage can lead to

senseless and harmful desires, such as bankruptcy.

 These selected passages will also enlighten the student

about arrogant boasting about financial profit that could

be categorized as evil doing. This lecture should make

the individual aware of the importance of having faith,

and how faith can benefit your finances over a long

period of time.

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Biblical Foundation

 Understanding revenue and expenses is

critical because a sports organization will

constantly work to balance its revenue and

expenses to keep operating. If revenues

decline, the sports organization will have to

either find new revenue sources or slash

expenditures.

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Revenues and Expenses

 Expenses were outpacing revenues by such a large

amount in the 1990s that some schools started charging

students for each sport they played; canceling busing to

road games; and eliminating sports such as golf, water

polo, and junior varsity sports.

 By 2011 a large number of high school athletic programs

had been cut, their funding was significantly curtailed, or

parents were asked to contribute an even greater

percentage.

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Impact on Sports

Impact on Sports, cont.

 In 2009, only 14 of the 106 schools in the

National Collegiate Athletic Association’s (NCAA’s) top division (Football Bowl Series, FBS) made money, and the median loss was

$10 million.

 In professional and collegiate sports, revenues

are primarily derived from ticket sales,

broadcasting rights, or both, while the primary

expenses are salaries and benefits.

Revenues and Expenses in a High

School Athletic Program

Revenues Expenses

Local taxes Uniform and equipment costs

Tax subsidies Travel and lodging costs

Participation fees Insurance costs

Donations Umpire costs

Booster clubs Salaries and benefits

Concession revenue Advertising expenses

Advertising revenue Utility costs

Fund-raising efforts Facility costs

Sources of Revenue in Sports

 Traditional sources include ticket sales, concession

sales, broadcast revenue, and sponsorship sales.

 Less traditionally known sources of revenue can

include student fees, selling players, high schools

selling licensed goods, and selling all-you-can-eat

opportunities at the ball park.

 Student fees at 222 Division I public schools totaled $795 million

for the 2008-2009 academic year.

 In 2012, Rutgers University used nearly $27 million in university

and student fees to balance its athletic budget ($64 million in

expenses and revenue of only $37 million), and the budget

required over $115 million in assistance from the university from

2006 through 2010.

Expenses in Sports

 Coaching contracts, electrical bills, travel

expenses, equipment costs, and numerous

other expenses occur on a regular basis.

 Because of their predictability, expenses can be

monitored and, when feasible, reduced.

 Actions to reduce expenses include terminating

coaches, reducing coaching contracts (from 12 month

to 10 months), limiting facility usage hours, reducing

travel costs, and eliminating paper usage

Expenses in Sports, cont.

 Player costs are the primary expense for

professional teams.

 Player costs have increased 11% a year from

2006 through 2010, while revenue has increased

only 5.5% annually.

Accounting Concepts

 Accounting is the processing of revenue and expense

numbers to develop appropriate reporting procedures

from which financial decisions are made.

 The objective of accounting for any organization is to

provide information for the following purposes:  Making decisions about the use of limited resources,

including the identification of crucial decision areas and

determination of objectives and goals

 Effectively directing and controlling an organization’s human and material resources

 Maintaining and reporting on the custodianship of

resources

 Contributing to the overall effectiveness of the organization

Accounting Concepts, cont.

 Financial accounting focuses more on tracking

numbers, while managerial accounting focuses

on evaluating whether the organization is

reaching harder-to-measure objectives.

 Managerial accounting is the process for

developing financial forecasts, tracking various

inputs and outputs, and monitoring various

budgets and costing models.

Accounting Concepts, cont.

 Managerial accounting provides economic

and financial information for managers and

includes activities such as the following:  Explaining manufacturing and nonmanufacturing costs

and how they should be reported on financial

statements

 Understanding and evaluating how well an

organization is utilizing its resources

 Creating a means to evaluate actual results compared

with projected results

Accounting Concepts, cont.

 A new approach to managerial accounting is the

balanced scorecard approach, which examines

financial metrics, customer perspective, internal

perspective (employees and culture), and

learning and growth (employee training).  Examines numerical and subjective criteria to

better demonstrate how an organization is doing.

 Balanced scorecard can help a business

understand that every action has an impact.

Accounting Concepts, cont.

 12 objectives for a sports organization’s accounting system:

1. The data should be collected to help plan for the

program’s future.

2. The financial records must be kept in an orderly manner.

3. An orderly and professional accounting method must be

implemented to track authorized expenditures.

4. Appropriate forms must be prepared to help standardize

and create a definite paper trail for receipts and

expenditures.

Accounting Concepts, cont. 5. A system or process needs to be developed and

implemented to coordinate the receipt of goods and

services and to ensure that all such goods and

services meet required standards before any final

payments on the goods or services are made.

6. Transactions need to be documented in such a way

that an independent auditor can examine the

transactions and determine to whom money was

paid and for what purpose.

7. Revenue must be tracked to determine if fiscal

obligations can be paid. Tracking should determine

what funds were obtained, from whom, and for what

purpose.

Accounting Concepts, cont.

8. Special funds need to be accounted for in a

separate accounting manner to track such items

as planned giving and major gifts, which are

nontraditional revenue sources.

9. All information documented through the

accounting process needs to be prepared in

such a way that an external reviewer can

adequately audit all accounts.

10. Any accounting system must be adequate to

meet the organization’s needs, with special consideration for size and complexity.

Accounting Concepts, cont.

11. Any accounting system must meet all state,

federal, regional, and association standards

and guidelines.

12. Any accounting system must provide the

opportunity to critically analyze management

decisions and produce appropriate reports to

evaluate past managerial decisions and pave

the way for future decisions.

Accounting Concepts, cont.

 Accountants have developed the T-system to document

monetary transactions.

 Entries made on the right side of the T are credits, and

entries on the left side of the T are debits.

 Corporate assets are listed on the left side (debits), and

liabilities and owners’ equity are listed on the right side (credits).

Debit Credit

Financial Analysis vs. Economics

 Economics is the study of social, governmental,

and numerous other factors that can influence

the financial state of the sport industry.

 Financial analysts might calculate that by raising ticket

prices $1.00 in a given year, a team might be able to

generate an additional $800,000 in revenue.

 Economists, however, might look at the same price

increase and explore the cost–benefit impact of such

an action and whether the law of diminishing return

would indicate that the increased ticket prices might

discourage some buyers from purchasing tickets and

can in fact reduce future income.

Questions for Class Discussion

 DQ1: In the world of sports (regardless of level) balancing

revenue and expenses is critical to the success of the

department. Within the level of sports you represent, or wish to go

into, explain in detail what some of your department's major

expenses and revenues would be? What does God teach us

about money and how would those teachings apply to this

discussion topic?

 DQ2: Proper management and leadership are key when dealing

with finances in sports. Explain the difference between the two

and how they will apply to the financial structure of your sports

organization.

 Requirements: 250 words minimum initial post, 100 words minimum

reply

 Revenue: Money coming into a sport (e.g.,

ticket sales, broadcast contracts, concession

sales, or sponsorship agreements).

 Expenses: Costs that are incurred (e.g.,

player salaries, equipment, travel, executive

salaries, and other expenses ranging from

rent to insurance premiums).

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Unit Recap: Key Terms

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References

 Required Textbook:

Fried, G., DeSchriver, T. D., & Mondello, M. (2020). Sport Finance (4th ed.). Champaign, IL: Human Kinetics.

 Article Listed for Unit 2:

Diedrich, C. (2007). Homefield Economics: The Public

Financing of Stadiums. Policy Matters. 4(2). 22-27.

Retrieved from

http://policymatters.net/issue/PolicyMatters_Spring_

2007.pdf