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OFF THE PRESS

Journal of Sport Management, 2012, 27, 84-85 © 2012 Hunaan Kinetics, Inc.

Sports Finance and Management: Real Estate, Entertainment, and the Remaking of the Business (1st Ed.)

By Jason A. Winfree and Mark S. Rosentraub. Published in 2012 by Taylor & Francis Group, Boca Raton, FL. (481 pp., $69.95).

Reviewed by Jason D. Reese, PhD, Assistant Professor, University of Mary Hardin-Baylor

How has the business of sport changed over the last two decades? The answer to this question is somewhat obvious; a lot! However, when researchers and practi- tioners take a closer look at these changes, they realize the changes vary based on the discipline within spori business. Sport Finance and Management takes a closer look at the changes affecting tbe financial aspect of spori business. It is an excellent comprehensive text that focuses on topics such as the financing of sport facilities, ownership stmctures, pricing strategies, investments, and more. This book differs from most spori finance texts due to its underlying theme: sport, entertainment, and real estate development. As we have seen in many sport man- agement higher education programs around the world, sport business is often partnered with entertainment; in both theory and practice. Therefore, this text would be exceptional for those students wishing to experience the foundational theories in sport finance, with an emphasis on enteriainment and real estate development.

While not formally organized, the text can be divided into five sections: a) introduction to sport business and finance, b) facilities and real estate finance, c) media and team valuation, d) customer demand and pricing strategies, and e) investments, league policies, and taxes.

Chapters 1-3 provide an introduction to the field of sport business, how it has changed over the past two decades, its ownership structure, and an introduction to financial statements. Chapter 1 begins with an intro- duction to how rapidly the sport industry has become increasingly dynamic. This discussion is broken down into four changes in the industry that have directly challenged sport finance practitioners and researchers: ownership structure, media, real estate investments, and league policies. This chapter does a great job of providing longitudinal data across multiple leagues and facilities to suppori their assertions. Following discus- sion on the changes affecting sport finance practitioners, the authors present various changes in ownership struc- ture in Chapter 2. This is an important discussion as it serves as a foundation to the development of subjects in future chapters. This chapter is focused on the his- tory of team sporis and how they were developed with

the purpose of supporting industrial growth, meeting the needs and wants of a growing population, captur- ing increased wealth and discretionary spending, and creating a socializing foundation to support egalitarian ideals. The chapter also explores the current pattems of ownership in today's sport industry. This includes the positives and negatives of various ownership structures along with discussion on the varied business interests of majority owners. Finally, the chapter concludes with how sport teams are integrating their business models both horizontally and vertically.

Chapter 3 is developed around four types of financial statements (balance sheets, income statements, statements of retained eamings, and statements of cash flows), and how these statements are examined through ratio analysis. This chapter is essential for understanding how financial principles should be applied to a unique industry. This chapter uses financial data from publically traded com- panies, including those from major league teams and multinational sport retail and apparel corporations. The chapter concludes with an analysis of specific revenue sources such as sponsorship, media, and in-stadium revenue in various leagues.

Chapters 4-6 shift the discussion to sport facilities and real estate. These chapters primarily focus on how facilities are designed and financed, and how the real estate development industry has merged with the spori industry. A new term is introduced to the reader in chapter 4, "Disneyfication". This term refers to the design of a facility that includes activities related to entertainment and retail offerings that surround the event being held. This chapter uncovers the various financial concerns related to facility design, size, and location. The discus- sion related to facilities continues into chapter 5. This chapter primarily focuses on the two main tools used to finance facilities: equity and debt financing. An examina- tion of bonds is also included. In addition, the chapter includes an appendix that examines the mathematics behind the time value of money. This appendix would be well suited for a more advanced student population. For example, graduate education is probably the best fit for using this information. The chapter then concludes with an overview of facility financing from the public sector, specifically taxes. The last chapter in this section shifts its focus from facility design and financing to the idea that sports teams can become real estate develop- ment companies.

Chapter 6 discusses the value of land in downtown versus suburban areas, tbe advantages of developing facilities in residential and entertainment districts, and horizontal integration toward "Disneyfication." The book describes "Disneyfication" as the entertainment beyond the sport event. This chapter is beneficial to curriculum that wishes to focus on the effects of marketing on the

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financial viability of a sport organization. The chapter includes an in-depth discussion of real estate inside the facility. Real estate inside the facility includes, but is not limited to: luxury seating, price tiers and the seating deck, signage on scoreboards, electronic and other displays, playing surfaces, facility naming rights, and uniforms or "kits". The chapter concludes with two case studies of sport teams where cities, San Diego and Los Angeles, used facilities to increase profits. These case studies give instructors the ability to shift their focus from interpreta- tion of financial theories to practical application.

Chapters 7 and 8 deal with the introduction of media to the sport industry, as well as how teams derive their value. These chapters are of particular relevance for researchers and practitioners who are interested in the vertical integration of sport teams and how it has affected team valuation. Chapter 7 is organized around the idea that the media-team relationship has gone through an evolution which includes 3 phases: a) media as advertis- ing for teams and leagues, to b) media as a major revenue source, and finally c) media vertically integrating with teams. The chapter includes discussion on the changes in the media-team relationship due to consumer inter- ests, the need for competitive balance, and the role of the internet on sports media consumption. The chapter does a good job of acknowledging the changes in how sport coverage is consumed. Specifically, netcasts and advanced media are addressed; relatively new topics in the sport management discipline.

Chapter 8 shifts the focus to how teams are valued. The chapter addresses issues related to ownership struc- ture such as controlling interests and vertical integration with media. Furthermore, various types of valuation models such as multiple earnings, zero growth, constant growth, capital asset pricing, and the free cash flow model are addressed. The authors do a good job in engaging readers by offering an in-depth analysis of the value of franchises in the North American "Big Four" (NFL, MLB, NBA, & NHL), as well as college athletics.

Chapters 9 and 10 focus on customer demand and actions that sport teams have taken to change demand in the short and long run. The discussion of demand is introduced in chapter 9 with an overview of the law of demand and its effect of quality and price. This section is essential to those readers with limited experience in the economic theories of supply and demand. The chapter then divides demand in two broad categories: a) long- run and b) short-run demand. In the long-run section there are investigations into the trends in the market, market penetration, substitutes associated with economic competition, and the honeymoon effect of new facilities. The short-run section focuses on demand for tickets. Examples of short-run changes in ticket demand include the effect of winning, superstars, intemational markets, game specific determinants, and television's effect on attendance. This discussion on short-run demand is a great transition into chapter 10.

In chapter 10, the authors focus on the various pricing mechanisms used in the sport industry. Much of the discussion relates to the pricing of event tickets

and includes foundational concepts on the elasticity of price. In addition to these foundational theories, the case for many traditional promotional pricing tactics is presented. For example, personal seat licenses, bundling, price discrimination, and group discounts are examples of traditional promotional pricing tactics. In addition to these traditional methods, the chapter addresses innova- tive strategies being introduced into today's sport event ticket industry. They pay significant attention to innova- tive practices such as variable ticket pricing, dynamic pricing, and "pay what you want" pricing.

The last two chapters (11 & 12) conclude the text by evaluating the various types of investments made by sport organizations and how these investments are affected by league policies and taxes. Chapter 11 defines capital budgeting and reviews the various types of team investments. The discussion of investments is continued with an overview of the various types of risk, and the differences between risk and uncertainty in an investment. Finally, an overview of the various types of investments that teams make in areas such as player contracts and facility improvements is presented. The last chapter in the text focuses primarily on the various league policies that affect sport organizations. These policies include player drafts, revenue sharing, luxury taxes, salary caps, collective bargaining, and league specific policies. The chapter then concludes with an overview of the various taxation methods used by sport organizations to maximize profit.

The major strength this text brings to the current sport finance landscape is the application of financial prin- ciples to sport, entertainment, and real estate. This is not to say that other sport finance texts do not concentrate on the unique aspects of sport finance. However, Sport and Finance Management spends a great deal of time discuss- ing unique combinations of sport and entertainment seen in today's sport industry, in addition to sport teams and their investment in real estate. A second strength of this text is the authors' use of current financial statements and data. While many sport organizations keep their financial information private, the book uses data from organization that must release their financial information such as Nike and the Green Bay Packers to explain theoretical material covered in the chapters.

One of the limitations to this text is that while each chapter relates to one another well, the text is not seg- mented into broad categories. However, the chapters are presented in a logical and well-organized manner; the book begins with an introduction and walks the reader through various issues that sport finance professionals encounter in today's dynamic industry.

While there may be some issues to be worked out in future editions, this first edition is an exceptional tool for instructors of sport finance courses at the undergraduate level. In addition, due to its excellent overview of issues facing the sport manager in today's industry, this text could be used as a supplement for introductory or survey courses in sport management. Likewise, this text would be well-suited as a supplement for graduate level sport finance courses.

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