Revenue Strategies and Operating Expenses

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Revenues are a primary aspect of financial analysis. As stated in chapter 3, revenues represent money coming into an organization. Allbusinesses revolve around money. In the sport industry, money is generated from sources such as ticket sales, product sales, corporate partnerships, membership fees, and concessions. Most information on the revenues for a sports organization can be found by examining its income statements, annual reports, and budgets. This chapter addresses the primary sources of revenue for organizations across a number of sport industry segments. We will start by briefly summarizing the topic of revenues in the sport industry. We will then move on to addressing the specific revenue streams for organizations in sport industry segments such as professional sport, collegiate sport, and sporting goods.

REVENUES IN THE SPORT INDUSTRY This section highlights how we make money in the sport industry. For professional sports teams and collegiate athletic departments, revenue can come from ticket sales, broadcast contracts, concession sales, sponsorship agreements, and a host of other opportunities. In comparison, a sporting goods company like Under Armour (UA) generates revenue primarily through the sale of tangible products like sneakers, shirts, equipment, and hats. Each business has different revenue sources, and the number of these sources is constantly changing. In another example, a health club may have revenue of $1 million a year from sources that include

membership fees, locker rentals, fitness class fees, advertising and signage, equipment sales, concession sales, apparel and other merchandise sales, and personal training revenue.

Lastly, the revenues of a typical public high school athletic program can include

local and city school taxes, federal tax subsidies for education, state taxes, participation fees, donations, booster clubs, concession revenue, attendance revenue, broadcasting revenue, advertising revenue, fund-raising revenue, licensing revenue, and sponsorship revenue.

As you can see, there are various revenue sources for most sports organizations. While a high school athletic department might have a dozen or more revenue sources, some professional sports teams might have 20 to 30 revenue sources, and other sports organizations might have only one revenue source. Having more revenue sources might require more work to manage them. However, it also protects the sports organization. If a sports organization only has one or two revenue sources, and if those revenue sources evaporate, the organization will probably have to close down. In contrast, if there are multiple revenue sources and one or two evaporate, then there are other possible revenue sources upon which a sports organization can turn to in order to stay in business. A successful sports manager must be knowledgeable of the sources of revenue for the organization and have the ability to effectively manage and grow them.

Understanding revenue is critical because a sports organization will constantly work to increase its revenue to keep operating. If revenues decline, an organization must find new revenue sources or slash costs. For a multitude of reasons, many revenue-generating techniques do not work for high school sports in a given community. Parents may not want to support a program. Local advertisers may be unwilling to spend their advertising dollars on the school, or city regulations may prohibit using certain fund-raising techniques. Although revenue-generating options may be limited, expenses normally do not share the same fate.

At this point, it is also important to address the financial motivations for different sports organizations. For for-profit sports organizations such as an English Premier League club or a sporting