Revenue Strategies and Operating Expenses

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goods company, the financial goal is to maximize owner or shareholder wealth. This is usually done by maximizing profit, which is the difference between total revenues and total expenses. In financial and accounting terms, profit is often referred to as net income. For example, Under Armour undertakes business strategies to generate as much revenue as possible at the least cost. While this is the general strategy for the vast majority of for-profit organizations, the motivation may be a bit different for some for-profit organizations; this is especially true in professional team sports. This makes the finances of pro sports teams different from other businesses. For a billionaire owner such as Mark Cuban of the National Basketball Association’s (NBA’s) Dallas Mavericks, is his sole focus on maximizing financial wealth and profit? Perhaps not. Mr. Cuban may be willing to forgo some profit in exchange for putting a team on the court that has the potential to win an NBA championship. This aspect of the professional sport industry sets it apart from other for-profit industries. Each individual team owner must balance the desire to win versus the desire to make money. The two goals do not always work hand in hand. An owner may be willing to spend hundreds of millions on team salary to win, but that championship may come at a steep financial cost with respect to overall profitability. Thus, in order to win, a team owner may be forced to decrease their profit level.

Other sports organizations such as youth sports programs, intercollegiate athletic programs, and charitable sports groups are organized as nonprofit. For these organizations, the maximization of profit is not the financial goal. For them, the financial goal is to maximize revenue, which can then be reinvested, or spent, by the organization. For example, the University of Texas (UT) Department of Athletics has no owners or shareholders for whom it must maximize profit and wealth. However, finances are still very important to the organization. The revenue that it generates is reinvested back into the organization. So, if UT can make an additional $10 million a year through the sale of corporate partnerships, it can then spend that money in areas such as facility upgrades, increased coaching salaries, and better academic support services for the student- athletes. So while UT does not have a profit motivation, it does have a desire to increase revenue that can be reinvested into the organization. This is also true for other nonprofit organizations like Amateur Athletic Union youth sports programs, the United States Olympic Committee, and the Special Olympics.

REVENUES IN PROFESSIONAL SPORT In professional team sports, revenues are derived primarily from ticket sales and broadcasting rights (Howard & Crompton, 2013). For most teams in major sports leagues, these two sources compose over 75% of total revenue. Regardless of the team or league, every sports team has the same basic revenue streams. While the forms of revenue across professional teams are similar, the size of them can be dramatically different. Table 5.1 provides the total revenue, by league, for the five largest worldwide sports leagues. As one can see, the National Football League (NFL) is the largest with $13 billion in revenue per year. Major League Baseball (MLB) comes in second with $9.5 billion in revenue, with the English Premier League being third. NFL Commissioner Roger Goodell has stated that he would like to see NFL revenues reach $25 million per year by 2027 (Kaplan, 2016).

Table 5.1 Annual Professional League Revenue, 2016

League Annual revenue

National Football League $13 billion

Major League Baseball $9.5 billion

English Premier League $5.3 billion

National Basketball Association $4.8 billion

National Hockey League $3.7 billion

Source: Which Professional Sports Leagues Make the Most Money (2016).

While having knowledge of the overall levels of league revenue is valuable, it is also important