Managing Revenues and Expenses Final – Flashcards
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Programs that benefit community
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-Meet societal needs (Demographics) -Have the power to levy taxes: (Who pays? Is it pay to play?) -Generate funds for operation and construction -Operate based on perceived needs of the electorate (needs of events)
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Tax Dollars Spent on Community Sport
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According to U.S. Census Bureau report for 2007: -$30.5 billion spent in 2004 -A $5.4 billion increase from 2000
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Financial Management Trends
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Increased demand for services: -Public awareness of health and wellness needs Increased variety of services and facilities Designed to appeal to a broad demographic -Controversies over pricing *If you cut taxes, park and rec will suffer
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Pricing Paradox
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Pricing is supposed to keep public programs affordable, BUT Lowered taxes have resulted in less money for programs Community sport and recdepartments are expected to: -Provide multitude of affordable programs -Operate as self‐sufficient entities or generate revenue to offset expenses
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Sources of Funds
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Tax subsidies -Support bonds for construction (69% of costs) -Support operations (52% of revenues) Example: Tennis in Cayce, South Carolina -New tennis complex is being funded through taxsupported bonds -County and city are paying half each
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Major Sources of Public Funding
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Property taxes (personal property-land value) Sales taxes Excise taxes Pay‐as‐you‐go financing Bonds
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Property Taxes
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Most often used to fund construction or operations -Real property: Land and structures built on land -Personal property: Everything else that has value
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Tax Rates
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Millage (millage rate): -Total amount of mills levied by city, county, school district, etc. in which the resident lives -One mill = 1/1000 of a dollar (1/10 of a penny)
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Assessing Property Value and Tax Due
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Fair market value of property assessment ratio -Fair market value―value for which the property can reasonably be sold on open market, with a willing buyer and seller -Assessment ratio―percentage of resident's property that is subject to taxation
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Assessed Value Calculation
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Fair market value of residence = $250,000 Assessment ratio = 4% -Assessed value = FMV X assessment ratio -Assessed value = $250,000 X 0.04 Assessed value = $10,000
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Property Tax Due
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Assessed value X millage rate Lexington County millage for operations is 83.063 Property tax due = assessed value Xmillage Property tax due = $10,000 X.083063 Property tax due = $830.63
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New property tax needs
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-Proposed new facility will cost $12.5 million, with annual operating budget of $1.8 million -Municipal bond will pay for facility: 30 years at 5.3%; payment = $841,160 -52% of operations will be paid for by increase in millage($936,000 per year) -Millage rate for those living in the district will increase to provide funds for operating and construction costs (City bonds will pay for facility itself (New Property Tax Needs))
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Steps in Calculating New Mileage
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1.Calculate net assessed value of property -NAV = total assessed value -tax exempt property 2.Calculate required tax rate -Tax rate = required tax/NAV 3.Calculate the impact of the proposed tax -Property tax increase = assessed value of property millage rate increase (new tax to affect community)
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Sales Tax
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Second most common tax source for funding sport facilities Regulations vary by state: -In South Carolina: 6% sales and use tax -In Missouri: Sales taxes are used at three levels, for state, county, and city *Different states have different rules
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Pay-as-You-Go Financing
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Rarely used for new facilities -Delay between decision to build a new facility and the time it is built An inequitable and inefficient method -Some residents may pay the full cost of a facility and never use it
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Bond Financing
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-Term : Single payment-end of period -Serial: Single payment-life of bond Voter or legislative approval is needed To fund capital projects for community rec programs: -Revenue bonds -General obligation bonds
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Certificates of Participation
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-Use of COPs is growing, especially in places where there are strict limits on borrowing. -Hancock Amendment (Missouri) -A city creates a corporation to handle financing and then pays lease fees to trustee, who pays financial institution.
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Private Sources of Revenue
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Fundraising, Grants, Advertising, Sponsorship
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Collaborative Financing
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Joint use agreements -Formal agreements between parties outlining how facilities will be shared -Public school districts and community recreation programs Public/private partnerships -Collaborations between public and private sectors
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Arms Race
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Continuous building of bigger and better facilities for the sole purpose of landing key recruits Ohio State University University of Florida University of South Carolina Gettysburg College Also, a race to change NCAA divisions *Ex. Gettysburg College-focus on quality of degree and playing time (smaller school)
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Revenue Distribution
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Men's basketball, sponsored sports, scholarships, academic enhancement (tuition, scholarships), student-athlete opportunities, conference grants (offset conference cost), special assistance fund.
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Conferences
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-Revenue from NCAA flows through conference to member schools -Conferences set policy on how revenue is divided -Example: SEC BCS bowl games >Participating school receives $1.7 or $1.8 million, plus travel allowance >Remainder is divided by 13 and equally distributed
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Division I FBS (Major Conferences)
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-Football Bowl Subdivision (FBS)—BCS schools >Received average of $26.4 million in revenues from NCAA -FBS—Non‐BCS schools >Received average of $11.5 million -Non‐FBS schools >Received average of $5.5 million
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Importance of Football Revenue
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-Accounts for 57% of SEC member institution revenues and 49% of Big 10 revenues -NCAA v. Board of Regents (1984) >NCAA control of football TV rights violated Sherman Act
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Division I FBS (Minor Conferences)
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-Examples: Western Athletic Conference (WAC) and Conference USA (C‐USA) -Rely on having 12 teams in a conference to generate revenues >C‐USA earned $982,000 in football championships and $4.2 million from NCAA basketball tournament
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NCAA Member Schools
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-Distributions from conferences is a small proportion of overall departmental revenues -Most revenue comes from football >SEC at high end: 57% >Big East at low end: 36%
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Zero-based budgeting
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Balance out at end of year, can't carry over debt to new year
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Financial Difficulties
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-90% of Division I programs have expenses greater than revenues -Only 19 DI‐FBS schools were self-supporting
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Financial Profitability
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-Difficult to measure -Individuals analyzing athletic department performance frequently treat revenues in varying ways -Indianapolis Star: >Reported only expense‐to‐revenue differences >Ignored significant variations in the way departmental revenues were reported at many schools
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Department-generated Revenues
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ticket sales come from department
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Allocated revenues
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revenues all schools get: university, conference, NCAA
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Debt Service
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-Some analysts report only operating expenses >Forget to include debt service and cost of replacing facilities in expenses -Small number of self-supporting athletic departments (maybe only 10)
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Division I Trends
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-Median revenues increased 16% >Ticket sales >Contributions -Median expenses increased 23% >Grants‐in‐aid (scholarships) >Salaries and benefits (coaches and admin)
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Primary Expenses
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-Increasing tuition costs on campus (offering scholarships) -Market demand for top coaches
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Coaching Salary Increases
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-Football >47% increase between 2004 and 2006 >Median for assistant coaches increased 23% -Basketball >Men's head coach -15% increase >Women's head coach -20% increase
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Other Trends in Division I Schools
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-Disparity in program‐generated revenue -Disparity in expenses -Football and men's basketball reported surpluses (make $, other programs lose $)
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Athletic Department Fundraising
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-Operating expenses are increasing faster than operating revenues. -Cash contributions from alumni are the second‐largest source of revenue. -Development department is becoming increasingly important
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Trends in Fundraising
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-Athletic department spending is growing 15% faster than university spending. -Athletic departments are pressured to reduce reliance on allocated costs. -Tuition is rising faster than inflation. >Big issue at smaller schools , as larger percentage of revenue comes from student fees.
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Pressures on Development Office
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-Generate greater amounts of operatingrevenue -Raise funds for capital projects -Does giving to athletics impact giving to other programs on campus? -Trends in Division I FBS schools: >Athletics accounted for 15% of university's total donations in 1998 and 26% of total in 2003.
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Capital Campaign
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-Intensive effort to raise funds in a given time frame for a specific purpose -Major gifts needed to reach goal—defined as $25,000 or more -Major gifts table: >80/20 rule >90/10 rule >Rule of thirds-third now ,third later *athletics and universities have capital campaign
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Athletic Support Groups
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-Booster club responsible for most athletic department's annual giving programs >Non‐profit and tax exempt >Separate legal entity from university (own foundation account not related to athletics) -Example: Wolfpack Club at North Carolina State University
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Linkage of Tickets and Giving
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-The only way to guarantee the purchase of a basketball season ticket may be to give at half or full scholarship level. -Point systems: >Points based on amount of annual giving, number of years a donor has given, and number of years a donor has purchased tickets. >More points = better seats *Ex. Stroh season tickets are giving them choice where to sit
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Restructuring Seating
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-Some schools reassign seats every year based on points -Some schools reassign seats periodically -Some schools add seat licenses for prime seats
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Endowments
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-Provide for programs in perpetuity -Invested, and then only a portion of fund's annual return is used for the fund's specific purpose. -Uses: Scholarships, Coaching salaries, Program‐specific support *Year in, year out *Game guarantees, travel, comp.
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Purpose of Professional Sport Leagues
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-Make decisions that are imperative for league viability: >Financial survival >Concern for operating procedures
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Ownership Structure of Leagues
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-Franchisee/franchisor >Commissioner, league office, and team owners >League collects revenues and distributes them to each club >Leagues can have affiliated for‐profit entities -Single entity structure >A single group or individual owns the league and all teams
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Single Entity Structure
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-Advantages: >Place clubs in preferred cities >Assign players to teams >Promote competitive balance via player assignments >Constrain salary costs -Provides limited economic incentive to individual clubs -Frequently found in new start‐up leagues
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Ownership Rules and Policies
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-New owners -Debt -Expansion-over seas, new market -Territorial rights-where team can and can't go
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"Big 4" Professional Leagues
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Major League Baseball National Basketball Association National Football League National Hockey League
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MLB
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-Labor: >2007-2011 collective bargaining agreement >$326 million in local revenue annually filter from highest to lowest revenue franchises >$380,000 minimum salary in 2007, going to $400,000+ by 2011 >Continuation of luxury tax
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NBA
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Labor: >2005-2010 collective bargaining agreement >Maximum salary set (some exemptions) >Rookie three‐year contracts: ▪ Age limit 19 ▪ First two years can be assigned to NBA Development League
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NFL
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Labor: >2006-2011 collective bargaining agreement >Opt out option enacted in 2010 ▪ Salary cap: None (or floor), but restrictions on salary
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NHL
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Labor: >2005-2011 collective bargaining agreement >Restricted free agency-more players can go
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Key Elements of Baseball's Structure
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-Early years: >Membership restricted >Monopoly rights to territories-controlled >Players bound to clubs through reserve rule -In modern period: >Exempt from antitrust statutes
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Restrictions in Modern Period-All Pro Leagues
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Restrict entry Assign exclusive territory (city, state) Collude on revenue sharing Antitrust statutes Sports Broadcasting Act of 1961
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Competitive Balance
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-Concern of officials in most leagues: >Make sure that every team has a financial opportunity to field a competitive team >Attract media and fan attention -Many diverse viewpoints on whether competitive balance is needed or how to achieve it
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Methods for achieving competitive balance
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Player draft and supplemental player assignments-last place team drafts first Salary slotting Free agency and collective bargaining Salary caps Salary arbitration Luxury tax Revenue sharing
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Salary Cap and Salary Floor
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Salary cap: > Restriction on the maximum amount any team in a league can pay to players >Intended to balance teams' spending on players Salary floor: >Minimum salary level for a team >Base level of commitment
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Salary (Luxury) Tax
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-Consequences for exceeding a salary cap or salary threshold -Required of teams whose payroll exceeds a set "tax level"
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Revenue Sharing
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-Designed to narrow the gaps in the financial resources of the participating teams -Usefulness depends on two factors: 1. Relationship of central revenues to total revenues 2. Sharing rules adopted
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Types of Revenue Sharing
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Media revenue Gate receipts Merchandise sales Sponsorship agreements
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Central and Local Revenue Pools
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Central: Revenues directly paid to the league Local: Revenues paid directly to the team
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Emerging Revenue Sources
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Luxury seating-club Seat licenses Ticket reselling Variable ticket pricing Securitization
