Although we tend not to think of it in purely economic terms, the world of professional sports is big business these days. Sports teams across the world are routinely valued in the billions, with players also regularly signing sponsorship deals worth hundreds of millions of dollars.
This is in addition to the billions of dollars spent each year by sports fans trying to get the best Super Bowl odds. In fact, online sports wagering has now grown to be an industry worth billions of dollars itself, with sports fans across the world enthusiastically placing wagers on their favorite teams each week!
Despite the fact that the world of professional sports is so lucrative, most sports fans don’t tend to think too deeply about the financial mechanics of professional sports.
Although it might sound like a somewhat dull topic, the finance of professional sports is actually deeply interesting and incredibly dynamic. If you are someone with even a passing interest in sports, understanding the financial side of professional sports will give you a new-found appreciation of your favorite sports team. It will also help you to better understand this increasingly large share of the global entertainment industry revenue.
What drives revenues?
The world of professional sports consists of several distinct, yet interrelated, sources of revenue. Let’s take a look at them in brief!
Firstly, and perhaps most obviously, there is the revenue created on game days. This covers all the game day related earnings a team might benefit from. Ticket sales to matches are obviously a major source of this, although there are also many closely related revenue streams. This includes concessions purchases at stadiums, sponsorship deals, merchandise sales and sponsorship deals. Even parking fees at stadiums can be counted towards game day revenues!
Revenues at events ebb and flow throughout the year, typically in line with the season cycle for a particular sport, such as pre-season games, regular season games, post-season games and special events such as concerts.
Secondly, you have what is known as non-game revenue. This covers all the different revenue streams a team can generate outside of the stadium or on non-game days. Common sources of non-game revenue include broadcasting deals, sponsorship deals and online merchandise sales.
Depending on the league in question, professional sports teams may also receive a share of the revenue generated by the entire league. This might include any revenue the league receives from broadcasting rights, sponsorship deals or other business ventures.
A third revenue stream, that is arguably less important in terms of its overall contribution, is any money a professional team makes from participating in tournaments. Although this can certainly be a significant amount, it is not generally as reliable as other revenue streams.
What do teams spend money on?
Although the revenue generated by the most valuable professional sports teams can be significant, they can only generate this by spending vast sums of money to begin with. With that said, what are the main things sports team spend money on?
As with the revenues they generate, the expenses incurred by professional sports are varied, and will differ across different sports and regions of the world.
Interestingly, by far the biggest expense for professional sports teams are player salaries. A recent survey of executives from the NBA, identified player salaries as taking up around 58% of the expenses for smaller teams and 52% for larger ones.
The next biggest cost was business operating expenses. This covered any expenses incurred in running the team, such as charter aviation during the season for players, catering, fuel prices, stadium maintenance costs and anything else related to running the team. This could also include all the operations staff, medical costs or even team mascot salaries!
Following this, the biggest source of costs was team staff costs. Team staff costs covered the salaries of any of the support staff involved in running the team, such as executives, coaches, physiotherapists and any other specialized training staff.
Other sources of expenditure will vary between different teams and sports. For example, some teams may have to pay out dividends from their profits as part of revenue sharing agreements. Similarly, certain teams may expend significant sums of money servicing loans they have incurred acquiring players or building stadiums.
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