Chapter 02 Sports and Entertainment Means Business

2.1 Sports and Entertainment

Economics

Defines profit, explains the profit

motive, and describes types of economic utility

2.2 Risk Management

Defines risk, describes the

categories and classifications of

risk, and describes strategies for risk

management

2.3 Business Ethics

Defines ethics and discusses the

impacts of unethical behavior

2.4 Financial Analysis

Discusses funding and revenue

sources for sports and entertainment

businesses and describes financial

analysis tools

Winning Strategies - EMI

the music industry embraces ever-changing technology and helps drive the economy

in 2005, income grew due to legitimate sales of digital music

cost savings achieved through outsourcing of manufacturing

one of the largest music content providers

Lesson 2.1 - Goals

Sports and Entertainment Economics

Describe types of economic utility.

Define profit and explain the profit motive.

Lesson 2.1 - Terms

Sports and Entertainment Economics

Revenue Profit Profit motive

Economic utilityEconomicsMacroeconomics

Microeconomics

Lesson 2.1

The Profit Makers

profit

the amount of money

remaining from revenues

after all expenses are

paid

A motive for taking the risks needed to start and operate a

business

There is a misconception that profit is a

dirty word

Profit is the driver behind

the free-enterprise

system

Lesson 2.1

The Profit Makers

revenue •the money a business receives from the sales of goods and services

profit motive

•making decisions to use resources in ways that result in the greatest profit

Lesson 2.1

Cultural Opportunities for Profits

Worldwide distribution

revenue is critical for movie profits.

Marketers must understand the

markets in which sales occur.

China has a tremendous movie market.•the government

censors movies for content

•pirated movies diminish theater sales

Lesson 2.1

Cultural Opportunities for Profits

Developing global markets has changed sports and entertainment marketing

The tremendous demand from China for movies has the potential to drive the movie

market

Marketers must be aware of government restrictions when trying to export movies

What films would not likely be permitted in China?

What films would be allowed in china?

Lesson 2.1

Economics

economics •the study of how goods and services are produced, distributed, and consumed

Macroeconomics •the study of the economics of the entire society

microeconomics •the study of the relationships between individual consumers and producers

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Lesson 2.1

EconomicsSports and entertainment marketers are focused on microeconomics.•relationships with

consumers

Provide examples of

microeconomics

Provide examples of

macroeconomics

Lesson 2.1 Sports and Entertainment Economics

economic utility

•the amount of satisfaction a person receives from the consumption of a particular product or service

•Give examples of improving each category of economic utility in products or services related to sports and entertainment

Lesson 2.1 Types of Utility

possession utility

the product or service is available at an affordable price

place utility

the product is available where it is wanted

time utilitymaking the product or service available when the customer wants it

form utility

when the physical characteristics of a product or service are improved

Lesson 2.2

Risk Management - Goals

Name and describe four strategies for risk management.

Define risk and describe the categories and classifications of risk.

Lesson 2.2

Risk Management - Terms

Risk Risk management Liable

PremiumRisk retention

Lesson 2.2

Risk It All

risk•the possibility of

financial gain or loss or personal injury

Lesson 2.2

Categories of Risk

natural risk •occurs from unavoidable weather conditions•Storms

human risk •dishonest customers and employees•inadequately trained employees•Theft

economic risk •occurs due to changes in the economy

•Downturn in business

Lesson 2.2

Additional Classifications of Risk

Gain or Loss risk

Controllable risk

Insurable risk

Lesson 2.2

Additional Classifications of Risk

gain or loss risk

speculative risk

either a gain or loss could result

When you start a new business you do not know if you will make or lose money

pure riska chance of an event occurring that could only result in a loss

Lesson 2.2

Additional Classifications of Risk

controllable risk

if a loss can be prevented or the likelihood of its

occurrence reduced

Most accidents can be prevented or their

likelihood reduced with proper precautions

uncontrollable risk

nothing can be done to prevent the risk

The weather cannot be prevented or accurately

predicted

Lesson 2.2

Additional Classifications of Risk

insurable risk

a pure risk for which the chances of loss are predictable and the

amount of the loss can be estimated

uninsurable risk

the chance that a dollar loss could occur

the amount of the loss cannot be estimated

Lesson 2.2

Managing Risk

risk management

preventing, reducing, or lessening the negative impacts of risk by using the strategies of

risk avoidance

risk insurance

risk transfer

risk retention

Lesson 2.2

Managing Risk

Risk Avoidance

Sports and entertainment marketers

need to plan to avoid risky situations.

liablethe business is legally

responsible for damages that occur

Lesson 2.2

Managing Risk

Risk Insurance

risk insurancepays for

predictable losses

premium cost of insurance

Lesson 2.2

Managing Risk

Risk Transfer

Some risks can be transferred to another

company or even to the consumer.

contracting with third parties for services

including releases from liability on event

tickets

Lesson 2.2

Managing Risk

Risk Retention

risk retention assuming the cost of an uninsurable risk

risk retention groups

similar businesses facing similar risks

pool resources

resources are distributed to

members that have a loss

Lesson 2.3

Business Ethics - Goals

Discuss the impacts of unethical behavior.

Define ethics.

Lesson 2.3

Business Ethics - Terms

Ethics Character Development

Principles

Lesson 2.3

Do Ethics Count?

Business should be conducted with integrity, trust, and fairness.

Will consumers deal with businesses that you feel are unethical?

Will businesses continue to work with people who prove to be

untrustworthy?

ethics

a system of deciding what is right or wrong in a reasoned and impartial manner

Lesson 2.3

Ethics and Character Matter

principles high standards of rules and guidelines

character development

a progression in behavior where people advance

from childish behavior to mature behavior based on

principles

Young people need good role models.

Lesson 2.3

Ethics and Character Matter

How is the media affecting ethical

behavior in society?

Are morals declining or does

unethical behavior simply receive

more attention?

Does the media influence behavior

or simply reflect what is happening in the real world?

Ethical Professional

Athletes: Troy Aikman, who else?

Lesson 2.3

Business Behavior

People and businesses should act ethically

while pursuing a profit.

What is the difference between greed and

the legitimate need to earn a profit to stay in

business?

The need to earn a profit does not excuse

underhanded business practices

Lesson 2.3

Seeking an Advantage

Sometimes it is hard to continue to act

ethically when you observe people who

receive a benefit from acting unethically.

Pressure on athletes and coaches today

and the temptation to seek unfair advantages

Difficult ethical dilemmas that students face -

cheating

Lesson 2.3

When Being Bad Profits

Only fans can really influence the behavior of

ethically challenged athletes

and celebrities.

Leagues and teams assess fines on

players for undesired behavior

Do you believe fines are effective?

Provide examples of other ways teams could discourage unwanted behaviors.

Lesson 2.3

Effective and Ethical

Good decisions are both ethical

and effective.

Good decisions are the right

choices for the long term.

Making a choice that may make

things difficult in the short term

can result in long-term benefits

Choosing what is easy in the short term may result in negative long-

term consequences

Lesson 2.4

Financial Analysis - Goals

Describe four tools for financial analysis.

Discuss sources of funding and revenue for sports and entertainment businesses.

Lesson 2.3

Financial Analysis - Termsreturn on

investment forecast budget

balance sheet

income statementFinancing

Assets Liabilities Net worth

Lesson 2.4

It Takes MoneyProfit is the

primary purpose of sports and

entertainment marketing.

There is a huge need for funding

before event tickets are ever sold

Lesson 2.4

Finding Funding

Investors generally provide the funding for an event to

cover all the costs that must be incurred before

tickets are ever sold.

Return on Investment (ROI)

the income from a venture that is

distributed to investors

Lesson 2.4

Money Sources

Funds to repay investors are

raised through

ticket sales

broadcast rights

licensing

facilities

Lesson 2.4

Money Sources

Why is it important to anticipate expenses and income by developing a budget?

Name some of the costs that might be involved in putting on a concert.

Name some of the sources of revenue from which investors and creditors are paid.

Lesson 2.4

Where is the Money?

forecast•a plan that predicts

the expenses to be incurred and the revenues to be received

Lesson 2.4

Budgets

budget

a plan for how available funds

will be spent

The purpose of a budget is to control costs so

they do not exceed the funds available.

Lesson 2.4

Budgetsbalance

sheet

net worth = assets –

liabilities

shows net worth at a specific

point in time

income statement

shows revenues and expenses for a specific

period of time

reveals company’s

profit or loss

Lesson 2.4

Budgets

What types of financial documents would an investor want to see

before making an investment?

What specific information is found on each type of document and why is it

useful for decision making?