Revenues in sports industry - Term Paper Example

 Revenues in sports industry Introduction Today sports is an important industry, which provides employment to different people (sportsmen and those who are not engaged in sports directly), brings revenues to sports companies and organizations, pays taxes and makes other payments to countries' budgets, and thus plays important role in countries' economic growth. As in other industries, sports may be profitable and unprofitable, may experience rises and falls. But on the whole, the industry remains competitive (as sport is itself) and brings revenues to successful entrepreneurs and sportsmen. 2. Overview of sports revenues Consulting company A.T. Kearney states that the sports industry in global scale is prospering, and today the industry is worth about 500-600 USD bn. (which includes sports events like simple games, national competitions, Olympiads etc., infrastructure and constructions, sports products and goods) (Collignon, Sultan, and Santander). Dynamics of sports industry revenues in global scale shows the overall growth of revenues for the past 9 years (table 1): expected revenue in 2014 is 36% more than it was in 2006 ("Changing the game. Outlook for the global sports market to 2015"). The constituents of Revenues are Gate revenues, Media rights, Sponsorships, and Merchandising ("Changing the game. Outlook for the global sports market to 2015") (table 2). According to the structure of revenues, the biggest portion of the total revenues belonged to Gate revenues (34% in 2006). The situation changed in 2014, when Sponsorship took the leading position (31%, which is 1% more than Gate revenues that year). The change of the structure shows that the representatives of other industries use sports industry to win new markets, gain new customers, increase their own rating among competitors and increase profits. Table 1 – Dynamics of global revenues of sports industry* (historical and forecast information)   2006 2007 2008 2009 2010 2011 2012 2013 2014 Global revenues, USD mln 107,516 111,934 120,760 112,489 121,391 118,69 129,929 130,164 146,469 % change including: 4,1% 7,9% -6,8% 7,9% -2,2% 9,5% 0,2% 12,5% Gate revenues, USD mln 37,056 38,387 39,998 38,873 39,57 39,043 40,613 41,317 43,544 % change 3,6% 4,2% -2,8% 1,8% -1,3% 4,0% 1,7% 5,4% Media rights, USD mln 24,281 23,861 27,005 24,563 29,225 26,945 32,141 30,062 37,801 % change -1,7% 13,2% -9,0% 19,0% -7,8% 19,3% -6,5% 25,7% Sponsorships, USD mln 26,749 29,273 32,494 31,467 34,972 35,132 39,173 40,236 45,559 % change 9,4% 11,0% -3,2% 11,1% 0,5% 11,5% 2,7% 13,2% Merchandising, USD mln 19,43 20,413 21,263 17,586 17,624 17,57 18,002 18,549 19,565 % change 5,1% 4,2% -17,3% 0,2% -0,3% 2,5% 3,0% 5,5% * - the data is taken from "Changing the game. Outlook for the global sports market to 2015" Table 2 – Structure of global revenues of sports industry* (historical and forecast information)   2006 2007 2008 2009 2010 2011 2012 2013 2014 Global revenues, USD mln * 107,516 111,934 120,76 112,489 121,391 118,69 129,929 130,164 146,469 100% 100% 100% 100% 100% 100% 100% 100% 100% Gate revenues, USD mln * 37,056 38,387 39,998 38,873 39,57 39,043 40,613 41,317 43,544 Proportion of Global revenues 34% 34% 33% 35% 33% 33% 31% 32% 30% Media rights, USD mln * 24,281 23,861 27,005 24,563 29,225 26,945 32,141 30,062 37,801 Proportion of Global revenues 23% 21% 22% 22% 24% 23% 25% 23% 26% Sponsorships, USD mln * 26,749 29,273 32,494 31,467 34,972 35,132 39,173 40,236 45,559 Proportion of Global revenues 25% 26% 27% 28% 29% 30% 30% 31% 31% Merchandising, USD mln * 19,43 20,413 21,263 17,586 17,624 17,57 18,002 18,549 19,565 Proportion of Global revenues 18% 18% 18% 16% 15% 15% 14% 14% 13% * - the data is taken from "Changing the game. Outlook for the global sports market to 2015" Jonathan Jensen and Anne Hsu prove this with their research, which says that "net income at these firms (sponsors) grew faster than at S&P 500 firms in general (7.8% to 6.5% per year)" and "the top 16 (companies), which spent on average $160m a year on sponsorship, saw net income grow by 22.1% annually" (Jensen and Hsu). Media rights also increased its portion in Total revenues of sports market, while Merchandising stayed almost the same (19,43 USD mln in 2006 and 19,565 USD mln in 2014), thus lowering its proportion in total revenues from 18% to 13% ("Changing the game. Outlook for the global sports market to 2015"). The analysis of revenue constituents and their dynamics shows that sports revenue is not just the money, paid by the sports fans for watching the games or buying favorite teams' symbolics. About 1/3 of the profits belongs to the investments of the companies, who represent other industries and use sports as a means of own profit increase. 3. Revenues of single players Revenues of the whole sports industry depend on revenues of single associations, agents and players. The companies try to attract top players, make contracts with them in order to increase own profit. Among the biggest and most expensive contracts are the following: USD 292 mln contract for 10 years with Miguel Cabrera (Detroit Tigers); USD 275 mln and USD 252 mln contracts, each for 10 years with Alex Rodriguez (New York Yankees and Texas Rangers); USD 240 mln contract for 10 years with Robinson Cano (Seattle Mariners) and others (Polvinale). The demand for the players depends on such factors, as players' abilities and success, type of sports, its peculiarities and popularity, which in fact represent the tastes of consumers, show their preferences and likes, and measure their utility from watching games. All the biggest contracts were made with the United States players, which in its turn testifies the popularity of sports in the USA. The companies compete for the top players, believing that a company's profit will exceed the sum of the contract, paid to a sportsman. It may be more advantageous for a player to make a long-term contract, as thus he can secure himself from risks of looking for a new one, in case he becomes less successful or skilled than players from competing teams. On the contrary, the next short-term contract may bring more money to a player, in case he was successful in previous years, as the demand for him will increase. The riskiness and uncertainty of the sports industry, high probability of injures make players and their agents consider each proposition thoroughly. However expensive contracts with top players do not necessarily lead to increase of returns. Players often do not work off the contracts, and thus it turns out that a company paid too much, especially if the contracts are made for a long term. Company's decision making process, which concerns investments in players, is performed in uncertainty. The probability of player's success is difficult to calculate, as it depends on variety of factors, all of which are almost impossible to take into account. Each company estimates the risks and possible gains, and then makes a decision. Wilson K. says that often risk-promoting elements of long-term contracts outstrip risk-limiting factors (Wilson). One of the contracts with Alex Rodriguez is mentioned among the unsuccessful contracts (for companies, but not players). He was expected to lead Texas Rangers to World Series, but instead the team did not win. Texas Rangers traded the player to New York Yankees, and Rodriguez's career there was much more successful: he became the most valuable player twice, and contributed to team's winning of 2009 World Series ("Top 10 Worst Contracts in History "). The reasons and conclusions of such different outputs of the contract may be different as well. The first one is that the probability of wins and losses is difficult to measure, and the sports industry may experience rises and falls as every business does. This reason deals more with random factors which influence the games and their results. The next reason is that Alex Rodriguez may be a more valuable input to New York Yankees than to Texas Rangers. If sport is considered to be an industry, every game is like a process, which produces a certain result: a win or a loss. Thus every player can be examined as an input (a resource) into this process. The result depends not only on quality and amount of resources, but their interaction and ability to produce a result together. As he is not the only player in the team, its success depends on other players and the ability of a certain player to play a game together with other team members (co-workers). Corporate culture, respect and ability to work in a team together with personal physical characteristics play significant role in sports success. Corruption in sports may be another reason of different contracts' outcomes. Transparency International reports that "players can take bribes to fix matches" ("Sport "). The players may act not ethical towards each other and/or the teams in order to get more profits or because of other reasons. 4. Conclusion Today sports is not just about a competition between the strongest or the fastest, but mainly is a means of gaining profit and benefits. Sports industry is risky, and the games are often unpredictable, but they may bring big revenues both to companies and players. Sports revenues differ depending on type of sports, its popularity among people, scale of sports events and people who are engaged in these events. The revenues of the sports industry rises every year, and the competition is tough. The factors, which influence sports revenues, are different, and depend on personal characteristics of players (as inputs), their ability to work in a team (process and technology), external factor (competitors and environment). Works Cited Changing the game. Outlook for the global sports market to 2015. 2011. PDF file. 8 Aug 2014. Collignon, Herve, Sultan, Nicolas, & Santander, Clement 2011. The Sports Market: Major Trends and Challenges in an Industry Full of Passion. PDF file. 8 Aug 2014. Jensen, Jonathan A., and Hsu, Anne. "Does Sponsorship Pay off? an Examination of the Relationship between Investment in Sponsorship and Business Performance". International Journal of Sports Marketing & Sponsorship 12 (4) (2011): 352-364. Print. Polvinale, Sean. Top 10 Largest Sports Contracts Ever Signed. The Richest, 2014. Web. 8 Aug 2014. Sport. Transparency International. n.d. Web. 8 Aug 2014. Top 10 Worst Contracts in History. n.d. Web. 8 Aug 2014. Wilson, Kent. How are bad NHL contracts born? The winner's curse. Sporting news, 2013. Web. 8 Aug 2014. Read More