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Pricing and Financing in SEM

Explore the revenue sources, expenses, and profit in the sports and entertainment industry, as well as the impact on local economies. Discover how venues, ticket sales, sponsorships, and promotions contribute to financing sports and entertainment productions.

jcarlton
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Pricing and Financing in SEM

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  1. Pricing and Financing in SEM Unit 5Intro to Sports and Entertainment

  2. EQ: • What is revenue? • What are expenses? • What is profit? • How do sports/entertainment generate revenue?

  3. What Sports Bring to the Economy • The sports industry as a whole brings roughly $14.3 billion in earnings a year • The industry also contributes 456,000 jobs with an average salary of $39,000 per job

  4. Local Economies and Sports • Super bowl 2018—Minneapolis Net $278 million • UGA Football: • $11.2 million just from away fans in local economy • $26,325,257.00 http://businessofcollegesports.com/2014/10/01/most_profitable_college_football_programs_georgia/ https://www.dawgnation.com/football/georgia-special-report-finances-uga-athletics

  5. Where does the money come from? • Sports Revenue Sources • Ticket Sales • TV Contracts and Sponsorships • NFL: Money is split between all clubs • NBC, Fox and CBS through 2022--$3 billion • ESPN through 2021 $1.9 billion annually for “Monday Night Football” • DirecTV’s $ 1 billion annually on average • Sales in stadium • Investors: owners, banks, corporations • Brand Licensing deals for merchandise

  6. The Importance of Venue • Stadiums • Can make the team money in a number of ways • Corporate sponsors • Braves and Suntrust—previously Turner • Concessions • Parking • In stadium advertising • Example: Cowboys Stadium • Concessions and Parking: $30,000,000 (profits shared) • 1/3rd goes to hospitality partner Legends Hospitality Management • In stadium marketing and sponsorship: $90,000,000

  7. Where does the money go? • Major Expenses for Sports • Salaries—for professionals • Blue Chip Athletes are PRICEY! • Scholarships—for college • Venues • Travel

  8. Paying for Athletes • Professional • Contracts • Signing bonuses • Bonuses for playoffs • College—NCAA • NCAA Athletes are not allowed to be “paid” • Receive scholarships as compensation • Coaches • Contract with salary both collegiate and professional

  9. NFL Financing • Green Bay Packers • $171 Millions—players • $131 Million—TV time • $20 million from the visitors’ share of ticket sales • The NFL takes one-third of teams’ ticket-sales revenue and pools it to divide equally among the 32 clubs • The remaining $38.7 million • nationally generated revenue • including sponsorships, licensing and NFL Network distributions

  10. Financing Entertainment • Financing for entertainment productions is typically fronted by…. • Studios and Production Companies • Producers • Executive Producers typically in charge of finances • Example: Star Wars: Episode VII • Studios and Companies: LucasFilm, Walt Disney Pictures, Bad Robot Productions • Producers: Bryan Burk, J.J. Abrams, Kathleen Kennedy

  11. Pricing Products: Tickets

  12. Average Ticket Prices • NFL-$113.42 • NHL-$84.05 • NBA-$74.67 • MLB-$48.34 • What do you think contributes to these prices?

  13. What is in a ticket? • Pricing sporting tickets • Season Tickets • Most teams want to sell the most season tickets possible • Secures tickets even if team performs poorly or key players injured • Majority of revenue is from season ticket holders • Individual Tickets • Secondary Market • Professional Ticket and Brokers • Often times season ticket holders participate in secondary markets

  14. What is in a Ticket? • Factors that contribute to price • Performance in the most recent season • Player movement (retirements, drafts, and free agency) • Coaching • Similar to new players, a team bringing in a well-known coach is often expected to produce more wins

  15. Strategies to Increase Profit • Variable Face Value : • Team varies the face value of the tickets based market value.  • desirable games have a higher face value, and less desirable games have lower face values • This approach gives the team more flexibility in dealing with “distressed inventory” • protecting the value of high-value games, and capturing value that is otherwise lost to speculators. • Dynamic Individual Ticket Pricing • varies the price of individual tickets based on market demand – and can change the price from the initial face value • requires more complex systems to determine optimal pricing and manage ticket prices. • Participating in the Secondary Market • Some teams and leagues have created their own ticket exchanges

  16. Ethical Dilemma of Pricing • Season Tickets v. Individual Tickets

  17. Promotions & Sponsorship Revenue

  18. EQ • How do sponsorships and promotions create revenue?

  19. Corporate Sponsors • Sponsorships are partnerships between teams and corporations • Sponsorships bring in millions for the simple agreement to feature their brand only • Example: • NFL and Microsoft • Current $400 million dollar deal for only Microsoft Surface tablets to be used on sidelines

  20. Sponsoring the Arts • Most fine arts entertainment organizations rely heavily on sponsorship • Theater, dance, orchestras, and venues • Biggest sponsors tend to be banks with Bank of America as the leader • Target Market audience for performing arts—upper class, “cultured”—this is a desired segment by banks

  21. Sponsoring the Music Industry • The music industry receives the most sponsorships out of all sports and entertainment entities • These sponsorships generate revenue for • Concerts, tours • Venues • Awards shows , television events • Most likely to be sponsored by beverage companies

  22. What is in it for the Sponsor? • Increased awareness and brand recognition • Examples: • All major sponsors of MLB saw a 0.7% increase in brand awareness from fans • Anheuser-Busch Sponsoring MLB • 49.6% of fans ID as official beer of the league—increase of 11.8% in recent years • Through increased in-park promotions and product &

  23. In Stadium Advertising • Sponsors buy advertising space in stadium • Most effective in stadium advertising media is score boards and LED screens • Score boards get the most direct attention • Purpose of in stadium marketing is to increase recognition and sales

  24. Promotions • The goal of ticket sales promotions • Maximize revenue • Fill seats—increase concession/merchandisesales • Build “hype” • A unique example: Minnesota Gophers and AudienceView 2013 • Golden Ticket • Buy a Golden Ticket for $75. Attend as many Big Ten home games as you want (retail value: $315), but if the Gophers lose when you're scanned in, your run is over. The pass is deactivated. 

  25. Mark Ups in SEM

  26. Marking Up Ticket Prices • Face Value • Determined by event officials and promoters • Directly impacted by demand • Many teams and promoters are intentionally underpricing prices to allow for secondary market mark up • StubHub and Ticket Master • Minimum 20% mark up • Finding the mark up--- • Mark Up=(Price-Cost)/Cost • Example—CONCERT TICKETS • Face Value --$102.50 Price--$153.00 • What is the mark up? • 49%

  27. Marking Up Merchandise • Merchandise and concessions sales make up a large part of revenue for teams • Markups vary • Concessions—up to 800% • Example: Beer that costs $0.99 marked up 700% to $8.75 • Apparel • A T-shirt that costs $2.50 marked up to $25.00 • What is the mark up?

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