Virtual Business- Sports

1. Virtual Business- Sports Talking Points

2. Franchise Location • The selection of a franchise location is a very important decision for any sports team. • The major factors in the decision can be divided into demographics and infrastructure. • Demographics include the total population of the city, the number of people enthusiastic about the sports, and their ability to afford tickets.

3. Franchise Location • Infrastructure includes the available venue (stadium), parking capacity, and possible financial incentives offered by the local government. • No city is perfect on all factors but some locations are definitely superior to others. • Franchises can move if the choice of location proves wrong, but it is a difficult task that will require rebuilding awareness and loyalty in the new location.

4. Ticket Pricing • The main “product” of a sports franchise is seats (or tickets to them). • Pricing sales is tricky because the number of seats is fixed, and there is no marginal cost to selling additional seats. • This presents a business conflict. • A team would rather sell a seat for $1 than leave it empty and get no money.

5. Ticket Pricing • However, if all seats are sold for $1, the team will never make money. • “Yield management pricing” tries to address this by setting different prices for seats of different value. • Example: higher price for field level 50 yard line • Setting price levels to “yield” the most total revenue (number of tickets average price per ticket).

6. Ticket Pricing • Yield management pricing is used whenever the quantity of a product is fixed, and there is little or no marginal cost to providing an additional unit. • Examples are pricing sports tickets, airline seats, hotel rooms, concert tickets, and more.

7. Promotions • Sports franchises employ many different types of promotions to attract fans. • One of the most popular is to give away items to the first X number of fans who attend. • The goal of such a promotion is to cause people to attend who otherwise would not. • The downside to such a promotion is that promotional items (and therefore money) will almost surely be given away to fans who would attend the game anyway.

8. Promotions • As a result, promotions are usually not planned for events that are expected to be sold out. • They are often planned for days where attendance would not otherwise be high. • Promotion planners are constantly searching for items that will be of high appeal to fans yet cost the franchise relatively little to provide. • A promotion will tend to lose its appeal if run over and over too many times.

9. Media Planning • Media refers to the different avenues through which a business can reach its potential customers. • Examples include broadcast TV, cable TV, radio, the Internet, and newspaper. • Media planners seek to reach the largest possible percentage of their target audience while keeping advertising spending within a set budget.

10. Media Planning • To accomplish this, they define one or more target segments that are likely to purchase their product. • These segments are normally defined by common demographic categories. • Examples: gender, age, and income • A successful media planner chooses media that is targeted at the demographic segments he/she needs to reach. • This maximizes the impact the planner will get from a given dollar or ad spending.

11. Stadium Personnel • Any sports and entertainment event requires adequate staffing to prevent confusion or even potential chaos. • Over the years, there are may examples of crowds getting out of control at concerts, soccer matches, basketball games, and more. • Ushers are always present at any large event. • They help attendees find their seats in an orderly fashion so that everyone can be seated on time.

12. Stadium Personnel • Ushers also provide a second important function for event managers. • They help ensure the integrity of the franchise’s product: seats. • If customers are allowed to purchase the least expensive seats and move to the best seats, the best seats are essentially devalued, and no one will pay top dollar for them anymore.

13. Stadium Pesonnel • Ushers prevent this type of seat switching. • Security personnel specifically work to prevent fights, fans throwing objects onto the field or at each other, etc. • Crowd control is critical to ensure the safety of fans as well as players, coaches, and officials.

14. Stadium Parking • Traffic flow, parking, and getting fans through the gates and into the stadium is always a challenge at a large event. • Event organizers must ensure adequate parking. • Sometimes this can be done with a large parking lot at the venue, but often that is not sufficient. • In that case, parking lots away from the main venue (called satellite lots) are used and fans are bused from the satellite lots to the main venue.

15. Stadium Parking • Event organizers must arrange for the lots and the buses. • Parking lots must also be staffed with adequate gate personnel to let cars in, attendants to direct traffic in an orderly manner, and security to help resolve accidents or other incidents within the lot. • Ticket sellers must be hired to ensure that fans can purchase tickets on the day of the event. • Ticket takers must be hired to collect tickets from fans that have purchased tickets ahead of time or at the event.

16. Sponsorships • Companies sponsor a sports team as a form of advertising. • They feel that fans of the sports team are good candidates to buy their products. • Sports and entertainment businesses try to provide a wide range of sponsorship opportunities to meet the needs and budgets of all different types of potential sponsors.

17. Sponsorships • Small signage advertisements may appeal to smaller companies or local businesses. • Stadium naming rights may appeal to large national or international corporations. • Sports and entertainment businesses negotiate with potential sponsors to create the right mix of advertising opportunities at an acceptable price to the sponsors. • Potential sponsors have a wide range of advertising options so businesses must be careful not to wear out their patience with repeated, unacceptable offers.

18. Licensing • Many companies find it attractive to be the “official” item (hat, ball, sandwich) of a sports team or even music tour. • To become the official item, the company licenses the use of the name and/or logo on a particular item • The license may be exclusive or non-exclusive. • An exclusive license means that no one else can sell the same type of item with the team’s name and logo.

19. Licensing • In an exchange for the right to use the name and logo, the license normally pays the team a fixed fee and a percentage of its sales of the item (known as royalty). • In evaluating potential licensees, a team must consider the fixed fee offered, the royalty rate and the firm’s estimate of the amount it can sell. • Sports and entertainment businesses are also very concerned about the quality and ethical reputation of licensees because a bad “official” item of the team reflects badly on the team.

20. Financials • Understanding the financial performance of a sports and entertainment business is tricky. • Some financial items occur per event (or game). • Examples include revenue from ticket sales and wages paid to ushers. • Other financial items occur per season or several seasons. • Prime examples are revenue from the sale of stadium naming rights and preseason advertising expenses meant to build awareness of the team. • Some expenses vary (change) depending on the number of fans attending the game. • For example you will need to spend less on security personnel if fewer fans are expected to attend.

21. Financials • Some expenses are fixed (do not change) depending on the number of fans. • An example is the rent paid for use of the stadium. • Building a profitable sports and entertainment business means generating a mix of revenues that exceed expenses over an entire season. • Some events will be highly profitable, other events may generate a loss despite management’s best efforts.

22. Player Management • Winning is very important to a professional sports team. • A winning team is able to draw more fans, command higher sponsorship fees, and sell more licensed products. • The selection of players to form a winning team is a collaboration between business managers and the coach who controls on-field play. • Some excellent players may be too expensive for a team or even push the team over a league salary cap.

23. Player Management • A salary cap is a league imposed pay limit designed to ensure competitiveness in the league. • Players are judged largely on their past performances either in college or in pior seasons as professionals. • Players will age over time with their performance generally degrading after some point. • Especially in football, injuries can occur requiring an immediate backup player for that position.

24. Turnaround • When a sports and entertainment business (or any business) is performing poorly, new management is frequently brought in to “turnaround” the business. • New management must act quickly to rescue the business. • Changes can include finding new sources of revenue, correcting pricing problems, adjusting staffing, etc.

25. Turnaround • Managers use many tools to diagnose the problems: • Reviews of financial statements • Observation of operations • Surveys of potential customers • The goal of a turnaround is to return business to profitability.

26. The End