Exploring Profit and Utility in Sports and Entertainment Economics

1. 2 Sports and Entertainment Means Business Take 5minutes Read pgs. 32-35

2. Lesson 2.1Sports and Entertainment Economics Learning Targets • I can define profit and explain the profit motive. • I can list and describe the FOUR types of economic utility. Chapter 2

3. Terms • Profit • Profit Motive • Microeconomics • Macroeconomics • Economics • Economic Utility Chapter 2

4. THE PROFIT MAKERS • Revenue • the money a business receives from the sales of goods and services. • Money coming “in” to the business. Chapter 2

5. Profit • the amount of money remaining from revenues after all expenses have been paid. • Goal of any business is to earn (make) a Profit. • Profit Motive • making decisions to use resources in ways that result in the greatest profit. Chapter 2

6. Opportunities for Profits • Worldwide distribution revenue is critical for profits. Example: Movies • Avg. Box Office income increases 50% to 100% Avatar - highest ticket sales in last 100yrs with $2,788,007,625 Domestic (released just in USA) $760,507,625 vs. International (released in multiple countries) $2,027,500,000 (+70%) Chapter 2

7. Marketers must always understand the markets in which they target and sales occur. • China’s market - over 1.3 Billion people Sounds like a good market for movie makers correct? Not so fast…… • the government censors movies for content. • pirated movies diminish theater sales. Chapter 2

8. In addition to U.S. ticket sales, name two other large sources of revenue for U.S. film studios. • International Sales • DVD Sales • Rentals (Redbox, Netflix, etc). • Movie Merchandise • In addition to ticket sales, name two other large sources of revenue for the Cincinnati Bengals. • Apparel and Merchandise Sales • Broadcast (TV / Radio) • Licensing Agreements • Sponsorships Chapter 2

9. ECONOMICS • Economics • the study of how goods and services are; • Produced • Distributed • Consumed Chapter 2

10. Macroeconomics • the study of the economics of the entire society. • Microeconomics • the study of the relationships between individual consumers and producers. Macro (large scale) / Micro (small scale) NOTE - Sports and Entertainment marketers are focused on Microeconomics. Chapter 2

11. Economic Utility • Ability of a product/service to satisfy one or more needs or wants of a consumer. • the amount of satisfaction a person receives from the consumption of a particular product or service. NOTE – consumers (fans) are more likely to purchase products/services if it provides higher utility than their other choices/options. Chapter 2

12. Four Types of Marketing Utilities • Form, Time, Place, and Possession make up the Utility Marketing Model. • Utility Marketing – Benefits • Helps businesses to make better choices by allowing them to gain a better understanding of consumer demands • Utility Marketing – Drawbacks • Consumers purchase products for reasons than the four types of utilities….emotion, necessity, boredom, etc. Chapter 2

13. Types of Utility • Form Utility • when the physical characteristics of a product/service are improved thus increasing the attractiveness of the product/service to a group of consumers. • Can result in changes to tangible parts of the product/service. • Time Utility • making the product or service available when the customer wants it. • 24/7 Grocery Stores, Gas Stations, Wal-Mart, McDonalds Chapter 2

14. Types of Utility • Place Utility • the product is available where it is wanted. Note – making things convenient for consumers is a good business practice. • Possession Utility • the product or service is available at an affordable price. • Offering options to consumers regarding payment options; 24months Same as Cash, Cash Back, Credit Cards, Rent-To-Own, Installment Loans, % off Coupons. Chapter 2

15. Example: __________ Utility Chapter 2

16. Example: ___________ Utility Then… Now… Appearances can be deceiving… Same great taste as always… Something’s never change… Chapter 2

17. Example: __________ Utility Chapter 2

18. Example: _________ Utility: Chapter 2

19. Textbook Assignment: • Encore pg. 36 Answer questions: 1, 2, 3 Utilize Microsoft Word – type your answers. Chapter 2

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26. Economic Utility Ad Assignment: 25pts • List examples of FIVEproducts/services that have been updated (changedor modified) via one or more of the economic utilities - Form, Time, Place, Possession. • Research • Internet • Newspaper • Magazines you need to find Do not use any of the examples we have discussed in class (exit slip Examples from Wednesday) • Utilize PowerPoint to demonstrate a “Compare / Contrast” of your findings. • New vs. Old • List which utilities you believe have been changed • Describe how this was accomplished/why you feel this is so. You must have addressed each of the four economic utilities (Form, Time, Place, Possession). Chapter 2

27. Campbell’s Soup • Change in Form Utility – changed physical appearance to a smaller more colorful “microwavable” container. Chapter 2

28. Textbook Assignment pg. 36 1.) B – the study of the economics of the entire society. 2.) D – making decisions to use resources in ways that result in the greatest profit. 3.) Think of a sports or entertainment event you have attended. How could the form utility have been improved? Chapter 2

29. Lesson 2.2Risk Management Learning Targets • I can define risk and list the categories and classifications of risk. • I can name and describe two of the four strategies for risk management. Chapter 2

30. Terms • Risk • Risk Management • Liable Chapter 2

31. RISKING IT ALL • Risk • the possibility of financial gain or loss or personal injury. • There are 3 Main Categories of Risk • Natural Risk • Human Risk • Economic Risk Chapter 2

32. Categories of Risk • Natural Risk • occurs from unavoidable weather conditions. Chapter 2

33. Categories of Risk • Human Risk • dishonest customers and employees. • inadequately trained employees. Chapter 2

34. Categories of Risk • Economic Risk • occurs due to changes in the economy. Note - No guarantee that consumer demand will remain consistent. Chapter 2

35. Classifications of Risk1. Gain/Loss2. Controllable/Uncontrollable3. Insurable/Uninsurable • Speculative Risk (Gain) • Three possible outcomes exist in speculative risk: • something good (gain) • something bad (loss) • nothing (staying even) Investing in the stock market and Gambling on sports are two examples of Speculative Risk(s). Each offers a chance to make money, lose money or walk away even. Chapter 2

36. Pure Risk (Loss) • There are only two possibilities; • something bad happening • nothing happening. It is unlikely that any measurable benefit will arise from a pure risk. Example – a flood closes a golf resort for 2 months, the loss of business is a Pure Risk since there is no possibility of gain from the event. Chapter 2

37. Controllable Risk • loss can be prevented or the likelihood of its occurrence can be reduced. Example – if your home has Smoke Detectors and a Fire Extinguisher your family has taken steps to control the risk of loss due to fire. Example – our school? - Extreme Weather and Fire Drills - Lock Down Drills Chapter 2

38. Uncontrollable Risk • nothing can be done to prevent the risk. • No control. Example – nothing you could do to prevent the loss if a sinkhole swallows your car. Chapter 2

39. Insurable Risk • (pure risk) loss is predictable and the amount of the loss can be estimated. Example – car accident….loss can be calculated using statistics based on similar losses in the past. • Uninsurable Risk • dollar loss could occur…loss cannot be estimated. Example – REDS 2014 season is a bust. REDS have losing season, don’t make the playoffs causing ticket sales to drop, the loss of revenue is an uninsurable risk. Chapter 2

40. Risk Classifications Uncontrollable Risk Controllable Risk Uninsurable Risk Insurable Risk Movie Theater Risk Type – Tornado Risk Type – Fire Golf Resort Risk Type – Heat Wave Risk Type – Golf Cart in the lake Chapter 2

41. MANAGING RISK • Risk Management • preventing, reducing, or lessening the negative impacts of risk by using the strategies of risk; • Risk Avoidance • Risk Insurance • Risk Transfer • Risk Retention Chapter 2

42. Risk Avoidance • (must) need to plan to avoid risky situations. • Liable • the business/team is legally responsible for damages/injuries that occur. Jury: Dodgers negligent in Giants fan's beating The jury found damages of about $18 million but said the Dodgers were responsible for only a quarter of the sum. The rest of the responsibility was split between the two men who beat fan Bryan Stow Chapter 2

43. Risk Insurance • Risk Insurance • pays for predictable losses. • Premium • amount (cost) paid for insurance. • Typically paid monthly, Quarterly, Semi-Annually, or Annually • Deductible • amount (payment) due to receive insurance benefits. Chapter 2

44. Textbook Assignment: • Encore pg. 41 • Answer Questions: #1, #2, and #3 • Email your responses to the questions. Michael.florimonte@campbell.kyschools.us Chapter 2

45. Textbook Assignment: • Encore pg. 41 • B – Thunderstorm • A – • Gain or Loss Risks • Insurable Risks • Controllable Risks • Make the facility is well-lit, has adequate fire exits, staffed with security personnel, employees have been trained for emergency situations. Chapter 2