Sports and Entertainment Means Business

1. 2 Sports and Entertainment Means Business 2.1 Sports and Entertainment Economics 2.2 Risk Management 2.3 Business Ethics 2.4 Financial Analysis

2. Winning Strategies EMI • one of the largest music content providers • cost savings achieved through outsourcing of manufacturing • in 2005, income grew due to legitimate sales of digital music • the music industry embraces ever-changing technology and helps drive the economy Chapter 2

3. Lesson 2.1Sports and Entertainment Economics Goals • Define profit and explain the profit motive. • Describe types of economic utility. Chapter 2

4. Terms • profit • profit motive • economics • economic utility Chapter 2

5. THE PROFIT MAKERS • profit • the amount of money remaining from revenues after all expenses are paid Chapter 2

6. 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 Chapter 2

7. Cultural Opportunities for Profits • Worldwide distribution revenue is critical for movie profits. Chapter 2

8. 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 Chapter 2

9. In addition to U.S. ticket sales, name two other large sources of revenue for U.S. film studios. Chapter 2

10. ECONOMICS • economics • the study of how goods and services are produced, distributed, and consumed Chapter 2

11. macroeconomics • the study of the economics of the entire society • microeconomics • the study of the relationships between individual consumers and producers • Sports and entertainment marketers are focused on microeconomics. • relationships with consumers Chapter 2

12. Sports and Entertainment Economics • economic utility • the amount of satisfaction a person receives from the consumption of a particular product or service Chapter 2

13. Types of Utility • form utility • when the physical characteristics of a product or service are improved • time utility • making the product or service available when the customer wants it • place utility • the product is available where it is wanted • possession utility • the product or service is available at an affordable price Chapter 2

14. List four types of economic utility. Chapter 2

15. Lesson 2.2Risk Management Goals • Define risk and describe the categories and classifications of risk. • Name and describe four strategies for risk management. Chapter 2

16. Terms • risk • risk management • liable Chapter 2

17. RISKING IT ALL • risk • the possibility of financial gain or loss or personal injury Chapter 2

18. Categories of Risk • natural risk • occurs from unavoidable weather conditions • human risk • dishonest customers and employees • inadequately trained employees • economic risk • occurs due to changes in the economy Chapter 2

19. Additional Classification of Risk • gain or loss risk • speculative risk • either a gain or loss could result • pure risk • a chance of an event occurring that could only result in a loss Chapter 2

20. controllable risk • if a loss can be prevented or the likelihood of its occurrence reduced • uncontrollable risk • nothing can be done to prevent the risk Chapter 2

21. 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 Chapter 2

22. What is meant by a controllable risk? Chapter 2

23. MANAGING RISK • risk management • preventing, reducing, or lessening the negative impacts of risk by using the strategies of risk avoidance, risk insurance, risk transfer, and/or risk retention Chapter 2

24. Risk Avoidance • Sports and entertainment marketers need to plan to avoid risky situations. • liable • the business is legally responsible for damages that occur Chapter 2

25. Risk Insurance • risk insurance • pays for predictable losses • premium • cost of insurance Chapter 2

26. 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 Chapter 2

27. 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 Chapter 2

28. Briefly describe four strategies for managing risk. Chapter 2

29. Lesson 2.3Business Ethics Goals • Define ethics. • Discuss the impacts of unethical behavior. Chapter 2

30. Terms • ethics • principles Chapter 2

31. DO ETHICS COUNT? • ethics • a system of deciding what is right or wrong in a reasoned and impartial manner • Business should be conducted with integrity, trust, and fairness. Chapter 2

32. 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. Chapter 2

33. How does a person’s character develop? Chapter 2

34. BUSINESS BEHAVIOR • People and businesses should act ethically while pursuing a profit. Chapter 2

35. Seeking an Advantage • Sometimes it is hard to continue to act ethically when you observe people who receive a benefit from acting unethically. Chapter 2

36. When Being Bad Profits • Only fans can really influence the behavior of ethically challenged athletes and celebrities. Chapter 2

37. Effective and Ethical • Good decisions are both ethical and effective. • Good decisions are the right choices for the long term. Chapter 2

38. How can the bad behavior of celebrities be controlled? Chapter 2

39. Lesson 2.4Financial Analysis Goals • Discuss sources of funding and revenue for sports and entertainment businesses. • Describe four tools for financial analysis. Chapter 2

40. Terms • return on investment • forecast • budget • balance sheet • income statement Chapter 2

41. IT TAKES MONEY • Profit is the primary purpose of sports and entertainment marketing. Chapter 2

42. Finding Funding • Investors generally provide the funding for an event to cover all the costs that must be incurred before tickets are ever sold. Chapter 2

43. return on investment • the income from a venture that is distributed to investors Chapter 2

44. Money Sources • Funds to repay investors are raised through • ticket sales • broadcast rights • licensing • facilities Chapter 2

45. Name three sources of revenue from sports and entertainment. Chapter 2

46. WHERE IS THE MONEY? • forecast • a plan that predicts the expenses to be incurred and the revenues to be received Chapter 2

47. 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. Chapter 2

48. Financial Statements • balance 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 Chapter 2

49. What is the purpose of a forecast? Chapter 2

50. PERFORMANCE INDICATORS EVALUATED • Communicate pricing strategies for supply and demand. • Analyze relevant data to determine varying ticket prices for home games. • Explain the need for and use of additional revenue from higher-priced tickets. Chapter 2