Budgeting and Financial Management of Sport Programs

1. Budgeting andFinancial Managementof Sport Programs Steir – Chapter 7

2. Class Reminders • Weekly article #6 due today – budget/finance • WebCT this weekend – chaps 6 & 7 (Fri-Sun) • Resume notes available online • Start working on Portfolio – collect resources • Attendance policy – be here, contribute

3. The Budgetary Process What’s the purpose? • To facilitate the realization of the sport organization’s goals and objectives through: • Fiscal responsibility • Sound business practices • Effective decision-making • Prudent financial management

4. The Budget as a document What is a budget? • A budget is a written statement of anticipated income and expenses over a period of time - usually a 12-month period • Serves as a financial blueprint and a guide • Usually organizational or departmentalized Essential Elements of a Budget? Anticipated Income and Anticipated Expenses • Time Factor (calendar or fiscal year)

5. Outline Your Personal Budget Create a line-item for each general income and expense in your monthly budget Justify the need for each expense What steps can you take to increase income? What steps can you take to reduce expenses?

6. Types of Budgets Different types of budgets can be used for different components of the organization: - examples… • Operational Budget – deals with costs and expenses associated with fiscal year operation • Personnel Budget – deals with employee and personnel costs • Capital Expenditures Budget – deals with present and future costs of building-renovating “large ticket” items (facilities) (15-30 years) • Equipment Budget – deals with costs associated with equipment needs

7. Inflation? Costs of managing physical education, fitness and sport programs are always increasing Why? Inflationary effects on supplies, equipment, insurance, technology, travel, transportation, salaries, security, food, utilities, etc.

8. Sources of“Big $”Fueling Professional Sport Budgets What revenue streams are providing big $ to professional sport budgets? • Broadcasting rights • Corporate advertising • Stadium luxury boxes • Licensed merchandise • Stadium concessions • Personal seat licenses and tickets

9. Sources of “Big $” for Individual Collegiate Athletic Programs? What are the main revenue sources? • Ticket sales (27%) • Donor contributions (17%) • Institutional support (9%) • NCAA and conference distributions (8%) • Radio/Television (8%)

10. Sources of Expenses for Collegiate Athletic Programs What are the main expenses? • Scholarships • Salaries • Travel • Supplies • Equipment • Publications/Promotions • Computer Technology

11. EIU’s Athletic Budget With a partner, outline EIU Athletics • Largest 5 Revenue sources • Largest 5 Expense sources

12. EIU’s Athletic Budget Largest 5 Revenue sources? • Student fees • NCAA distributions • Guarantees from D1 games • Special events • Panther Club Sources where there is room for growth?

13. EIU’s Athletic Budget Largest 5 Expense sources: • Wages • Special Events • Capital Debt Improvements • Capital Debt Service • Medical

14. EIU Athletics – Scholarship Budget

15. EIU Athletics – Scholarship Budget

16. Sources of“Big $”Fueling the NCAA’s Budget? What revenue streams are providing big $ to the NCAA’s Budget? • Broadcasting rights (television) • Division 1 Men’s Basketball Championships • Other?

19. Sources of“$”Fueling High School Athletic Budgets? What revenue streams are providing big $ to high school sport programs? • Tax appropriations to school • “Pay to Play” – student fees to play • Fundraising/donations – booster club • Signage/Sponsorships • Concessions • Ticket sales

20. Interscholastic Budget Realities • - from “Schools face funding issues in high schools sports” – NFHS News, Feb 2004 • In many cases, state funding is decreasing • Rising costs are outpacing state funding • Pay-to-participate fees are increasing • Coaching staffs are being reduced • Sub-varsity level teams are being eliminated • # of contests are gradually decreasing • Fundraising has become an essential activity

21. Pay-to-Participate in Illinois In 2004 Glenbard High School District 87 set a goal of a balanced budget by 2006 The school district proposed an elimination of extracurricular activities and half the sports programs starting in 2004 After parent outcries to restore the sports and extracurricular activities, the programs were re-instated and the per-sport fee was raised from $40 to $140, and registration fees were increased from $55 to $180

22. Research on Participation Fees Survey distributed to Ohio public high schools (1999-2000) Important findings: • 22% of Ohio high schools charge a fee • Majority of schools using fee were in larger, more affluent suburban districts • Significant relationship between charging a participation fee and a reduced athletic participation rate in fee charging schools, especially with fees above $250 per sport (Smith, 2001)

23. Pay-to-Participate in Midwest States Sylvania, Ohio Schools • $125 annual athletic fee • $800 surcharge for hockey • $35 annual fee for band, yearbook, or choir (Emmons, 2005)

24. Intercollegiate Athletics Budget • Example of NCAA budget and EIU budget (see other example on p. 168-170, 183-188 of Steir) • Line-Item method of budgeting typically used • Previous and future fiscal years often included • Typically the largest line-item expense? Scholarships and Salaries + benefits for coaches, AD, & staff

25. Methods of Budgeting (5) Line-Item Budgeting– each class or type of expense and income is categorized on a different line of the balance sheet Incremental Budgeting – adding to or taking from the previous year’s budget by increments or % (i.e. – 2.5% increase for all line-items next year) Zero-based Budgeting – based on the requirement that organizations and their programs must propose and justify their total need for resources, not just request an auto-increase (Princeton Athletics)

26. Methods of Budgeting (5) Formula Budgeting – using a formula to determine how much to allocate to cover individual program expenses (i.e. = away-game travel expenses – mileage, per diem, hotel, etc.) - advanced policies need to be established to determine appropriate “formulas” – State of Illinois PPBS – (Plan, Program, Budget, System) - involves establishing programs and activities to coincide with organization goals and objectives, then budgeting and allocating resources to meet the needs of these programs – evaluating program results on an annual basis – government approach

27. The Financial Audit What is a financial audit? • A process that provides a “check” on whether the organization is in sound financial condition • It can point out discrepancies, deviations, or irregularities in the management of money (acct.) • Internal Audit – conducted by employees within the actual organization • External Audit – conducted by an outside accounting firm (auditor) - seeks to determine if the organization has followed G.A.A.P.P • Generally Accepted Accounting Procedures and Practices (GAAPP)

28. Accounting(173-179) Purpose of Accounting? An orderly system of keeping track of expenses and income to keep your budget balanced Provides a “snapshot” of the financial status of the organization, or department within organization Makes it possible to track and determine whether purchases were made for the purpose they were intended Helps determine whether expect income was indeed received and deposited to the correct account

29. General Steps to Creating a Budget Step 1 – Begin preparation in advance (even a year before the beginning of new fiscal year) Step 2 – Examine your organization’s objectives, goals, and mission Step 3 – Collect data relevant to past, present, and anticipated income and expenses Step 4 – Solicit the input of financial experts inside and outside the organization Step 5 – Follow organization’s standard operating procedures (SOPs) in the construction, development, and presentation of the budget

30. General Steps to Creating a Budget Step 6 – Submit the completed budget documents to a select few for analysis prior to making the formal presentation Step 7 – When making the formal presentation – anticipate questions, be prepared with accurate and timely responses Step 8 – Edit/revise budget where necessary Step 9 – Implement new budget at the beginning of the new fiscal year Step 10 – Following the end of the fiscal year, conduct a financial audit to ensure accuracy

31. Other Topics of Interest (173-179) Purchasing and Receiving (174) – ordering Petty Cash Accounts (175) – for small purchases Bids and Quotes (175) – ↑ vendor competition Bidding Process (176) – solicitation for service Local vs. Distant Vendors (179)

32. Conclusion With expenses and costs escalating, cost-reducing and accountability have become vital in managing and financing sport organizations – NCAA article * Biggest Challenge: Cost control or reduction without reducing quality of program or service • Take careful inventory of equipment/supplies – try to maximize useful life of resources • Be “open” about the budget and financial health of the organization with employees • If there is nothing to hide, then don’t keep the budget a “secret” from employees