Chapter 1
Introduction to Sport Finance
Chapter Overview
I. Introduction
II. What is finance?
a. Money and capital markets
III. Five ways to finance the operation of a sport organization
a. Debt
b. Equity
IV. Overview of the industry
a. North American Industry Classification System (NAICS)
V. Financial size of the sport industry
a. Gross domestic sports product
VI. Structure of sport businesses
a. Franchise ownership models
i. Single owner/private investor model
VII. Financial and economic factors affecting sport
a. Economic cycle
i. USOC
ii. Collegiate athletics
iii. Women’s professional sports
iv. NASCAR
b. Television revenue
VIII. Conclusion
Key Concepts
When reading this chapter, students should focus on the following key concepts:
1. The sport industry is unique and therefore creates unique challenges for financial
managers of sport organizations.
2. While the financial goal of most firms is wealth maximization, the goal of a franchise
3. Sport organizations rely on five forms of financing—debt, equity, retained earnings,
government, and gift.
Concept Check Responses
1. What are the five forms of financing, and how is each used in sport?
Answers will vary, as many different examples of each form of financing exist. Here
are the five forms with an example of each:
2. What is financial management? How does financial management differ in the sport
industry as compared to other industries?
Financial management involves decisions within firms regarding the acquisitions or
3. Why does the definition of the sport industry affect the calculation of its size? How
should the industry be defined?
How the industry should be defined really depends on the instructor’s view of the
4. Which has a greater impact on financial management: the structure of a league or the
structure of a team?
There is no right or wrong answer here. Both league and team structure impact
financial management in unique ways. The important point is that a financial manager
5. Many factors affect the economics of sport. What are some not discussed in the
chapter? How do they affect financial management within the industry?
Sport depends on discretionary spending, and the industry grows and contracts as the
levels of discretionary spending do the same.
6. Why is sustainability in the sport industry linked to the green movement?
Discuss this with your students. Is it because of a team’s concern for the environment,
because it is the expected thing to do, or because it adds to the financial bottom line?
7. What legislative actions currently being considered in the U.S. Congress may affect the
financial management of sport?
Follow developments through sources such as the SportsBusiness Daily/Journal or the
Sports Law Blog. These will change over time and as you teach the course. For
Responses to Case Analysis Questions
1. Why was the WNBA structured as a single-entity league when it was founded? What
advantages or disadvantages did the structure provide to the league?
Historically, women’s professional basketball leagues have struggled to survive
beyond a few years. As a single entity owned by the NBA, the WNBA had the financial
2. What impact did the first CBA have on the WNBA, and how did each of the CBAs affect
the league’s profitability?
Primarily, salary increased and therefore team expenses increased. Furthermore, a
3. What factors have caused the WNBA to move away from the single-entity structure?
4. For new leagues, why is the single-entity structure appealing? At some point, do start-
up leagues have to move away from this structure? Why or why not?
New leagues that have been formed as a single entity are appealing as they constrain
costs; contracts and salaries are negotiated with the league. It is debatable if leagues