Transcript Chapter 2 - businesseducationnation

Chapter 2
Sports and Entertainment
Means Business
2.1 Sports and Entertainment
Economics
2.2 Risk Management
2.3 Financial Analysis
Sports and Entertainment Marketing
© Thomson/South-Western
Lesson 2.1
Sports and Entertainment
Economics
Goals
 Define profit and explain the profit
motive.
 Describe types of economic utility.
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Terms




profit
profit motive
economics
economic utility
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THE PROFIT MAKERS
 profit
 the amount of money remaining from
revenues after all expenses are paid
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 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
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Cultural Opportunities for
Profits
 Worldwide distribution revenue is
critical for movie profits.
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 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
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 All time (domestic)
 All time (international)
 All time (adjusted for inflation)
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Profit Calculations
 In 2008, the average feature film
cost the major studios $72 million to produce
and $37 million to promote.
$2,788,000,000 (Avatar Revenue -Domestic and International)
- $ 109,000,000 (average movie expenses in 08’)
$ 2,679,000,000 (Avatar’s Profit)
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 In addition to U.S. ticket sales, name two
other large sources of revenue for U.S.
film studios.
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ECONOMICS
 economics
 the study of how goods and services are
produced, distributed, and consumed
-
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 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
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Sports and Entertainment
Economics
 economic utility
 the amount of satisfaction a person
receives from the consumption of a
particular product or service
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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
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Movie Business
 form utility
 time utility
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Movie Business
 place utility
 possession utility
$20
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Only $8.99 a
month
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 Go to page 35 in your book and read the
example there of Types of Utility and
Three Ring Utilities.
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Lesson 2.2
Risk Management
Goals
 Define risk and describe the categories
and classifications of risk.
 Name and describe four strategies for
risk management.
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Terms
 risk
 risk management
 liable
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RISKING IT ALL
 risk
 the possibility of financial gain or loss or
personal injury
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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
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Natural
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Human
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Economic
 Changes in the business environment,
such as the economy
 Peak =
 Trough =
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Risk in Disasters
 Top 10 Disasters that Affected Sports
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Additional Classification of
Risk
Example: Theater
 Controllable Risk
 If a loss can be prevented or the likelihood
of its occurrence reduced.
Theater manager made sure fire exits were
available and well lit, sprinkler systems
working, and employees were trained for fire
emergencies.
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Additional Classification of
Risk
Example: Theater
 uncontrollable risk
 nothing can be done to prevent the risk
Tornado blows theater away, weather can
not be controlled.
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 What steps could a venue like The Times
Union Center take to reduce or prevent
loss or risk (controllable risk)?
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Can someone have too
much risk?
 Along Came Polly
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MANAGING RISK
 risk management
 preventing, reducing, or lessening the
negative impacts of risk by using the strategies
of
1. risk avoidance
2. risk insurance
3. risk transfer
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1. Risk Avoidance
 Sports and entertainment marketers need to
plan to avoid risky situations.
 liable
 the business is legally responsible for
damages that occur.
 A business does not want to be held
liable, so they take extra steps to reduce
liability through controllable risks, such as
____________, ______________, and
____________.
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2. Risk Insurance
 risk insurance
 pays for predictable losses
 premium
 cost of insurance
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3. Risk Transfer
 Transferring risk to another company or to
the consumer
 Ex: Statement on the back of event tickets
 Statement says promoter is not responsible for any
harm to ticket holder.
 By accepting ticket attendee agrees to accept
liability for possible risks.
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 Briefly describe the 3 strategies for
managing risk.
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Lesson 2.3
Financial Analysis
Goals
 Discuss sources of funding and
revenue for sports and entertainment
businesses.
 Describe four tools for financial
analysis.
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Terms

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return on investment
forecast
budget
balance sheet
income statement
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IT TAKES MONEY
 Profit is the primary purpose of sports
and entertainment marketing.
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Finding Funding
 Investors generally provide the funding
for an event to cover all the costs that
must be incurred before tickets are ever
sold.
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Costs that must be incurred
before tickets are ever sold
 Salaries for cast and crew (play or
concert)
 Facilities maintenance costs
 Promotion/marketing costs
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In return for taking a chance(investing $$)
to cover costs of a business the investor
seeks return on investment (ROI).
 the income from a venture that is
distributed to investors
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Money Sources
 Funds to repay investors are raised through
 ticket sales
 broadcast rights - television contracts are
increasing, therefore advertising
(commercial) fees are increasing
 Licensing - Legal right to reproduce a
team’s logo in exchange for payment
 Facilities - sponsor advertisers(signage),
rental of concession stands and % of sales,
rental of luxury boxes, and parking fees.
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 Name three sources of revenue from
sports and entertainment.
 Read Money Source paragraph on
pg.49 in textbook.
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Assets and Liabilities
 Assets =Items of value
 Cash
 Property
 Equipment
 Liabilities= amounts owed for
purchases made on credit or loans
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WHERE IS THE MONEY?
 forecast
 a plan that predicts the expenses to be
incurred and the revenues to be received

In 2008, the average feature film cost the major studios $72 million to produce
and $37 million to promote. A forecast would help a movie studio predict ahead
of time the expenses of the movie in comparison to their compared (believed
earnings the film will make).
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BUDGETS
Forecast helps plan the budget!!
 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.
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Financial Statements
 balance sheet
Difference between
assets and
liabilities…ideal to
have more assets
 net worth = assets – liabilities
 shows net worth at a specific point in time
 income statement
 shows revenues and expenses for aInvestors will want to
look at a forecast,
specific period of time
budget, and the
financial statements
 reveals company’s profit or loss
before making a
decision.
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 What is the purpose of a forecast?
Forecast helps plan the budget!!
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