The business of sports: The role of finance and economics in sport management

The business side of sports includes the activities, strategies, and principles that drive the commercial aspects of the sports industry worldwide. Marketing, finance, economics, and management principles create, promote, and deliver sports products and services to fans and communities. Finance and economics sustain and grow sports organizations, leagues, and teams.

Savvy financial management in sports involves strategic planning, budgeting, investment, and revenue generation, all of which are needed for sports entities to operate efficiently and profitably. Sport management leaders use economics to analyze market trends, consumer behaviors, and the impact of external factors on the sports market.

Understanding the economic principles underlying supply and demand, pricing strategies, and the economic impact of sports events on local and global economies allows the sports industry to thrive and contribute to economic development.¹

This article will explore the role of finance and economics in sport management.

The economics of sports

Sports franchises operate in a complex industry, exerting a significant economic impact on the local and global levels. The sports industry includes a wide array of activities, from professional and amateur competitions to merchandise, media rights, and sponsorships, generating substantial revenue streams and employment opportunities. It operates with the same elements of supply and demand as other economic markets. This industry not only entertains millions of fans but also drives economic growth through innovation, infrastructure development, and international trade.²

Major sporting events, such as the Olympics, World Cup, and Super Bowl, have a profound economic impact on their host cities and countries. They drive infrastructure improvements, boost tourism, and promote international exposure.

However, cities have to weigh the benefits against the costs of hosting such events, including public spending on stadiums and facilities. The long-term economic legacies of these events can vary, with successful planning and legacy use of infrastructure improving the positive outcomes.³

Financial management in sports

Sport managers need strong financial management skills to secure the financial health and sustainability of sports organizations, teams, and leagues.

Budgeting and financial planning allow organizations to allocate their resources efficiently, plan for future investments, and mitigate their financial risks. Sport managers forecast revenues and expenses, set financial goals, and make sure that their financial operations align with the strategic objectives of their organization.

Revenue-generating opportunities include ticket sales, broadcasting rights, licensing, and digital media. Teams and leagues must constantly innovate to maximize their revenue streams, ensuring financial stability and competitiveness. Sponsorships and merchandising are significant revenue sources, leveraging the branding power of teams and athletes. Strategic partnerships with effective merchandising campaigns increase fan engagement and brand visibility.⁴

Effective money management in sports doesn’t just involve generating more revenue. Teams must also consider how to spend strategically. For instance, many major league sports include a salary cap and player contracts that are designed to maintain a competitive balance.

By regulating the total spending on player salaries, leagues try to strike a balance that prevents wealthier teams from monopolizing the top talent.⁵

KU course connection: HSES 828 — Sport Finance

This course is a study of the principles and applications of finance and economics in the sport industry. Strategic financial planning as a part of management responsibilities is highlighted.

Investment and finance

Far from being just a game, the sports industry offers many investment opportunities, ranging from direct ownership of teams and venues to investments in sports technology, e-sports, and related media ventures. These opportunities attract individual and institutional investors looking for diversified portfolios.⁶

The valuation of sports franchises is based on factors such as team performance, brand value, market size, and revenue streams. These valuations guide decisions on acquisitions, mergers, and sales. The high-profile nature of sports franchises often results in valuations that reflect the tangible assets and income and the intangible value of brand loyalty and a strong fan base.⁶

To maximize the financial potential of a sports investment, investors also need to consider risk management, including uncertainties related to team performance, regulatory changes, and market dynamics. Effective risk management involves identifying potential financial risks, assessing their impact, and implementing strategies to mitigate them. Sport managers might implement measures such as purchasing insurance, diversifying revenue streams, and engaging in strategic financial planning.

Carefully navigating these risks can help sports organizations safeguard their financial stability and promote long-term growth and success.⁷

Marketing and branding

Marketing and branding can contribute to income generation by creating strong, recognizable sports franchises and forging deep connections with fans.

Building a sports brand hinges on conveying the values and unique identity of a team or organization. This process requires consistent messaging, engagement with fans, and memorable experiences. A strong sports brand evokes emotional responses, loyalty, and a sense of community among its followers.⁸

Marketing strategies in sports use traditional and digital platforms to engage fans. Some effective strategies include targeted advertising, social media campaigns, community engagement initiatives, and personalized fan experiences.

When sport managers understand and cater to the preferences and behaviors of their audience, they can improve their fan engagement, increase their merchandise sales, and attract lucrative sponsorships.⁸

Future trends

As is the case with almost all industries, technology is revolutionizing sports finance. Innovations like blockchain and cryptocurrency offer new opportunities for fan engagement and investment, such as fan tokens and digital collectibles. These technologies also increase financial transparency and efficiency in transactions, ticketing, and merchandise sales.⁹

Sports organizations are also expanding their efforts to reach audiences worldwide.

Leagues and teams are now engaging fans across continents, using digital platforms for broadcasting and social media to reach a global audience. This trend helps diversify their revenue streams. On the other hand, it also increases the need for cultural sensitivity and local engagement strategies.¹⁰

As in many other businesses, sustainability is a growing concern in sports, with organizations prioritizing eco-friendly practices and social responsibility.

From the construction of green stadiums to the adoption of sustainable event management practices, the industry is working to address environmental challenges. This focus extends to social sustainability, with sports entities increasingly involved in community development, inclusivity, and promoting health and well-being.¹¹

Sports betting: A future trend shaping the business of sports

The history of sports betting dates back centuries, with evidence of informal wagers on athletic contests found in ancient civilizations. Over time, sports betting has evolved alongside advances in technology and changes in societal attitudes towards gambling.

What once began as local bookmaking has transformed into a sophisticated industry with online platforms, in-play betting options, and a diverse array of betting markets that fans can access via mobile apps, websites, and other digital platforms, making it easier and more convenient than ever to engage with sports betting.

A booming market

Currently, the sports betting industry boasts a market value in the billions, with continuous growth projected in the coming years, and it shows no signs of slowing.

According to an S&P Global Market Intelligence article, per data from the American Gaming Association's Commercial Gaming Revenue Tracker, Americans surged their sports betting wagers to a record $119.84 billion in 2023.¹² This reflected a notable 27.5% surge and translated into a massive 44.5% rise in revenue from 2022.¹² Legal sports betting now extends across 38 U.S. states.¹²

In the global online sports betting market, revenue is projected to reach $45.94 billion in 2024, with an annual growth rate (CAGR 2024-2029) of 7.41%, resulting in a market volume of $65.68 billion by 2029.¹³ The number of users is expected to reach 180.8 million by 2029, with user penetration increasing from 3.9% in 2024 to 4.9% by 2029.¹³

The significant economic footprint of modern sports betting extends across the commercial sport industry and is influencing everything from the macroeconomic impact of major sporting events to the microeconomic decisions made by individual teams and organizations.

Challenges and opportunities

For today's sport management students, understanding the complexities of sports betting is essential for navigating the commercial sport industry. It requires a grasp of sport management theories and practices, as well as a keen awareness of the regulatory environment and ethical considerations surrounding sports betting.

Moreover, managing sport operations in an era of widespread sports betting requires strategic foresight and adaptability. Organizations must balance the potential revenue opportunities with the risks of compromising the integrity of their sport and the well-being of their athletes.

As we look to equip future managers with the tools to succeed in the ever-evolving sport businesses landscape, a thoroughly international perspective is paramount. Sport organizations must navigate the complexities of sports betting regulations and consumer behaviors across different markets, requiring a nuanced understanding of cultural norms and legal frameworks.

Sports betting represents not only a significant revenue stream for the commercial sport industry but also a multifaceted challenge for sport management professionals. By embracing innovation, fostering ethical practices, and maintaining a global outlook, the business of sports can harness the potential of sports betting while safeguarding the integrity and spirit of competition.

Become a sport management leader with economic expertise

The University of Kansas is world-renowned for its athletic tradition, and there’s no better place to advance your career in sport management than by joining KU’s online master’s in sport management master’s program.

The rigorous curriculum, expert faculty, mentorship support, and global Jayhawk alumni network will equip you with the skills and knowledge you need to succeed in all aspects of the business of sport management.

Reach out to a University of Kansas School of Education and Human Sciences admissions outreach advisor today to learn more and get started.