What Are the Basics of Sport Finance?
In order for any sport organization or enterprise to thrive, good financial practices must be followed. Those responsible for this crucial aspect of the industry are sometimes financial experts who move into sports, while others study sport management with a particular interest in its financial aspect. As in any professional field, financial management in the sport industry relies on:
- Strategy, planning and budgeting
- Wise spending and reducing expenditures
- Reporting and analysis
Here's a brief look at some of the ways in which sport financial experts budget their resources and maximize value throughout their organizations.
Financial Strategy, Planning and Budgeting in the World of Sports
The first major step in financial management for a sport organization is determining the type of business entity the organization is: a sole trader, a partnership, a corporation, a co-operative or a nonprofit.
Sport financial management begins with determining what funds are available and how to allocate them. Examining previous financial records is essential for established programs, while creating a strategy and budget from scratch for a new program requires working with owners and key stakeholders to best allocate financial resources.
Creating a financial strategy involves:
- Taking into account current trends in the specific sport industry in which the team or organization operates
- Examining internal constraints (factors affecting the organization that have come about through past decisions) versus external constraints (outside factors that affect the organization)
- Breaking down all expenses, including venue costs, insurance, equipment costs, travel, accommodations, marketing, promotions and personnel salaries
- Accounting for revenue forecasts, including membership fees, ticket sales, donations and sales from dining and apparel
- Organizing financial information into a dashboard that is easy for stakeholders to read and understand
And as they work through all these tasks, sport finance professionals must keep in mind any and all regulations pertaining to their organization's finances. Any fundraising efforts must be legal, and if the sports organization is part of a larger association, its rules must be followed as well.
Every budget decision that is made should be viewed through a lens of risk versus its potential return, including the likelihood it has to produce a meaningful return at all.
Spending in Sports
Successful sport finance management is dependent on making intelligent decisions that will maximize value for organizations. Financial management in the sport industry may mean that financial managers will need to work with other parties throughout an organization to make smart and effective spending decisions. Tactics involved in these discussions might include:
- Building effective partnerships with high-value vendors
- Working with organizations that bring visibility and value to the sport organization, such as through high-quality sponsorships
- Looking for revenue stream opportunities, such as the creation of a mobile application that includes in-app purchases
- Cutting out unnecessary expenditures and maintaining emergency funds for unexpected expenses or delayed income streams
While a financial manager might not play a role in the creative execution of initiatives like these, they will often be the ones to designate a budget and advise on whether decisions are wise for the organization to make based on trends and forecasts.
Sport Finance Reporting and Analysis
Sport finance managers measure all spending and monitor its impact on their organizations, which allows organizations to be agile and adjust their budgets accordingly. This includes proposing solutions to account for financial losses and ensuring that spending is continually optimized.
Using an accurate, up-to-the-minute reporting tool, sport finance managers must keep precise and detailed records. These should be used to create future financial projections, improve the accuracy of budgets and analyze the successes and failures that can influence business decisions throughout an organization.
Financial reports will also be needed for business taxes, of which sport finance managers should know the intricacies. Amateur sports may be funded in part by taxpayers, which will factor into budgeting in some complex ways. Sport finance reporting requirements may vary depending on the state the organization is in, as well as on the type of organization and its overarching association.
Reporting and analysis are used in the field of sport to determine both short- and long-term budgeting. Often, organizations will have a long-term vision regarding growth, including expansions in venue capacity and improvements in training equipment. Reporting helps organizations better project whether and when they will be able to meet these goals.
Other Factors that Play a Role in Sport Finance
Depending on the type of sport organization they work for, finance managers may need to also have a grasp on how the following factors affect the organization's finances:
- Gambling: Smaller professional clubs may use gambling events like raffles to raise funds, while gambling may soon play a larger role in American professional sports after the National Basketball Association's proposed integration of it into their own financial structure1
- Media: Broadcasting sports on TV and/or radio requires financial partnerships between the sports organization and the broadcasting company
- External partnerships: Selling merchandise outside a sporting venue requires financial agreements with manufacturers and retailers
As this brief rundown shows, sport finance involves quite a lot of intersecting areas of expertise. If you choose to enter this career, you’ll be predicting how various factors like these can impact an organization’s revenue and resources and determining how funds will be allocated.
Learn About the Financial Side of Sport Management at KU
The University of Kansas online Master’s in Sport Management* program prepares students to work in all of these aspects of sport finance and to apply the skills they acquire in a variety of career environments. Discover more about the KU sport management program here.
*This program is a Master of Science in Education (M.S.E.) degree in health, sport management, and exercise science with an emphasis in sport management.
1 Retrieved on March 7, 2018, from washingtonpost.com/news/early-lead/wp/2018/01/25/if-sports-gambling-is-legalized-the-nba-wants-in-on-the-profits/