Bell Ringer

•What is the total price of an item that is $102.30, if the sales tax rate is 6%?

Bell Ringer Answer

• $102.30 * 6% (.06) = $6.138 $6.14• $102.30 + $6.14 = $108.44

Agenda

• Bell Ringer – 5 minutes• Lecture / Note Taking – 35 minutes– Complete chapter 4 vocabulary as we take notes,

if you have not already done so.• FBLA / Business Demographic Survey (maybe)• Marketing Math Problems – 30 minutes

Vocabulary

• Return on Investment• Forecast• Budget• Balance Sheet• Income Statement

Learning Objectives

• Discuss sources of funding and revenue for sports and entertainment businesses.

• Describe four tools for financial analysis.

It Takes Money

• The main purpose of all business activity surrounding sports and entertainment marketing is to make a profit.

• An unprofitable venture will eventually run out of money, and other businesspeople will be unwilling to invest or become owners.

• The venture will cease to exist.

Finding Funding

• A number of entities generally come together to stage an event, each entity has the possibility to make or lose money.– The people who are owners of the event idea

must risk their own money to stage and market the event, or they must find others who are willing to invest in or sponsor the event.• The owners/originators must have a plan that will

convince investors of the potential for profit.

Finding Funding

• Investors generally provide the funding for an event to cover all the costs that may be incurred before tickets are sold.– Costs may include: salaries for the cast and crew,

costs of the facilities, costs of promoting the event to fans, all other costs that go into making an event happen.

• In return for providing the money to cover costs, the investors seeks a return on their investment.

Finding Funding

• Return on Investment is the income from a venture that is distributed to investors.– Investors must feel secure about their chances of

earning a return on investment before they will risk their money to make a profit.

Money Sources

• The revenues used to repay investors are generated through ticket sales, broadcast rights, licensing, and facilities.– Facility Sources

• Sponsor advertising, parking fees, rental of luxury boxes, and sales of concessions.

• Television networks generate revenue by selling commercial time to advertisers. – To clear a profit they must bring in more revenue than they spend

on buying the rights to air sporting events or producing and distributing programs.• To air NFL games on CBS, Fox, ESPN, and NBC each network must pay the

NFL ~$3.1 billion. • Resulting in higher commercial prices for companies.

Where is the Money??!

• Decisions made about where and how to spend money impact profitability. – Financing involves budgeting, finding ways to pay

the costs of doing business, managing the costs so that they do not exceed the revenues coming in, and helping customers pay for the products or services.

• Careful financial plans for be prepared and records must be kept.

Where is the Money?!?

• Forecast a report developed to predict the expenses to be incurred and revenues to be received from an event.

Budgets

• A budget is a plan for how available funds will be spent.– Road map for spending and it has a specific

purpose – to control costs so they do no exceed the funds available.

• Budgets are usually prepared for 1 fiscal year and broken into monthly segments.

Financial Statements

• Records must be kept of all financial transactions.

• Balance Sheet shows the company’s assets (items of value, including cash, property, and equipment) and its liabilities (amounts owed for purchases made on credit and loans) at a specific point in time. The difference between the two is the company’s net worth.

Financial Statements

• Income statement a report that shows all revenues received and all expenses incurred over a specific period of time.– Reveals if a company made a profit or

encountered a loss.

Marketing Math:

• A local band with five members has the following expenses:– Renting a recording studio, $2,400– Creating a promotional web site, $5,000– Duplicating and packaging 20,000 copies of a DVD, $50,000– Advertising and distribution costs, $62,000– Agent and songwriter fees, 10% of revenues

• If the DVD sells for $15 per copy, how many copies will need to be sold in order to earn $10,000 for each band member.

Answer• $10,000 (profit) * 5 band members = $50,000 total earnings

needed for band.• Expenses: $2,400 + $5,000 + $50,000 + $62,000 = $119,400 total

FIXED expenses.• $119,400 + $50,000 (profit for band) = $169,400 (total amount

needed to raise).• $15 * 10% = $1.50 per copy to agent and songwriter fees.• $15.00 - $1.50 = $13.50 (gross revenue per DVD)• $169,400 / $13.50 = 12,548.15

The band will need to sell 12,549 copies to earn $10,000 per band member.

Marketing Math:

• A local band with THREE members has the following expenses:– Renting a recording studio, $3,000– Creating a promotional web site, $5,000– Duplicating and packaging 20,000 copies of a DVD, $60,000– Advertising and distribution costs, $42,000– Agent and songwriter fees, 10% of revenues

• If the DVD sells for $12 per copy, how many copies will need to be sold in order to earn $8,000 for each band member.

Answer• $8,000 (profit) * 3 band members = $24,000 total earnings

needed for band.• Expenses: $3,000 + $5,000 + $60,000 + $42,000 = $110,000 total

FIXED expenses.• $110,000 + $24,000 (profit for band) = $134,000 (total amount

needed to raise).• $12 * 10% = $1.20 per copy to agent and songwriter fees.• $12.00 - $1.20 = $10.80 (gross revenue per DVD)• $134,000 / $10.80 = 12,407.4

The band will need to sell 12,408 copies to earn $8,000 per band member.

This chapter we have discussed:

• Sports and Entertainment Economics:– Profit– Profit Motive– Economics– Economic Utility

• Risk Management– Risk– Risk Management– Liable

• Business Ethics– Ethics– Principles

• Financial Analysis– Return on Investment– Forecast– Budget– Balance Sheet– Income Statement