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Chapter 02 Sports and Entertainment Means Business
2.1 Sports and Entertainment
Economics
Defines profit, explains the profit
motive, and describes types of economic utility
2.2 Risk Management
Defines risk, describes the
categories and classifications of
risk, and describes strategies for risk
management
2.3 Business Ethics
Defines ethics and discusses the
impacts of unethical behavior
2.4 Financial Analysis
Discusses funding and revenue sources
for sports and entertainment businesses and
describes financial analysis tools
Winning Strategies - EMI
the music industry embraces ever-changing technology and helps drive the economy
in 2005, income grew due to legitimate sales of digital music
cost savings achieved through outsourcing of manufacturing
one of the largest music content providers
Lesson 2.1 - Goals
Sports and Entertainment Economics
Describe types of economic utility.
Define profit and explain the profit motive.
Lesson 2.1 - Terms
Sports and Entertainment Economics
Revenue Profit Profit motive
Economic utilityEconomicsMacroeconomics
Microeconomics
Lesson 2.1
The Profit Makers
profit
the amount of money
remaining from revenues after
all expenses are paid
A motive for taking the risks needed to start and operate a
business
There is a misconception that profit is a
dirty word
Profit is the driver behind
the free-enterprise
system
Lesson 2.1
The Profit Makers
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
Lesson 2.1
Cultural Opportunities for Profits
Worldwide distribution revenue is critical for movie profits.
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
Lesson 2.1
Cultural Opportunities for Profits
Developing global markets has changed sports and entertainment marketing
The tremendous demand from China for movies has the potential to drive the movie
market
Marketers must be aware of government restrictions when trying to export movies
What films would not likely be permitted in China?
What films would be allowed in china?
Lesson 2.1
Economics
economics
•the study of how goods and services are produced, distributed, and consumed
Macroeconomics
•the study of the economics of the entire society
microeconom
ics
•the study of the relationships between individual consumers and producers
--
Lesson 2.1
EconomicsSports and entertainment marketers are focused on microeconomics.•relationships with consumers Provide examples of
microeconomicsProvide examples of
macroeconomics
Lesson 2.1 Sports and Entertainment Economics
econom
ic utili
ty
•the amount of satisfaction a person receives from the consumption of a particular product or service
•Give examples of improving each category of economic utility in products or services related to sports and entertainment
Lesson 2.1 Types of Utility
possession utility
the product or service is available at an affordable price
place utility
the product is available where it is wanted
time utilitymaking the product or service available when the customer wants it
form utility
when the physical characteristics of a product or service are improved
Lesson 2.2
Risk Management - Goals
Name and describe four strategies for risk management.
Define risk and describe the categories and classifications of risk.
Lesson 2.2
Categories of Risk
natural
risk
•occurs from unavoidable weather conditions
•Storms
human
risk
•dishonest customers and employees
•inadequately trained employees
•Theft
economic risk
•occurs due to changes in the economy
•Downturn in business
Lesson 2.2
Additional Classifications of Risk
gain or loss risk
speculative risk
either a gain or loss could result
When you start a new business you do not know if you will make or lose money
pure riska chance of an event occurring that could only result in a loss
Lesson 2.2
Additional Classifications of Risk
controllable risk
if a loss can be prevented or the likelihood of its
occurrence reduced
Most accidents can be prevented or their
likelihood reduced with proper precautions
uncontrollable risk
nothing can be done to prevent the risk
The weather cannot be prevented or accurately
predicted
Lesson 2.2
Additional Classifications of Risk
insurable risk
a pure risk for which the chances of loss are predictable and the
amount of the loss can be estimated
uninsurable risk
the chance that a dollar loss could occur
the amount of the loss cannot be estimated
Lesson 2.2
Managing Risk
risk management
preventing, reducing, or lessening the negative impacts of risk by using the strategies of
risk avoidance
risk insurance
risk transfer
risk retention
Lesson 2.2
Managing Risk
Risk Avoidance
Sports and entertainment marketers need to plan to
avoid risky situations.
liablethe business is legally
responsible for damages that occur
Lesson 2.2
Managing Risk
Risk Insurance
risk insurancepays for
predictable losses
premium cost of insurance
Lesson 2.2
Managing Risk
Risk Transfer
Some risks can be transferred to another
company or even to the consumer.
contracting with third parties for services
including releases from liability on event
tickets
Lesson 2.2
Managing Risk
Risk Retention
risk retention assuming the cost of an uninsurable risk
risk retention groups
similar businesses facing similar risks
pool resources
resources are distributed to
members that have a loss
Lesson 2.3
Do Ethics Count?
Business should be conducted with integrity, trust, and fairness.
Will consumers deal with businesses that you feel are unethical?
Will businesses continue to work with people who prove to be
untrustworthy?
ethics
a system of deciding what is right or wrong in a reasoned and impartial manner
Lesson 2.3
Ethics and Character Matter
principles high standards of rules and guidelines
character development
a progression in behavior where people advance
from childish behavior to mature behavior based on
principles
Young people need good role models.
Lesson 2.3
Ethics and Character Matter
How is the media affecting ethical
behavior in society?
Are morals declining or does unethical behavior simply
receive more attention?
Does the media influence behavior or simply reflect what is happening in the real
world?
Ethical Professional Athletes: Troy
Aikman, who else?
Lesson 2.3
Business Behavior
People and businesses should act ethically
while pursuing a profit.
What is the difference between greed and the legitimate need to earn
a profit to stay in business?
The need to earn a profit does not excuse underhanded business
practices
Lesson 2.3
Seeking an Advantage
Sometimes it is hard to continue to act ethically
when you observe people who receive a benefit from acting
unethically.
Pressure on athletes and coaches today and the temptation to seek
unfair advantages
Difficult ethical dilemmas that students
face - cheating
Lesson 2.3
When Being Bad Profits
Only fans can really influence the
behavior of ethically challenged athletes
and celebrities.
Leagues and teams assess fines on
players for undesired behavior
Do you believe fines are effective?
Provide examples of other ways teams could discourage
unwanted behaviors.
Lesson 2.3
Effective and Ethical
Good decisions are both ethical and
effective.
Good decisions are the right choices for
the long term.
Making a choice that may make
things difficult in the short term can result in long-term
benefits
Choosing what is easy in the short
term may result in negative long-term
consequences
Lesson 2.4
Financial Analysis - Goals
Describe four tools for financial analysis.
Discuss sources of funding and revenue for sports and entertainment businesses.
Lesson 2.3
Financial Analysis - Termsreturn on
investment forecast budget
balance sheet
income statementFinancing
Assets Liabilities Net worth
Lesson 2.4
It Takes Money
Profit is the primary purpose of
sports and entertainment
marketing.
There is a huge need for funding
before event tickets are ever sold
Lesson 2.4
Finding Funding
Investors generally provide the funding for an event to
cover all the costs that must be incurred before tickets
are ever sold.
Return on Investment (ROI)
the income from a venture that is
distributed to investors
Lesson 2.4
Money Sources
Funds to repay investors are
raised through
ticket sales
broadcast rights
licensing
facilities
Lesson 2.4
Money Sources
Why is it important to anticipate expenses and income by developing a budget?
Name some of the costs that might be involved in putting on a concert.
Name some of the sources of revenue from which investors and creditors are paid.
Lesson 2.4
Where is the Money?
forecast
•a plan that predicts the expenses to be incurred and the revenues to be received
Lesson 2.4
Budgets
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.
Lesson 2.4
Budgets
balance sheet
net worth = assets –
liabilities
shows net worth at a specific
point in time
income statement
shows revenues and expenses for a specific period
of time
reveals company’s profit
or loss