Cash Flow Characteristics of Sports Franchises, Research Paper Example

1.0. Introduction

1.0.1 Sports Management

Sports are one of the events that are watched by millions of people around the world. Through it, many of people have got employment and have been earning lots of money in terms of millions and billions. It has really grown all the way to be come as one of the significant industry. The problem comes when a person is asked anything concerning sports (Ozanian, 1994). What comes from the mind of every person is that a sport is only a football. What we need to understand is that even hockey, basket ball, athletics and swimming are also part of sports.

The growth of these kinds of sports has changed the way a sport is consumed, produced, managed and how it is being organized at all levels. Managing sports is not an easy task. It needs the application of techniques from the government, non profit organizations and the modern business. The sport manager involves themselves in planning of the sport’s strategy, managing of the large numbers of the human resources and broadcasting of the contracts that usually worth billion of dollars. The managers as well engage themselves in the welfare of the elite athletes who mostly earns one hundred times the normal wage of the workers and to work within the laws of the global network of the international sports federations, national sports organizations, the agencies of the government, the media corporations, sponsors and the organizations based at the community level.

1.0.2 The Sports Management Environment

For the sports to succeed, it should have the professional sport which provides the playing talents and the motivation of the coaches. It also consists of the non profit team. These people belong to the part of the sports but are non profit even though they support a group of professional managers and players (Ozanian, 1994).

2.0. Sports Franchises as Business Ventures

The sport franchises are valued on the fact of their revenues unlike other financial businesses which are valued on the cash flow and assets. The main reason for this is because the operating expenses in the long term within every league seem to be the same in every team. The next aspect is that the revenues must reflect the quality of a team’s venue, which tracts the performance of the athletes. The number of the sport clubs has risen for the past ten years due to the increase of the revenues which comes from the gate receipts, broadcast rights fees, luxury boxes, club seats, concessions, advertising, and membership fees. To understand the term sport very well, people must not take it just as a game but as a business. The reason as to why it is regarded as a business is because it consists of the principles of purchasing and selling of goods, services and labor. In the major sport league the revenues are shared among the members of the league in varying percentages. For instance, some of the national football league divides the revenue got from the ticket sales in such away that 70% goes to the home team while 30% goes to the visiting team. Depending on the person’s contract, a stadium owner or an outside contractor may keep the revenues, or there may be a division with the franchise tenant.

3.0. Cash Flow in Sports Franchises

The cash flow is one of the most characteristics of running a small or large business. The management of any cash is therefore very important of the smooth running of the business. At this point it depends with how the owner of the business manages his or her own business, and this is why most of the businesses fail no matter good the business is or how much customers it attracts. In some cases, the business or any other organization can be insolvency, which means that it has a lot of debts to pay but it is unable. There are a number of the cash flow principles in the ordinary business. Some of them that we normally use are balance sheets, profit and loss accounts which in turn may have the profit margins, mark up and return on capital employed. We will be looking at a number of them including their definitions as we will be proceeding with the sport franchises as one of our ordinary business. Before we proceed, we might wonder what we mean by the term franchise. This is a right given to a person or group to advertise or market a certain company’s products and services within a certain given location or territory (Badenhausen, 1999).

On the other case, a person or organization can as well tend to invest into the business like sports, which also implies to the term. The media as well invests in sports to help them increase in revenues. The deal put between the individual teams and the stations which mostly are local are complicated in sport and have much weight in the financial success or failure of the team.  For the MLB, the local television, radio and the network cable generated more than 355 Us Dollars for the 10 teams in the year 1993-2009. While for the NBA, the revenues from the local radio, network cable and television advertisement came to over 110 million US Dollar annually (Badenhausen, 1999).

3.0.1. Table1The generation of revenue due to the advertisement on the radio, TV and cables.

4.0. Cash Flow Imbalances in Sports Franchises

When there is any imbalance of money within a sport or any other team, then it might be making loss instead of the profit. This should show the managers that the cash flow imbalance comes as a result of mismanagement of funds. Any sport when preparing a balance sheet, they should ensure that the outflow of money is less than the inflow of money. If this precaution is taken, the team will be making lots of profit (Shropshire, 1995).

5.0. Contemporary Issues in Cash Flow Measurement

The increased IT adoption in business operations mostly in the football club of Liverpool has increased the income. This is because every cash flow is always done through the computer. The computers are always very fast and they process the balance sheet accurately with no mistake. It also ensures that each an every transaction or any income is accounted for. The introduction of information technology such as the internet has boosted the revenue. The franchises sell their services to the funs through the internet. The services might include the selling of boots, shirts, capes and tickets or gate pass. But sometimes the economic slump which was recently experienced has made the economy to face tough results thereby leading to many expenses than the income (Masteralexis, 2003). The increase of the airplane prices due to the increase of fuel which is as a result of the economic fallout, has forced the teams to pay a lot when they are going for their matches away.

6.0. Conclusion

Therefore the cash flow statement is used in finance to indicate the changes that takes place within a balance sheet and how they affect income of the cash equivalent. The cash flow statement breaks down the analysis to operating, investigating and financing of the activities. In the real sense, we can say that cash flow statement is mostly concerned with how the cash gets into the business and how they get out of the same business. Its main advantage that sometimes you get the business personnel use it is that it determines the short term viability of an organization or a company when it comes to the payment of the bills (Watt, 2003).  This cash flow statement comprises of all the people from the accounting personnel to the share holders of the businesses. It normally reflects the liquidity of the firm. The balance sheet is a snapshot of the financial resources of a firm as well as the obligation at a single point in time, while the statement of the income put into a conclusion the financial transaction over a period of time.

7.0. References

Badenhausen, K. (1999). Baseball games: Revenue sharking has struck out. So why does Bud Selig wants another inning? Forbes, 163(11), 112-117.

Hoye, R. et al. (2009). Sport Management: Principles and Applications. Butterworth: Heinemann.

Masteralexis, P. (2003). Principles and Practice of Sport Management. New York: Jones and Bartlett Publishers, Inc.

Shropshire, K. (1995). The Sports Franchise Game: Cities In Pursuit Of Sports Franchises, Events, Stadiums, and Arenas. Pennsylvania: University Of Pennsylvania Press.

Watt, D. (2003). Sports Management and Administration. New York: Routledge.

Ozanian, M. (1994). The $11 billion pastime: Why sports franchise values are soaring even as team profits fall. Financial World May, 1994.