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Revenue Sources of Professional Sports Teams

Professional sports teams derive revenue from three main sources: television deals, licensed goods – hats, video games, jerseys, and perhaps the most direct source, tickets and concession revenues from inside the stadium. Now, the three main sports in the United States are the National Football League (NFL), National Basketball Association (NBA), and Major League Baseball (MLB). However, the more widely known statistics tend to come from the most profitable American professional sport and more open NFL. The NFL is the biggest professional sport in the United States due to it's brilliant marketing and ability to entertain fans nationwide. Interestingly enough, they are also able to derive their revenue from more sources than other leagues, with the ability to create more licensing deals and having lucrative television deals that even go with the small-market teams.

Television and Advertising

The NFL and NBA usually don’t have their own personal television deals, rather are negotiated by the league as a whole. However in MLB, each team negotiates their own television deal, causing discrepancies between each team and their overall revenue. An example would be the Los Angeles Dodgers who signed a 25-year deal with Time Warner Cable worth 8.35 million dollars. There is criticism in that, as it does limit the number of markets the televised game reaches and the amount of outside potential resources the team can receive. The most widely used television stations in sports are FOX for MLB, TNT for the NBA, and FOX/CBS/NBC for the NFL, with outside revenue coming from the occasional broadcasts from ESPN and their consistent sports broadcasting. Advertising revenues are also a key resource from sports teams, especially during the times of the playoffs and championships. One of the biggest earners in this category would be the Super Bowl in the NFL, in which it had cost an average of $3.5 million to run a 30 second ad in 2012. Television revenues tend to be one of the highest gaining revenue sources for professional teams.

Licensing in Merchandise

Each team receives a certain percentage of each licensed good sold bearing their team name or emblem. It is not widely known the exact percentages that teams and the league receive, but it is known that the profits are growing year by year. The royalty revenue that teams from the NFL, NBA, MLB, and the NHL had reached $698 million this past year with retail sales at $12.8 billion. These goods vary from jerseys to sunglasses, even the video game series for each respective sport. Team merchandise is actually one of the largest sources of products that consumers tend to buy into, which provides allotted stores and the professional sports teams with one of the largest chunks of their revenue coming in indirectly. Teams and the leagues are usually not directly involved with the production and logistics of merchandise, rather just approve and wait for the margins to come in.

Ticket Sales and Concessions

One of the more direct money sources for professional sports teams come from ticket and concession sales. The average amount each team in the NFL for example generates $51 million each year in ticket sales. It does vary by team mainly by winning record and locale with some teams making double that and others making less. This follows the case of supply and demand, in which the more sales each team receives with sellouts, the more likely they are to increase the prices because they can due to the limited numbers and the opposite can be said true. Concessions include food and beverages, parking, and in-house merchandising. Although, concessions themselves don’t make up a large portion of revenue, it is an easy profit maker for teams. The biggest profit margin tends to be from alcohol sales, in which half the time they are able to make three times the profit from the average cost of purchasing the alcohol. In most cases of the NFL, the higher the value of the team, the more likely they are able to increase the prices and their own margins on concessions.

Industries Affected By Professional Sports

Aside from generating vast amount of money, professional sports also create thousands of jobs in many different industries. This website shows some of the industries and how they are affected.

http://www.economicmodeling.com/2013/07/09/not-just-a-game-the-impact-of-sports-on-u-s-economy/

The creation of jobs in these industries represents a large part of the US economy. A lot of the industries listed here are affected indirectly. Those directly involved include the obvious such as the players themselves, referees, coaches, announcers, and those working in the stadiums. Others include agents, lawyers, financial advisers, trainers, doctors, and manufacturers.

Government Subsidies for Stadiums

Although the amount of money generated by professional sports is staggering, the multimillion dollar stadiums that are built to house professional teams are subsidized by the government. The Dallas Cowboys built a new stadium that opened in 2012. It cost $1.2 billion. This stadium was built using tax free borrowing by the City of Arlington. These funds were originally supposed to be used to help cities cut the cost of paying for schools, and roads. “The economist Dennis Zimmerman said, “You have the costs spread out, with small losses to hundreds of thousands -- maybe millions -- of people.” The article that quotes him also says, “In a 1996 government study, he put the annual cost to taxpayers of twenty-one publicly financed stadiums at $24.3 million.”

The Value of Professional Sports

Professional sports teams rank in value quite high in comparison to other businesses of a local size. The most valuable teams in each respective sport includes: Major League Baseball is the New York Yankees who are valued at $2.5 billion, National Football League is the Dallas Cowboys who are valued at $2.3 billion, and in the National Basketball Association is the Los Angeles Lakers who are valued at $1.35 billion. The values are increasing year by year, with higher reported revenues in merchandising, licensing, and new television deals being contracted at a higher value.

Overview of the effect on GDP

These sports generate a large amount of money, but only affect the economy to a certain extent. When looking at the numbers their impact is not as significant as one might assume. It is estimated that the four major sports leagues (NFL, MLB, NBA, NHL), account for only 0.1% of the gross domestic product estimated in 1998 of the overall United States GDP. It has surely over the years increased as sports have become more of a business, but not by a significant amount. You also have to consider the differing market sizes for each team, as not every team is in the ideal location for economic activity. There isn't a lot of data in the recent years in regards of the effect on the overall GDP, however it is estimated that it has increased as professional sports have become more popular and are increasing in their market sizes along with their capital.

Another factor contributing to the GDP is the fact that these teams tend to only run for 6-8 months, not the full year unlike normal businesses. So the employment numbers may spark up for those months, but once the team is eliminated from playoff contention, most of those jobs are lost until the following season (think of all of the workers inside of the stadium as temps).

Overall, there are numerous arguments for and against the thought of the effect of sports and the national economy, however there is no denying the fact that it does help the national GDP to a large extent.

Occupation effect on the economy

Sports do tend to create a large amount of jobs (although the majority of the available jobs tend to be temporary) and provides a sustainable amount of living income in practically every state. It even accounts for averages of between 2-10% of the total occupation level for each job accounted for. It is predicted that the workforce in professional sports will steadily increase for the next few decades. The analysis is that as revenue increases, so does the labor output.

NFL’s own GDP

The NFL produces large enough revenue that outmatches the GDP of many countries in the world. Economic analysts even expect that it will grow up to $20 billion per year by the year of 2020. The NFL is even large outside of the United States in countries like Canada and England, which will also affect the national GDP. An interesting fact is that the NFL's own economy may even surpass the states that each team resides in. Television deals are increasing rapidly and are negotiated very often, bringing in more revenue.

The new Nike merchandise 5-year deal in 2012 brought the NFL an estimated 1.1 billion dollars