Chapter 2
Sports and Entertainment
Means Business
2.1 Sports and Entertainment
Economics
2.2 Risk Management
2.3 Business Ethics
2.4 Financial Analysis
Sports and Entertainment Marketing
© Thomson/South-Western
Winning Strategies
EMI
one of the largest music content providers
cost savings achieved through outsourcing
of manufacturing
in 2005, income grew due to legitimate
sales of digital music
the music industry embraces ever-changing
technology and helps drive the economy
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Lesson 2.1
Sports and Entertainment
Economics
Goals
Define profit and explain the profit
motive.
Describe types of economic utility.
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Terms
profit
profit motive
economics
economic utility
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THE PROFIT MAKERS
profit
the amount of money remaining from
revenues after all expenses are paid
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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
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Cultural Opportunities for
Profits
Worldwide distribution revenue is
critical for movie profits.
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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
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In addition to U.S. ticket sales, name two
other large sources of revenue for U.S.
film studios.
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ECONOMICS
economics
the study of how goods and services are
produced, distributed, and consumed
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macroeconomics
the study of the economics of the entire
society
microeconomics
the study of the relationships between
individual consumers and producers
Sports and entertainment marketers are
focused on microeconomics.
relationships with consumers
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Sports and Entertainment
Economics
economic utility
the amount of satisfaction a person
receives from the consumption of a
particular product or service
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Types of Utility
form utility
when the physical characteristics of a product or
service are improved
time utility
making the product or service available when the
customer wants it
place utility
the product is available where it is wanted
possession utility
the product or service is available at an affordable
price
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List four types of economic utility.
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Lesson 2.2
Risk Management
Goals
Define risk and describe the categories
and classifications of risk.
Name and describe four strategies for
risk management.
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Terms
risk
risk management
liable
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RISKING IT ALL
risk
the possibility of financial gain or loss or
personal injury
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Categories of Risk
natural risk
occurs from unavoidable weather
conditions
human risk
dishonest customers and employees
inadequately trained employees
economic risk
occurs due to changes in the economy
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Additional Classification of
Risk
gain or loss risk
speculative risk
either a gain or loss could result
pure risk
a chance of an event occurring that could only
result in a loss
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controllable risk
if a loss can be prevented or the likelihood
of its occurrence reduced
uncontrollable risk
nothing can be done to prevent the risk
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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
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What is meant by a controllable risk?
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MANAGING RISK
risk management
preventing, reducing, or lessening the
negative impacts of risk by using the
strategies of risk avoidance, risk insurance,
risk transfer, and/or risk retention
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Risk Avoidance
Sports and entertainment marketers
need to plan to avoid risky situations.
liable
the business is legally responsible for
damages that occur
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Risk Insurance
risk insurance
pays for predictable losses
premium
cost of insurance
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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
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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
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Briefly describe four strategies for
managing risk.
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Lesson 2.3
Business Ethics
Goals
Define ethics.
Discuss the impacts of unethical
behavior.
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Terms
ethics
principles
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DO ETHICS COUNT?
ethics
a system of deciding what is right or wrong
in a reasoned and impartial manner
Business should be conducted with
integrity, trust, and fairness.
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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.
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How does a person’s character develop?
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BUSINESS BEHAVIOR
People and businesses should act
ethically while pursuing a profit.
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Seeking an Advantage
Sometimes it is hard to continue to act
ethically when you observe people
who receive a benefit from acting
unethically.
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When Being Bad Profits
Only fans can really influence the
behavior of ethically challenged
athletes and celebrities.
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Effective and Ethical
Good decisions are both ethical and
effective.
Good decisions are the right choices for
the long term.
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How can the bad behavior of celebrities
be controlled?
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Lesson 2.4
Financial Analysis
Goals
Discuss sources of funding and
revenue for sports and entertainment
businesses.
Describe four tools for financial
analysis.
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Terms
return on investment
forecast
budget
balance sheet
income statement
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IT TAKES MONEY
Profit is the primary purpose of sports
and entertainment marketing.
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Finding Funding
Investors generally provide the funding
for an event to cover all the costs that
must be incurred before tickets are ever
sold.
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return on investment
the income from a venture that is
distributed to investors
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Money Sources
Funds to repay investors are raised
through
ticket sales
broadcast rights
licensing
facilities
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Name three sources of revenue from
sports and entertainment.
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WHERE IS THE MONEY?
forecast
a plan that predicts the expenses to be
incurred and the revenues to be received
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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.
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Financial Statements
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
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What is the purpose of a forecast?
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PERFORMANCE INDICATORS
EVALUATED
Communicate pricing strategies for supply
and demand.
Analyze relevant data to determine varying
ticket prices for home games.
Explain the need for and use of additional
revenue from higher-priced tickets.
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Demonstrate knowledge of appropriate
pricing strategies.
Explain the benefits of increased revenue
for consumers of foot-ball tickets.
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THINK CRITICALLY
1. Why have an increasing number of
universities varied ticket prices to games
based upon the opponent?
2. Why must universities consider the consumer
before raising ticket prices?
3. If games become to expensive to attend,
what other options do consumers have to
watch the games?
4. How much revenue would be generated from
the seven games if ticket prices were $40 all
season long?
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