We often hear that sports teams are not profitable; all they
do is either generate expenses or just earn theright amount of money to continue existing. I believe this is not true and actual profits
can be made from professional sports teams in any kind of sport. For this post I will
closely analyze soccer teams, as they are notorious for their inability to
generate profits. So, the question is how do we make a sports team profitable?
The answer is in fact simpler than you think! All we need to do is follow these
two steps:
1.
Business Model:
We need to choose a business
model for our team, this will determine how we will run & manage our team. Before we do that we need to understand that
professional sports is a form of entertainment, people watch sports because
they want to be amused and entertained.
-With this in mind, the basic
model for any business in the entertainment industry is to generate content
that customers consider valuable and are willing to pay for it. This is the
model Real Madrid utilizes and other big soccer teams do as well. All of their
efforts are directed in attracting the best talent in the world to play for
their team, this in turn will generate more revenue, from tickets, merchandise,
TV rights and other ventures. They create pure entertainment for their fans.
-The other model is based on
developing talent, creating meaningful content (although not as valuable as the
premier sports content big teams can create), enough to generate some revenues
from tickets, merchandise and TV, but most of the revenue will come from
selling the talent you are able to develop. This means developing a player that
becomes so good that other teams are interested in acquiring his services.
2.
Set Up strong financials systems:
Just like any other business, a sports
teams need to have proper accounting systems to manage their finances. They
need to have a balance sheet, income statement and most important of all cash
flow statements, the entertainment industry has big expenses and sports is no
exception, some of the biggest expenses for sports teams are wages for soccer
players. Understanding and controlling these expenses, and other financial
information will make the difference between earning a profit or not. Another great
tool is the use of ratios, to measure amongst others, liquidity, profitability,
efficiency, and any other ratio a particular team might want to incorporate.
For example for both of the models, talent= soccer player and it has to be viewed as an
asset, so using a ratio such as the return on asset, or even the net return on
assets, to take into consideration the payment of both interest and taxes will help maximise the earning potential of the player. Such
ratios can help the management in the development of a profitable
sports team. There are several examples
of profitable teams already in a wide variety of sports!
Our aim at PASSIONIS is to assist in the development of successful
sports teams, no matter the sport or level. We understand the importance of
sports in the world and most of all we understand that teams are special
organizations that can inspire others as well, so we want to be an essential partner in the universe of sports! Our success is the success of the team!
