Sports Myth 101: Sports Teams can't be profitable

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.

When executed properly both models can be hugely profitable, examples are Real Madrid and Udinese.

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!