Financial Resource Management: Sport, Tourism, and Leisure Services Emphasized in Its Nondiscriminatory of Meeting Social Needs

FINANCIAL RESOURCE MANAGEMENT Sport,o Tourism, and LeisureL ree Services

3rd ed.

Russell E. Brayley Daniell D. McLean

Financial Resource Management Sport, Tourism, and Leisure Services

3rd edition

Publishers: Joseph J. Bannon and Peter L. Bannon Sales and Marketing Manager: Misti Gilles Sales and Marketing Assistant: Kimberly Vecchio Director of Development and Production: Susan M. Davis Production Coordinator: Amy S. Dagit Graphic Designer: Marissa Willison

Library of Congress Catalog Card Number: 2018965757 ISBN print edition: 978-1-57167-941-3 ISBN ebook: 978-1-57167-942-0 ISBN extext: 978-1-57167-945-1

Printed in the United States.

Sagamore-Venture 1807 N. Federal Dr. Urbana, IL 61801 www.sagamorepublishing.com Dedication

To Our Families

Renée, Doug, Austin, Erika, Natalie –Russell Brayley

JoAnn, Donna, Jennifer, Suzanne, Timothy, Sally, Michael, Kristine –Daniel McLean

Acknowledgment

To Dr. Ethan Strigkas, for his authorship of the original chapter on sponsorship

Contents

Preface ...... xv About the Authors ...... xvii

Section A: Financial Management in Context

1 Sector and Industry Comparisons ...... 3 Introduction ...... 3 Public Sector Enterprises ...... 3 Legislative/Legal Parameters ...... 4 Social Roles/Expectations ...... 4 Market Management Techniques ...... 4 Indicators of Success ...... 5 Financial Management Opportunities and Challenges ...... 5 Other ...... 5 Focus: Leisure Service Organizations in the Public Sector ...... 6 Organizational Structure ...... 6 Operation and Fiscal Authority ...... 6 Financial Objectives ...... 7 Debt Management ...... 8 Accounting Management ...... 8 Reporting ...... 8 Performance Evaluation ...... 9 Private Nonprofit Enterprises ...... 9 Legislative/Legal Parameters ...... 10 Social Roles/Expectations ...... 10 Market Management Techniques ...... 10 Indicators of Success ...... 10 Financial Management Opportunities and Challenges ...... 11 Other ...... 11 Focus: Leisure Service Organizations in the Private Nonprofit Sector ...... 11 Organizational Structure ...... 11 Financial Objectives ...... 12 Debt and Account Management ...... 12 Reporting ...... 12 Performance Evaluation ...... 13 Commercial Enterprises ...... 13

v Legislative/Legal Parameters ...... 14 Social Roles/Expectations ...... 15 Market Management Techniques ...... 15 Indicators of Success ...... 15 Financial Management Opportunities and Challenges ...... 15 Focus: Sport Organizations in the Commercial Sector ...... 16 Sport as an Industry ...... 16 Public Subsidization of Sport Facilities ...... 18 Television Ratings and Broadcasting Fees...... 19 Franchise Values and Player Salaries ...... 20 Attendance Costs of Sporting Events ...... 20 Focus: Tourism and Commercial Recreation Organizations...... 23 Scope and Cross-Sector Nature ...... 23 Financial Objectives ...... 24 Debt and Inventory Management ...... 24 Account Management ...... 24 Reporting ...... 25 Performance Evaluation ...... 25 A Comparison ...... 26 Cross-Sector Competition and Cooperation...... 26 Summary ...... 27 References ...... 28

2 Functions and Organization ...... 31 Introduction ...... 31 Functions ...... 32 Financial Responsibility ...... 32 Financial Functions of the Organization ...... 32 Organization ...... 34 Organization for Financial Management in the Public Sector ...... 34 Organization for Financial Management in the Private, Nonprofit, and Commercial Sectors ...... 36 Program Unit Involvement in Financial Management ...... 36 Politics and the Financial Management Organization ...... 39 Summary ...... 40

Section B: Budgeting

3 Budgeting Basics ...... 43 Introduction ...... 43 Budget Construction Guidelines ...... 43

vi Gathering Information ...... 44 Establishing the Budget Goal ...... 45 Essential Information ...... 46 Creating New Information ...... 46 Organizing the Data ...... 46 Determining Costs: Three Examples ...... 47 Budgeting for Contingencies ...... 55 Summary ...... 55

4 Budget Preparation ...... 57 Introduction ...... 57 Budget Processes ...... 57 What is a Budget? ...... 57 The Budget Cycle ...... 59 Budget Preparation Cycle ...... 60 Funds ...... 63 Government Funds ...... 64 Proprietary Funds...... 65 Fiduciary Funds ...... 65 Budget Presentation Format ...... 66 Budget Preparation Activities ...... 66 The Relationship of Strategic Planning to Budget Preparation...... 69 Budget Preparation Philosophies ...... 69 Preparing the Departmental Work Plan ...... 70 Estimating Personnel Service Requirements ...... 71 Staffing Issues ...... 72 Contractual Service Requirements ...... 73 Materials, Supplies, and Equipment Costs ...... 75 Reviewing Budget Estimates at the Departmental Level ...... 76 Summary ...... 76 Additional Resources ...... 76

5 Budget Formats ...... 77 Introduction ...... 77 Common Budget Formats ...... 77 Object Classification and Line Item Budgets ...... 78 Step 1: Collect All Budget Data ...... 78 Step 2: Identify Appropriate Classification Codes for Each Budget Item ...... 78 Step 3: Place Items in Detailed Sub-Classifications (Object Codes) ...... 79

vii Step 4: Organize the Budget Information ...... 81 Program Budget ...... 83 Step 1: Goals and Objectives ...... 86 Step 2: Provide Detailed Narrative for Each Program ...... 86 Step 3: Determine Expenditures and Revenue for the Program ...... 86 Performance Budget ...... 86 Step 1: Identify Those Components of the Budget that Fit a Performance Format ...... 88 Step 2: Establish Work Units ...... 88 Step 3: Determine the Cost Per Work Unit to Be Measured ...... 88 Step 4: Determine the Frequency with which the Work Must Be Completed ...... 89 Step 5: Organize Budget ...... 89 New Directions in Performance Budgets ...... 89 Running Budget ...... 90 Step 1: Constructing the Operating Budget ...... 91 Step 2: Determine Frequency of Budget Reporting ...... 91 Step 3: Establish Spending Limits ...... 91 Step 4: Determine How Often the Budget Will Be Adjusted ...... 93 Zero-Based Budgeting ...... 93 Assumptions of Zero-Based Budgeting ...... 93 Step 1: Defining Goals and Objectives and Decision Units ...... 94 Step 2: Decision Assessment and Analysis ...... 94 Step 3: Ranking Decision Packages ...... 95 Step 4: Budget Request Formulated ...... 96 Advantages and Disadvantages of Zero-Based Budgeting ...... 96 Modified Zero-Based Budgeting ...... 96 Summary ...... 97 Additional Resources ...... 97

6 Budget Presentation ...... 99 Introduction ...... 99 Purposes of Budget Presentations ...... 99 The Written Budget Document ...... 100 Reader Guide ...... 101 Vision, Mission, and Goals ...... 101 Budget Philosophy ...... 101 Current Challenges...... 101 Significant or Proposed Changes ...... 102 Future Issues and Concerns and Trend Analysis ...... 102 Organizational Chart ...... 102 Revenue Summary ...... 102 viii Expenditure Summary ...... 102 Budget Detail ...... 102 Presenting the Budget ...... 103 Principles of Effective Presentations ...... 104 Presentation Tips ...... 109 Summary ...... 110 References ...... 110

Section C: Accounting and Reporting

7 Financial Status Reports ...... 113 Introduction ...... 113 Stock and Flow ...... 114 The Balance Sheet ...... 115 The Income Statement (a.k.a. Profit/Loss Statement) ...... 117 Retained Earnings Report ...... 118 Internal Control ...... 118 Petty Cash ...... 118 Efficiency Reporting ...... 119 The Budget Statement ...... 119 Project/Event Report ...... 121 Daily Operations Report ...... 122 RevPAR (Revenue per Available Room) ...... 122 Summary ...... 122

8 Planning Reports ...... 125 Introduction ...... 125 Cash Flow Analysis ...... 125 Ratio Analysis...... 127 Liquidity Ratios ...... 127 Activity Ratios ...... 128 Profitabilty Ratios ...... 128 Debt/Coverage/Leverage Ratios ...... 128 How Financial Reports Relate to Each Other ...... 130 Summary ...... 131

Section D: Revenue Generation

9 Revenue Sources ...... 135 Introduction ...... 135 Types of Income Sources ...... 135

ix Compulsory Income Sources ...... 137 Types of State and Municipal Taxes ...... 137 Other Sources of Compulsory Income ...... 141 Federal Government Sources ...... 142 Gratuitous Income ...... 143 Earned Income ...... 143 Investment Income ...... 145 Contractual Receipts ...... 145 Partnerships and Collaborations ...... 146 Revenue Structure Plan ...... 147 Summary ...... 149 References ...... 150

10 Pricing ...... 151 Introduction ...... 151 Purposes of Pricing ...... 151 Pricing to Recover Costs ...... 151 Pricing to Create New Resources (Added Value Pricing) ...... 152 Pricing to Establish Value ...... 152 Pricing to Influence Behavior ...... 152 Pricing to Promote Efficiency ...... 153 Pricing to Promote Equity ...... 154 The Appropriateness and Feasibility of Pricing ...... 154 The Nature of Price ...... 155 Monetary Price ...... 155 Opportunity Price ...... 156 Psychological Price ...... 156 Effort Price ...... 156 Approaches to Establishing Price ...... 157 Calculating Costs for Unit Pricing...... 158 Subsidization and Unit Pricing ...... 161 Other Considerations in Establishing Price ...... 162 Willingness to Pay/The Going Rate ...... 162 Sensitivity to Changes in Price ...... 164 Adjusting Prices ...... 164 Summary ...... 166

11 Revenue Management ...... 167 Introduction ...... 167 Definition ...... 168 RevPAR (Revenue Per Available Room) ...... 169 Market Understanding ...... 170 x Historical Performance Measure ...... 170 The Yield Management Report ...... 171 Duration of Stay/Room Rate ...... 173 Discounting to Optimize Revenue ...... 173 Summary ...... 174

12 Grantseeking ...... 175 Introduction ...... 175 Why Pursue Grants? ...... 175 The Granting Environment ...... 176 The Grantseeking Process ...... 177 Step 1: Identifying a Potential Idea ...... 178 Step 2: Discovery, Selection, and Contact with a Granting Agency ...... 179 Step 3: Preparation of the Grant Proposal ...... 183 Step 4: Submitting the Grant Proposal ...... 189 Step 5: Grantmaker’s Decision...... 189 Step 6: Grant Administration ...... 190 Summary ...... 190 References ...... 191

13 Philanthropy and Fund-Raising ...... 193 Introduction ...... 193 Philanthropy ...... 193 Why Fund-Raising is Important ...... 194 The Benefits of Philanthropic Fund Development...... 195 Why People Give ...... 197 Charitable Organizations ...... 197 Fund Development ...... 198 Fund-Raising Sources ...... 202 Goal Setting, Relationships, and the Gift Pyramid ...... 203 Goal Setting ...... 205 Gifting: How Many Donors are Required? ...... 205 Fund-Raising Strategies ...... 207 Annual Campaigns ...... 208 Planned Giving ...... 209 Special Events ...... 212 Support Organizations ...... 212 Retention of Donors ...... 213 Selecting Fund-Raising Strategies ...... 214 How Technology is Impacting Philanthropy ...... 215 Summary ...... 216

xi References ...... 216 Additional Resources ...... 217

14 Sponsorship ...... 219 Introduction ...... 219 Causes of Sport Sponsorship Growth ...... 221 The U.S. Government Ban on Tobacco and Alcohol Advertising ...... 221 Excessive “Noise” in the Print and Electronic Media ...... 221 Rising Advertising Costs for Television Exposure ...... 221 The Increasing Commercialization of Sport ...... 222 The Increasing Media Interest in Sport Programming...... 222 Changes in Governmental Policies Related to Sport Activity Around the World ...... 223 The Globalization of Sports, and Corporate Desires to Successfully Penetrate Foreign Markets ...... 223 Setting Sponsorship Objectives ...... 223 Sponsorship: The Corporate Perspective ...... 225 Sponsorship Acquisition: The Sport Organization’s Perspective ...... 227 Selling the Sponsorship Opportunity ...... 227 The Sponsorship Proposal Document ...... 229 Marketing Benefits of Sponsorship ...... 229 Cross Promotions ...... 230 Virtual Advertising ...... 230 Hospitality ...... 230 Evaluation ...... 230 Summary ...... 232 References ...... 232

Section E: Investment

15 Entrepreneurship ...... 237 Introduction ...... 237 Definition of Entrepreneurship ...... 237 The Importance of Entrepreneurship ...... 238 Entrepreneurs Create New Businesses and New Employment ...... 238 Entrepreneurs Add to Local Income ...... 238 Entrepreneurs Can Create Social Change ...... 238 Entrepreneurs Get Involved in Community Development ...... 239 Myths About Entrepreneurs ...... 239 The Characteristics of an Entrepreneur...... 240 Confidence ...... 240 Involves Others in the Business Concept ...... 240

xii Realistic ...... 241 Risk-Takers ...... 241 Low Need for Status and Power ...... 241 Reliable and Acts with Integrity ...... 242 Maintains a Success Orientation ...... 242 Opportunity and Goal Oriented ...... 242 Entrepreneurship–Self-Assessment ...... 243 Entrepreneurship in Sport, Tourism, and Leisure services ...... 243 Summary ...... 244 References ...... 244

16 Capital Budgeting ...... 245 Introduction ...... 245 Benefits of Capital Budgeting ...... 245 The Capital Budgeting Process ...... 246 Inventory of Capital Assets...... 246 Needs Analysis ...... 246 Strategic Plan ...... 247 Cost Analysis ...... 247 Capital Improvement Revenue Sources ...... 252 Bonds ...... 253 Serial Bonds ...... 254 Other Capital Improvement Revenue Sources ...... 257 Lease Purchases and Certificates ...... 257 Real Estate Transfer Tax ...... 257 Impact or Dedication Fees ...... 257 Revolving Loans ...... 258 Mitigation Land Bank ...... 258 Special Taxes ...... 258 Capital Budgeting in the Commercial Sector...... 259 Decision Process ...... 259 Income Sources of Commercial Capital Projects ...... 262 Summary ...... 263

17 Business Planning ...... 265 Introduction ...... 265 Format of the Business Plan ...... 266 Title Page ...... 266 Front Matter ...... 267 Executive Summary ...... 267 The Enterprise ...... 268

xiii The Industry ...... 268 Product/Service Offering ...... 269 Market Analysis ...... 270 Marketing Plan ...... 270 Development Plan ...... 271 Production/Operations Plan ...... 271 Management Team ...... 272 Financial Plan ...... 273 Appendices ...... 274 Summary ...... 274

18 Economic Principles ...... 275 Introduction ...... 275 Supply and Demand ...... 276 Estimating Supply and Demand ...... 279 Data ...... 279 Problems ...... 279 Approximation through Graphing ...... 279 Algebraic Calculation ...... 280 Inflation ...... 283 Interest ...... 284 Future Value ...... 284 Present Value ...... 285 Depreciation ...... 286 Sensitivity to Changes in Price ...... 288 Economic Impacts ...... 290 Summary ...... 293

Appendices ...... 294 Index ...... 297

xiv Preface

Effective managers in sport, tourism, and leisure service organizations are required to have a wide variety of skills and a good understanding of all of the resources that they manage. Not only should they be competent as personnel managers, but they also need to know how to manage their physical facilities. In addition, they need to be effective in their management of time, for time is one resource that cannot be renewed. Good managers also need to know how to use their financial resources effectively. Throughout the history of our profession, there have never been times of such great prosperity that decisions could be made or practices maintained without consideration of their financial implications. Certainly, there have been situations where financial constraints have been minimal, but even then, some measure of financial accountability has been required of those who receive and spend an organization’s money. Similarly, there has never been a time of such flexibility that some degree of planning was not required of resource managers. In fact, experience has shown that a lack of planning reduces flexibility, as choices are replaced by externally controlled consequences. Budgeting and long-term financial planning are areas of understanding and skill that every sport and leisure service manager must develop and magnify. This book has been written with the needs of the sport, tourism, and leisure service manager in mind. The authors have worked in a variety of sport, tourism, and leisure settings in several different parts of the United States and Canada and have discovered that there is no place to hide from the opportunity or responsibility to know about budgets, finance, and fiscal management. It has been written for the mathematically challenged, for the pre-professional, for the professional who received on-the-job training, and for the professional who is keenly interested in and dedicated to continuous improvement. Readers will learn important principles of economics and finance. They will also learn the skills necessary to prepare, present, and manage budgets, as well as generate revenues for capital development and day-to-day operations. Discussions include examples from the “real world” and offer illustrations to facilitate the learning of some of the more complex or technical points.

About the Authors

Daniel D. McLean is a professor emeritus from the UNLV College of Hospitality Management where he served as vice-dean. A career-long park and recreation professional, Dr. McLean graduated from California State University, Sacramento, and served as a recreation supervisor in Ventura, California, before completing advanced degrees from Brigham Young University (M.A.) and Kansas State University (Ph.D.). He served on the faculties of Iowa State University, Indiana University, and Kansas State University prior to the University of Nevada, Las Vegas. He also served as a recreation director for the city of Cedar Rapids, Iowa. His 46 years of experience was both academic and as a practitioner. He retired in 2017.

Russell E. Brayley is a professor at George Mason University where he has served as Director of the Division of Sport, Recreation, and Tourism. After and between earning bachelor’s and master’s degrees in Recreation Administration from Brigham Young University, Dr. Brayley worked in community recreation leadership and as a government consultant in Alberta, Canada. He earned his Ph.D. degree at Texas A&M University and subsequently held faculty and administrative positions at the University of Manitoba, Indiana University and George Mason University. Dr. Brayley is an active, internationally recognized researcher in tourism management and has written many scholarly and professional articles, and spoken at conferences throughout the world. Dr. Brayley has served as the president of the Resort and Commercial Recreation Association and is very active in family and community service.

xvii

SECTION A

Financial Management in Context

The two chapters in this introductory section present a discussion and comparison of the different sectors in which and sport, leisure service, and tourism organizations operate. Specific industries are examined from the perspective of basic financial management principles and practices. After an examination of the general differences between sport, tourism, and leisure service organizations that operate in public, private, nonprofit, and commercial environments, a brief chapter is dedicated to primary financial functions and related organizational structures.

CHAPTER 1 Sector and Industry Comparisons

Introduction to the unique characteristics and differences among public, private nonprof- Approaches to the management of it, and commercial sport, tourism, and financial resources in sport, tourism, leisure service organizations, there is a and leisure service organizations vary danger that their many important sim- greatly, depending on the mandate and ilarities will be ignored. Such is not the goals of the organizations, as well as the intent of this chapter. Although it is im- political environments in which they portant to understand the differences, it operate. However, almost every sport, is just as important to acknowledge the tourism, or leisure service organization common principles, practices, structures, can be classified as either a public, private and competencies associated with finan- nonprofit, or commercial enterprise, and cial management. each type of organization has unique and uniquely common features that relate Public Sector Enterprises directly to financial management and budgeting. A sport, tourism, and leisure service This chapter examines the finance-re- enterprise operating in the public sector lated differences between the three types generally has a broad mandate to provide of sport, tourism, and leisure enterprises services that directly or indirectly benefit and explores related legislative/legal pa- an entire community. The organization rameters, social roles/expectations, mar- is usually an arm of government (e.g., a ket management techniques, indicators municipal recreation department, a public of success, and particular financial man- educational institution, or a convention agement opportunities and challenges. and visitors bureau) that is charged with The chapter also addresses competition enhancing the quality of life of its patrons and cooperation between sport, tourism, by providing enriching experiences and and leisure service organizations of dif- remedying social problems. The “public” ferent types. In devoting this discussion nature of the organization is not only 4 Financial Resource Management: Sport, Tourism, and Leisure Services emphasized in its nondiscriminatory of meeting social needs. The taxpaying offering and delivery of services, but also public expects sport, tourism, and leisure in the nondiscriminatory way by which service organizations to be engaged its operating funds are expropriated. in enterprises and programs that use Public sport, tourism, and leisure service public funds for the common good and organizations receive their base financial for community betterment. Within the resources from the public through community, there is general acceptance taxation. They may also charge fees and and tolerance of certain services receiving receive gratuitous income from private tax subsidies, and many low-cost or free sources, but the foundation of their (i.e. completely subsidized) services support is the ability of government to (e.g. neighborhood parks) are expected, meet its operational goals by taxing its demanded, and even required as basic constituents or those who fall within its elements of social order and as important taxation jurisdiction. tools in social engineering.

Legislative/Legal Parameters Market Management Techniques In order for the governing body of a Modern practices of sport, tourism, public sport, tourism, or leisure service and leisure service organizations include organization to compel its constituents market segmentation and target market- to contribute funds to support the ing. Public organizations use “need” rath- operation of that organization, it must er than “profit potential” as the primary first win a legal right to levy taxes and to segmentation criterion in their market- use those taxes for such purposes. The ing efforts. Products, prices, and promo- United States Constitution sets the legal tional strategies are established in consid- parameters for the federal government eration of the desire to appeal to as many to collect and use public funds for sport, as possible in the community who need tourism, and leisure services. The federal the service. Distribution considerations system also provides for the establishment also reflect the priority of the public sec- and public funding of state and local tor organization to ensure service deliv- governments and government programs. ery to as broad a market as possible. For State governments must have their own example, when faced with a new private constitutional provisions for taxation and or commercial sector competitor, a pub- public funding of sport, tourism, and lic agency may choose to withdraw from leisure services. Local (i.e., municipal) the marketplace—not because it is unable governments, on the other hand, may to compete, but because the competitor extend public financial support to sport, has demonstrated that it can meet the tourism, and leisure services only if the same needs without tax support and, per- state government already has enacted haps, with greater efficiency. The market- appropriate enabling legislation. ing objective of the public sport, tourism, or leisure service organization is either to Social Roles/Expectations provide the benefit or to accommodate its provision by another appropriate suppli- Public sport, tourism, and leisure er. service organizations exist for the purpose Sector and Industry Comparisons 5

Indicators of Success public and to other legislative/regulatory bodies. True to the democratic ideal, Financial managers in the public sec- citizens voice their views about how tor measure their success by comparing their taxes are being used, and there is their achievements to their goals. That is always someone who was not elected also true of financial managers in the pri- who is certain that he or she could do a vate nonprofit and commercial sectors, better job. The close scrutiny of financial but the goals of the latter organizations management also comes from other are more precisely associated with fi- formal organizations or agencies whose nancial returns on financial investments. job it is to ensure that the public treasury Public financial managers focus on is being properly managed. This close achieving targeted levels of revenue and scrutiny is usually facilitated by seemingly expenditure and on efficiently produc- countless forms and reports which the ing specific social and economic benefits financial manager must take time to through those expenditures. complete. A second challenge comes in the form of changing political winds. Financial Management Financial management in the public Opportunities and Challenges sector requires sensitivity to the political environment, and changes in political Public sport, tourism, and leisure priorities may require readjustment of service organizations enjoy several financial plans or management structures. opportunities that are unique to their sector. One opportunity is that of Other tax exemption. By convention, no Two other aspects of financial government may charge taxes to a management in the public sector government at another level, which require a brief mention before looking means that the local public agency has at financial management in the private greater purchasing power due to being nonprofit sector. One aspect concerns the exempt from state or federal sales taxes. advantage that comes to the public sport, Another opportunity lies in the ability of tourism, or leisure service organization the public institution to borrow money by virtue of its taxing authority—an for capital projects. The government is a advantage over competitors or would-be low-risk borrower, primarily because it competitors that cannot compete because can use its taxing power and its access to they must raise capital funds at market the taxable wealth of the community as prices and pay taxes to their competitor, collateral. A third opportunity enjoyed the public agency. In many cases, the by the public sector is the goodwill charge of unfair competition leveled at and altruistic behavior of people in the the public sector may be well deserved. community. Actively encouraged and The second aspect concerns the belief supported volunteer programs provide in the private sector that, because of the human resources without draining seemingly unchecked taxing power of the sport, tourism, and leisure service government, the public sport, tourism, organization’s financial resources. and leisure service organization has “deep A challenge experienced by financial pockets.” Therefore, the reasoning goes, managers in the public sector is the only public agencies can or should be scrutiny of and accountability to the 6 Financial Resource Management: Sport, Tourism, and Leisure Services expected to raise the capital necessary to decision-making authority for organiza- build and maintain such major facilities tional structure. State park organizations as a 100,000-seat sports stadium or exist in all 50 states and are structured in domed arena. Financial managers in the a variety of ways. They may appear under public sector are, however, quite aware a tourism umbrella or, more commonly, a of the limitations of public tolerance for natural resource structure. taxation and have shortened their reach It is unusual to find sport organiza- into the taxpayers’ pockets. Sometimes tions as a part of the public leisure ser- this restraint has been self-imposed, vice structure. More often they operate as and sometimes it has resulted from nonprofit organizations that have formal public pressure and sentiment, such and informal links to public entities. The as that expressed in several landmark Indiana Sports Corporation, for exam- propositions passed by voters in recent ple, is a nonprofit organization dedicated years. to bringing national and international sport championships to Indianapolis and Focus: Leisure Service Indiana. When putting a bid package together, they work closely with the city Organizations in the government and the local and regional Public Sector tourism office. The sporting events they try to attract may use professional sport The majority of sport, recreation, and areas (e.g., FIFA World Basketball Cham- tourism organizations that operate in pionship), privately owned sport facili- the public sector are municipal agencies ties (e.g., a professional golf tournament), charged with providing a wide range of public facilities (e.g., NCAA Swimming leisure services to their constituents. and Diving Championships), or a com- The following discussion focuses on the bination of the three (e.g., World Police unique finance-related characteristics, Games). Sport organizations are dis- opportunities, and constraints of public cussed later in this chapter. leisure service organizations. Tourism and commercial recreation enterprises do include some public Organizational Structure organizations, such as city or state tourism development offices and local destination There is no single organizational marketing organizations. However, these structure that is required of public leisure public organizations typically operate as service entities. The most common struc- if they are commercial entities and are ture is a combined parks and recreation also discussed further in this chapter. department or division under municipal, county, or regional government admin- Operational and Fiscal Authority istration. Separate, autonomous park or recreation organizations are declining Almost all public leisure service in number. In a few states, park districts entities report to policy or advisory are organized with separate taxing pow- boards. Policy boards typically carry er and, in some areas, the park districts decision-making authority and advisory have an elected board. In other cases an boards provide input into operations appointed board provides the policy di- and make endorsements, suggestions, rection for the public leisure service or- and recommendations to the decision- ganization. The park board typically has making authority. Public entities are Sector and Industry Comparisons 7 authorized to expend money only and well-being and promote econom- after the legislative body has formally ic vitality for long-term community approved a budget. Oversight authority sustainability. We will accomplish this for budget operations remains with the through creative leadership, environ- legislative body, and day-to-day fiscal mentally sustainable practices, and the operations and management is delegated responsible use of available resources. to the leisure service organization. (City of Boulder Parks and Recreation Mandates or expectations of services Department Vision Statement. Re- and programs are articulated in the trieved from http://www.bouldercolo- organization’s enabling legislation at both rado.gov). the state and/or local level, the legislative body’s vision and mission statements, Public entities serving the public and the leisure service organization’s good traditionally were not expected to long-range plans. Fiscal operations are generate a profit or even large amounts codified in state and local legislation of revenue. They operated as public and the public entity is reviewed, at a agencies with some or all of their funding minimum, by a state auditing body on a coming from tax revenue. Contemporary regular basis. Organizations must operate public park and recreation departments, within appropriate state and local codes however, do actively generate revenue that apply to fiscal operations. as part of their mandate. Public leisure service organizations, once almost wholly Financial Objectives subsidized by compulsory income (see Chapter 9), now generate 15% to 100% The purpose of public leisure service of their operational funds through fees, organizations such as park and recreation charges, and entrepreneurial activities. departments is to improve the quality of Capital improvement funds for buildings life for residents, enhance the beauty of and structures typically come from other the community, and provide recreation sources (see Chapters 12 and 16). and fitness-based activities and programs Major capital investments such as for individuals and groups. In some parks, recreation centers, or specialized communities, public park and recreation facilities are viewed as public commod- entities are seen as social welfare agencies ities. Parks are typically not expected to working in consort with other social generate revenue; however, recreation welfare enterprises to improve individual centers and specialized facilities within opportunities for personal growth. The parks may be expected to produce vary- Boulder, Colorado Parks and Recreation ing levels of revenue (including profit) Department mission statement is typical and are viewed as investment decisions. of many public entities and reflects the The decision to build a new facility is ideal of “public good.” based on its revenue potential and the public good that it represents. For ex- The mission of the City of Boulder ample, most public agencies that might Parks and Recreation Department is to construct a family aquatic center would provide safe, clean, and beautiful parks expect the facility’s revenue to cover its and facilities and high-quality leisure operations, partially or wholly contribute activities for the community. These to the long-term debt incurred from con- services shall enhance residents’ health struction, and provide additional funds 8 Financial Resource Management: Sport, Tourism, and Leisure Services to agency operations. By contrast, a skate sector, the use of the revenue may be re- park is seen as an opportunity to provide stricted according to the source of the youth with a safer public outlet for their revenue. For example, a special tax may activities and may only be expected to re- be restricted for a single use, such as recover part of its operating costs and none duction of long-term debt. Different than of its long-term debt. for commercial enterprises, revenue generated from a public program or a facility Debt Management may go into the government general fund and be made available for use anywhere Simply stated, the two main goals of within the government, or it may go to the public leisure service organization a restricted fund that limits where the are to serve the public and to maintain funds are used. a sound financial foundation. Public Pricing in the public sector is agencies are dependent upon tax reve- becoming more sophisticated, yet it is nues, fees and charges, and enterprise sometimes based on a mix of intuition operations for their operating revenue. and cursory analysis of limited measures They are not allowed to engage in defi- of demand and willingness to pay. In the cit spending. Long-term debt is con- public sector, pricing is more often seen trolled by state and local legislation, and as a tool to recover partial rather than full public organizations may not engage in costs. The need to provide for the public debt-creating activities outside of those good and to maintain sound financial specifically permitted. For example, state practices drives decision-making in the financial codes typically limit the amount public sector. It is frequently seen as a and type of debt that a city or an inde- conundrum for policy makers as they pendent park district may incur. Public strive to provide for the public good and entities will engage in activities and types simultaneously ensure sufficient funds of activities that commercial enterprises are available for the public enterprise. often will not even consider, especially when it is justified as a public benefit. Reporting Parks, recreation centers, recreation programs, and similar activities frequently fit Public park and recreation entities within the public benefit rationale. Louis- are strongly affected by seasonal ville, Kentucky Metro Parks, for example, variations. Outdoor aquatic facilities operates 13 recreation centers, many of typically have a 90- to 120-day season. them in lower socioeconomic neighbor- Indoor sport, recreation, and fitness hoods where expectations of cost recov- facilities are affected by seasonal shifts ery are low. The recreation centers are in sport, individual preferences for being seen as meeting a public good (benefit). outdoors or indoors, inclement weather periods, and public school calendars. Accounting Management For example, when public leisure service organizations prepare for summer Accounting management in pub- operations they may spend up to 75% of lic entities is similar to that of the com- their annual operating budget between mercial enterprise, with some important May 1 and September 30. differences. Public entities operate under Financial reporting usually occurs on generally accepted accounting practices a monthly basis and is supplemented by (GAAP) but, unlike in the commercial seasonal reports. Policy boards and ad- Sector and Industry Comparisons 9 visory boards are trained to understand sport, tourism, and leisure services seasonal influences on revenues and ex- without the direct support of public funds penditures, and historical reports are and without the requirement to generate frequently provided to aid in that under- increased personal wealth for any owners standing. In addition, program reports or investors. These organizations are are provided for each activity at the end private in the sense that they are not of the season. The task of the chief execu- owned or directed by government. They tive officer and chief financial officer is to are nonprofit in the sense that they must interpret financial data, generate reports, generate income to at least cover their and educate staff, legislative officials, and expenses, yet do not generate profits for lay board members about fiscal opera- the purpose of making anybody richer. tions. They may make a profit from certain enterprises, but overall profit is not the Performance Evaluation goal, and any profits that are realized are used to maintain or enhance the Serving the public good is the viability of the organization. Private primary goal of public park and recreation nonprofit sport, tourism, and leisure entities. From a financial perspective, service organizations exist to meet the auditors require assurance and proof that service needs of selected consumers standard accounting practices have been in situations where the public sector is followed. Policy makers require proof either unwilling or unable to function, that funds expended have contributed and where commercial organizations to the public good. Park and recreation are also either unwilling or unable to entities may respond to the two conduct business. Well-known examples different reporting needs by providing of private nonprofit sport, tourism, and data from performance goals and leisure service organizations include the objectives, attendance reports, outcome YMCA, local church groups, community measures, and other forms of data. sport and athletic associations, recreation Application of measures of effectiveness clubs, Boys and Girls Clubs, Boy Scouts and efficiency are becoming more of America, Girl Scouts, Chambers of common, and it is generally believed Commerce, Historical Societies, and that measuring outputs (such as the Destination Marketing Organizations. number of people served) is no longer an Private nonprofit organizations re- adequate substitute for measuring how ceive financial resources from member- people benefited from participation in ship fees, fundraising projects, dona- programs and use of facilities or services. tions, grants, and user fees. Their need Performance measurement is becoming for money from such sources is reduced more sophisticated and it is more considerably by the ability of private non- important than ever that public leisure profit organizations to attract and keep service organizations provide effective committed volunteers. After religious or- evaluations. ganizations (which also offer many recre- ational programs), community sport and 7YP]H[L5VUWYVÄ[,U[LYWYPZLZ leisure organizations receive the greatest share of volunteer support in the United The private nonprofit sector is States and Canada. composed of organizations that provide 10 Financial Resource Management: Sport, Tourism, and Leisure Services

Legislative/Legal Parameters such as helping at-risk youth, strength- ening families, promoting mass involve- Private nonprofit organizations are ment in camping, developing coaching permitted to operate because of several skills for basketball, promoting literacy, important laws that free them from some encouraging historic preservation and of the restrictive controls that otherwise interpretation, or promoting visitation. encumber public and commercial operations. For example, most private Market Management Techniques nonprofit sport, tourism, and leisure service organizations enjoy a tax-free The relatively narrow focus of the status. Additionally, the U.S. Postal nonprofit organization tends to restrict Service and most commercial retailers the scope of its market and dictate the and service suppliers offer specially techniques it must use to effectively and reduced rates for recognized nonprofit appropriately manage the consumption organizations. Federal and state income process. The identity of the client base tax laws also encourage individuals and is readily established by the needs or the corporations to donate to charitable shared interactions of the people with the nonprofit organizations by recognizing target needs. Pricing decisions reflect the tax deductions or offering tax credits requirement to break even or generate according to the amounts donated. In modest profits when additional money order for a donor to apply for such a is needed for other service activities of tax benefit, the donation must go to an the organization. Service allocation for organization that is registered with the private nonprofit sport, tourism, and Internal Revenue Service as a 501(c3) leisure service organizations is based Charitable Organization. Other state primarily on need, with little regard for and federal tax law provisions also exist merit or profit potential. to support the valued work of private nonprofit organizations. Indicators of Success In addition to filing with the IRS, Financial managers in the private all private nonprofit sport, tourism, and nonprofit sector measure their success leisure service organizations need to be by comparing their achievements properly constituted and registered as to their goals. That is also true of corporate entities. This registration may financial managers in the public and need to be with local, state, and/or federal commercial sectors. The goals of the agencies that regulate the operations of public organizations, however, are not commercial and nonprofit organizations. at all associated with financial returns on financial investments, while the Social Roles/Expectations overarching goal of commercial sector Like public agencies, private non- organizations is to make as much money profit sport, tourism, and leisure service as possible for the owner(s). Private organizations exist to meet social needs. nonprofit financial managers focus on However, they are more selective in the achieving social benefits while generating needs that they try to meet. Usually, a pri- enough revenue and other resources vate nonprofit organization is identified (e.g. volunteers) to stay in operation and with a single “cause” or specific interest, continue benefiting their specialized markets. Sector and Industry Comparisons 11

Financial Management same skills and involves many of the same activities as those in the public Opportunities and Challenges sector. Sports, tourism, and leisure in Public sympathy and affection are the private nonprofit sector is likely to two important advantages enjoyed by continue as a strong and viable part of organizations in the private nonprofit community life. It will, however, need sector. This factor is particularly helpful more sophistication in the management both in fund-raising efforts and the of its financial resources as every aspect recruitment of volunteers. Tax breaks of operating in a modern society becomes and discounts also provide opportunities more complex. for private nonprofit sport, tourism, and leisure service organizations to get the Focus: Leisure Service most out of their financial resources. Organizations in the Private One challenge that smaller private nonprofit organizations have is the lack 5VUWYVÄ[:LJ[VY of staff (or, at least, highly qualified Many leisure services are provided staff) that can manage the financial by nongovernment organizations that resources in a consistent, accurate, and do not operate with a profit motive. timely manner. Reliance on volunteers The following discussion focuses on the for financial management functions can unique finance-related characteristics, occasionally have disastrous results for opportunities, and constraints of private the organization. Another challenge is nonprofit leisure service organizations. the relative risk associated with extending credit to an enterprise that depends so Organizational Structure much on the popularity of its cause and the generosity of its supporters. Credit Nonprofit organizations typically op- is based on confidence, and confidence erate with a board of directors providing is something that most small nonprofit policy oversight to the organization. An organizations enjoy from conservative executive director may be hired, espe- lenders. A third significant financial cially in a larger organization, but in the management challenge is that of absence of full-time staff, the president of protecting the financial resources of the the board and executive committee may organization from short-term governing provide day-to-day operational direction. bodies that do not always act with long- Nonprofit enterprises come in all sizes, term wisdom. Many nonprofit sport and from the large National Parks Founda- leisure service organizations have failed tion with tens of thousand of members, or struggled because a new board of to the small local swim club with 30 or directors decided to use their carefully less members. Nonprofit organizations developed cash reserves for an immediate typically have a narrow focus or purpose. program expansion or initiative that For example, the Appalachian Mountain did not result in sustained or enhanced Club focuses on conservation, education, financial strength. and outdoor recreation, with further concern for maintaining regional chapters, Other conservation activities, and lodging (all focused in the Appalachian mountains). Financial management in the private As another example, a local youth swim nonprofit sector requires many of the 12 Financial Resource Management: Sport, Tourism, and Leisure Services club may provide a coach and the facili- Sources of income include programs, ties in which members may swim, train, special events, donors, bequests, gov- and learn about nutrition. All nonprofit ernment grants and contracts, private organizations have a purpose and a focus grants, and the United Way. The United that are stated in their articles of incor- Way provides support to a limited num- poration. ber of nonprofit organizations that meet their minimum guidelines and are select- Financial Objectives ed by a lay community-based board for inclusion in their funding model. Some The financial objectives of a nonprofit self-reliance is required, as the United organization are linked to its stated Way almost never provides 100% support purpose. All nonprofit organizations to a nonprofit organization. strive to generate sufficient revenue to Nonprofit organizations have a wide pay for their annual operations. They are range of financial solvency. The small, not expected nor encouraged to generate narrowly focused nonprofit organization a profit. The Internal Revenue Service may struggle from month to month to provides guidelines for how nonprofit generate sufficient funds for operations. organizations might use their funds. For A larger nonprofit organization, such as example, there are restrictions on the the Appalachian Mountain Club, might amount of money allowed for political have a budget in the millions with mul- lobbying. In moving beyond the Internal tiple sources of revenue and a strong Revenue Service guidelines, nonprofit endowment. In 2016, the Appalachian organizations jeopardize their nonprofit Mountain Club’s operating budget was tax status. $31.1 million, and it maintained an en- The vast majority of nonprofit dowment of almost $60 million (Appala- organizations do not have major capital chian Mountain Club, 2016 Annual Re- investments, but those that do must port, http://www.outdoors.org). The sol- manage them as efficient enterprises. vency contrast among nonprofit organi- Nonprofit organizations might also have zations is dramatic. Financial operations unique cash-flow circumstances, such as and debt management principles are con- would a Boy Scout camp that generates sistent, but management of each will vary 85% of its camping revenue in the three- based on the size, solvency, and manage- month summer period, but has year- ment competency of the nonprofit orga- round expenses. Nonprofit organizations nization. In the absence of an ongoing are frequently dependent upon the good income revenue stream, many nonprofit will of members or donors to provide organizations adjust their operating bud- funds for ongoing operations. A Boys get on a monthly or seasonal basis to deal & Girls Club operating in the inner with operating revenue availability. city probably cannot charge sufficient revenue to cover the operating costs of Reporting the programs and facilities, so donors, the United Way, and revenue from programs Nonprofit organizations report on are used to cover the costs. a monthly, quarterly, and annual basis. They often utilize more than one of the Debt and Account Management standard financial reporting formats that are discussed later in this book. Nonprofit organizations work to Regardless, there should be a monthly maintain sufficient funds for operations. Sector and Industry Comparisons 13 reporting process, sometimes as a Club’s annual report identifies goals treasurer’s report, and there should be and annual progress toward those goals. an annual report, ideally certified by the Their goals pertain to the number of nonprofit organization’s account manager acres protected, the management of or an independent auditing body. The miles of trails, the number of outdoor variety of nonprofit organizations, their experiences provided, the provision size, scope of services, and management of outdoor education experiences, skills frequently determine the type and and the amount of literature about the effectiveness of reporting. Nonprofit environment distributed. The annual organizations with external funding report also identifies income sources, sources require standardized reporting expenditure categories, levels of income consistent with the expectations of the and expenditures, and the impact of the funding organizations. The United Way, expenditures upon individuals, regions, for example, usually requires monthly and the goals of the organization. reports and an annual external audit. In From a financial standpoint, a addition, they may conduct their own common measure of efficiency is the audit on a regular cycle, such as once percent of the operating budget spent for every three years. Financial reports administration. Nonprofit organizations should be consistent with the principles desire to maintain a low administrative presented in Chapter 7. cost, striving to spend the bulk of their operating budget on programs and Performance Evaluation services. The Appalachian Mountain Club, for example, spent 7.7% of its For nonprofit organizations, the level operating budget on administration of performance evaluation is dependent in 2016 (Appalachian Mountain Club, upon the expectations of the board of 2018). directors, leadership, and outside funding For comparison purposes, Table 1.1 entities. Annual reports are commonly summarizes the organizational features, required and are primarily concerned sources of revenue, and measures of with reporting on progress made toward success for public and private nonprofit achievement of goals and objectives. A leisure service organizations. United Way-supported entity frequently is required to measure outcome for Commercial Enterprises funded programs, and continued United Way funding may be based on progress Sport, tourism, and leisure service achieved toward intended outcomes. enterprises operating in the commercial Foundations may also require specific sector are distinguished from the others evaluation products or performance previously discussed by their profit moti- indicators from an organization, such as vation. It is important to note that “profit completion of a project, publishing of a motivation,” rather than “profit genera- report or monograph, completion of a tion,” is given as the defining character- capital improvement project, or a formal istic. Commercial sport, tourism, and lei- assessment report. sure enterprises may not always produce Larger nonprofit organizations profits (especially in the early stages of issue annual reports reflecting progress development or during off-seasons), but toward their vision, mission, goals, and the commercial enterprise will only stay objectives. The Appalachian Mountain in business if, over a reasonable period of 14 Financial Resource Management: Sport, Tourism, and Leisure Services

Table 1.1 7\ISPJ HUK 7YP]H[L 5VUWYVÄ[ 6YNHUPaH[PVUZ *VTWHYLK VU :[Y\J[\YL 9L]LU\LHUK4LHZ\YLZVM:\JJLZZ Sector Public Nonprofit

Examples of State park systems, Boys & Girls Clubs, organizations county park systems, YMCA, YWCA, swim community park and club, scouting recreation agencies organizations, conservation organizations, support groups for public agencies Sources of Primarily taxes Grants, membership fees, revenue (property tax), fund-raising, donors, dedicated taxes, fees fees and charges, and charges government grants

Financial Fees and charges Achievement of measures generated, financial goals, objectives, and of success accountability outcomes

time, an expected return on the invest- ing goods and services, and making other ment is eventually realized. These orga- types of investments. Examples of com- nizations do not exist out of a need for a mercial sector sport, tourism, and leisure particular type of service. They exist be- service organizations include profes- cause satisfying the need for a particular sional sports teams, resorts, amusement type of service is profitable. Commercial parks, meeting management companies, sector organizations do not receive tax bowling centers, movie theaters, outdoor revenues—they pay taxes. Commercial outfitters, and travel managers. sector organizations do not typically receive operating grants or other forms of Legislative/Legal Parameters gratuitous income—they are called upon to make donations. Commercial sector There are many laws aimed at sup- organizations do not use volunteers— porting and regulating commercial activ- they support them. Because the commer- ity. Profit-motivated sport, tourism, and cial sector exists to benefit certain indi- leisure service organizations are subject viduals (investors), it does not have ac- to those laws that apply to their particular cess to the major revenue sources utilized situations. The application of some laws by public and private nonprofit agencies. will vary depending upon whether the Commercial sport, tourism, and leisure sport, tourism, or leisure business is set businesses must cover most or all of their up as a corporation, syndicate, or part- costs of operating by charging fees, sell- nership, or is individually owned. Sector and Industry Comparisons 15

Social Roles/Expectations a point where it barely covers the costs of providing the cinematic opportunity, The primary social role or social and yet, the price of the popcorn may be expectation of the commercial sport, kept at a level that consumers can accept tourism, and leisure enterprise is to and that make the whole movie-going contribute to the economic well-being event (movie + snacks) profitable for the of the community. Proposals for new theater operator. The commercial sector commercial enterprises often highlight is usually more responsive and more community benefits such as diversity flexible in pricing than organizations in in leisure options, opportunities for the public and private nonprofit sectors. social interaction, promotion of health, For similar reasons, the commercial development of community pride, and sector is also more inclined than other educational enrichment, but the benefit types of organizations to use advertising that is most eagerly sought is described (both institutional and product) to in terms of jobs created, household promote desired consumer responses. income produced, sales activity, and tax revenue generated. Of course, there is Indicators of Success the basic expectation that the enterprise will be consistent with community social Financial managers in the commer- standards, but the economic impact of cial sector measure their success by com- the venture is regarded with the most paring their achievements to their goals. interest and concern. Unlike their counterparts in the public and private nonprofit sectors, managers Market Management Techniques of commercial enterprises set goals that focus on the financial growth of the enter- Market management in commercial prise and on the return on the investment sport, tourism, and leisure services is made therein. The balance sheet and the designed to do one thing: tap consumer income statement serve as the primary spending power. Therefore, the only evaluation documents rather than par- market that is of interest is the market ticipant evaluation surveys. There is con- that can pay enough and is willing to pay cern for the quality of consumers’ experi- enough to help the organization realize ence, but only so far as it affects the finan- its financial goals. cial bottom line. The commercial sport, Responsiveness to market conditions tourism, and leisure service organization is a key to success in commercial also measures its success by comparing enterprises, and this responsiveness its financial ratios with standards estab- is often reflected in pricing strategies lished for the industry. Financial ratios and in the use of advertising as a major are discussed further in Chapter 16. promotional tool. Pricing strategies in the commercial sector focus on the total Financial Management bottom line. That is, variation in pricing Opportunities and Challenges is frequently used to attract consumers by responding to price sensitivity on Commercial sport, tourism, and certain elements of the total service leisure service organizations enjoy package. In a movie theater, for example, several opportunities that are somewhat the admission price may be reduced to unique to this sector. Because they are 16 Financial Resource Management: Sport, Tourism, and Leisure Services profit motivated, they are not required to major professional leagues. Opportuni- prop up socially beneficial but financially ties for a career in sports cross over into ineffective programs and services and can, other entertainment-related industries, as a result, concentrate on maximizing from video gaming and fantasy leagues, the utility of their assets. They can more to sport tourism and event hospitality. easily identify and avoid products that The growth of the sport industry in recent do not meet their standards of success. years can be attributed to (a) increased The entrepreneurial spirit has free rein interest in sport from diverse market seg- in the commercial sport, tourism, and ments such as women, minorities, and leisure business environment, and aging individuals; (b) increased offerings managers find excitement in the many of new and different forms of sports; (c) opportunities to move resources from growth in corporate sponsorship; (d) in- areas of low productivity to initiatives creased coverage of sports and sporting that offer greater results. events and on television, Internet, and Challenges associated with financial the radio; (e) the influence of technolo- management in the commercial sport, gy on sport-related goods, services, and tourism, and leisure service organization training; and (f) increased numbers and include developing the knowledge and variety of print and online media relat- skill competencies required in order to ed to sports. This growth has influenced be effective. Foremost among the skill re- local job creation and entrepreneurial quirements are investment management, activity, but there is no consensus on the bookkeeping, and financial forecasting. broader economic impact of the sport in- Effective financial managers continually dustry as a whole. The lack of consensus add to their store of management abilities results, in part, from the fact that “sport” by reading and studying, attending con- is not classified as an industry in the ferences and workshops, and furthering North American Industrial Classification their formal education in this discipline. System (NAICS—a system devised by the U.S. Census Bureau to identify indus- Focus: Sport Organizations tries based on the similarities of firms in economic activities). Without that clas- in the Commercial Sector sification, statistics are not collected nor Many sport organizations operate analyzed in a way that readily permits in- in the private nonprofit sector. There dependent examination of the economic are, however, major organizations that contribution of sports and sport-related are part of a vibrant and economically activities. significant commercial sport industry. An industry is a collection of busi- The following discussion focuses on the nesses and consumers that have similar sport industry and addresses several key products and markets, and that engage finance-related topics. in similar economic activities. NAICS uses the similarity of economic activity Sport as an Industry to classify businesses in North America into 20 distinct sectors, including Arts, The business of sport has a tremen- Entertainment, and Recreation. dous financial and cultural impact on NAICS industries are identified by contemporary society. Jobs in sports are a six-digit code in order to be placed not limited to intercollegiate athletics and in the hierarchical structure of the Sector and Industry Comparisons 17 classification system. The first two digits support participants in sports events refer to the industry sector, the third digit or competitions. The sports teams and identifies the industry sub-sector, the clubs included in this industry may fourth designates the industry group, the or may not operate their own arena, fifth refers to the NAICS industry, and stadium, or other facility for presenting the sixth digit designates the national their games or other spectator sports industry (U.S., Canadian, or Mexican). events. Take, for example, the six-digit code for U.S. sports teams and clubs (711211): 711211 Sports Teams and Clubs

71 Industry Sector (Arts, This U.S. industry comprises Entertainment, & professional or semiprofessional sports Recreation ) teams or clubs primarily engaged in 711 Industry Sub-sector participating in live sporting events, (Performing Arts, such as baseball, basketball, football, Spectator Sports and hockey, or soccer, before a paying Related Industries) audience. These establishments may 7112 Industry Group or may not operate their own arena, (Spectator Sports) stadium, or other facility for presenting 71121 Industry (Spectator Sports) these events. 711211 U.S. specific (Sports Teams and Clubs) NAICS does not consider sport as a major economic activity, and The definitions that NAICS provides does not designate commercial sport for the North American Industry of organizations as part of a stand-alone Spectator Sports (71121), and the U.S. industry or industrial sector. The wide -specific Industry of Sport Teams and range of commercial sport-related Clubs (711211) are: activities is scattered across several of the 20 industry sectors, such as construction, 71121 Spectator Sports manufacturing, wholesale and retail trade, real estate, rental and leasing, This industry comprises (1) sports education services, arts, entertainment teams or clubs primarily participating and recreation, and other services. This in live sporting events before a paying dispersion makes it difficult to reconcile audience; (2) establishments primarily sales or financial data (attributed to sport engaged in operating racetracks; activities) from each of these sectors and, (3) independent athletes engaged in therefore, next to impossible to accurately participating in live sporting or racing estimate the economic magnitude of the events before a paying audience; (4) sport industry. Since the government has owners of racing participants, such no system in place to estimate the annual as cars, dogs, and horses, primarily impact of sport on the U.S. economy, engaged in entering them in racing several analysts and scholars have tried events or other spectator sports to develop a reliable measurement for events; and (5) establishments, such the sport industry. It is estimated that, in as sports trainers, primarily engaged 2016, the direct global economic impact in providing specialized services to of the sports industry was $35 billion 18 Financial Resource Management: Sport, Tourism, and Leisure Services

(approximately $18 billion in the United For example, construction of the States) (Charaf, 2016). Mercedes-Benz Stadium that is home to The importance of the sport industry the NFL team Atlanta Falcons cost $1.5 and the unique aspects of financial billion, of which $700 million came from management in sport organizations are the public purse (deMause, 2017). highlighted in the following discussions. Critics have voiced concern about the spiraling costs that seem to be mak- Public Subsidization of Sport ing the entire big league sports structure Facilities unworkable, and have challenged the as- sumption that publicly supported sports The significance of modern spectator stadiums justify themselves financially. sports is evident in the number of cities Advocates of sport facility subsidies ar- entering the race to build expensive gue that the use of public money to fund new sport facilities (using, to a great their development and operation pro- extent, public money) for the purpose of vides the following benefits: attracting professional sport franchises. Proponents of such endeavors argue • Injection of substantial amounts of that hosting a professional sports team money into local economies provides increased community visibility, • Creation of new jobs enhanced community image, stimulated • Revitalization of urban development, and higher levels of psychic neighborhoods. income (emotional and psychological benefits of sports) for the residents of The opposing claims have been thor- that community. As a result, local and oughly investigated. Economist Robert state governments work closely together Baade conducted a study that investigat- to either attract professional teams, or to ed 30 U.S. cities that had built new sport prevent their existing professional sports facilities during the last 30 years (Baade, teams from going elsewhere. In the first 1990). The findings were disappointing decade and a half of the millennium, for proponents of subsidized sport de- local, state, and federal governments velopments. His study demonstrated that have allocated more than $12 billion the development of new sport facility of taxpayers’ money to subsidize many projects does not have a positive effect on new major league stadiums and arenas, local economies. In 27 of the cities exam- and a larger number of minor league ined, the effect of major sport develop- sport facilities (Farren, 2017). In the two ments on the per-capita income was not decades since 1997, 20 National Football significant, and in the remaining three League (NFL) stadiums were built with cases, the sport facility had a significant- the assistance of $5 billion of taxpayer ly negative impact on the local economy. funds (Foxsports, 2016). Experts have Two explanations for these findings are argued that the public subsidy is more offered: the substitution effect and rev- like $15 billion when hidden and indirect enue leakages (Coates and Humphreys costs are also considered. The practice of 2003, 2004). using public resources to support private The substitution effect measures and commercial sport enterprises is how much money is simply transferred growing, and governments continue to from other entertainment, food, and spend to subsidize major sport facilities. retail venues in town, as fans may decide Sector and Industry Comparisons 19 to spend their disposable income on is greatly influenced by the television stadium food and merchandise instead of ratings and shares that each professional at the local restaurants and retail stores. league, game, individual athlete, and Revenue leakage is a measure of the conference captures when the sporting degree to which stadium spending is event is aired for public consumption. taken out of the local economy before A single rating point means that, of all it can be recirculated. Leakage is taking television-equipped households in the place because team owners and players country (118.4 million in 2016), 1% usually live, invest, and spend money (1,184,000) were tuned in to the show outside of the local economy. being measured. A share indicates the The myth of new job creation percentage of all televisions being viewed attributed to sport facilities also collapsed that were tuned in to the particular under the weight of evidence found in this show. High television ratings and shares study. In testimony to a Congressional are desirable because they mean that Committee on government reform, Neil bigger audiences are watching the event. DeMause pointed out that Advertisers and sponsoring companies are attracted to sporting events that where good job-development pro- capture high broadcast ratings and grams can cost about $10,000 for each shares, and they are willing to spend large new job created, sport facilities typi- amounts of money to secure advertising cally come in at as much as $250,000 space and time when these events are in public cost for each new job, a broadcast. worse ratio than some of the most in- In the 2016 regular NFL season, a famous corporate giveaways in history. typical game was watched by 16.5 million (deMause, 2017) people (13.9 rating, 27.3% share). That same season, the Super Bowl game Also, the belief that sport facilities attracted 172 million viewers and scored can be used to revitalize urban neigh- a 43.5 rating and 68% share. Similar borhoods was not justified, especially for success in securing high TV ratings seasonal operations such as baseball and was also experienced by the National football. There is no evidence that a new Basketball Association (NBA) and Major sport facility is going to attract further League Baseball (MLB). Major League development such as restaurants, sport Baseball’s World Series captured a 16.8 bars, retail space, and entertainment ven- rating in 2016. ues, especially when the facility is closed Television ratings are also used as for most of the year. a negotiation tool between network executives and leagues officials when Television Ratings and contracts are just about to expire, or Broadcasting Fees other media products, such as Internet broadcasting, pay-per-view sporting The entertainment value of sporting events, satellite sport packages, etc., events is evident in the large fees are available for bid. The importance that television networks are paying of broadcast revenue is evident in the to rightholders in order to broadcast 2014 deal between the NFL and four professional or intercollegiate sporting high-profile U.S. television networks events. The amount of money that is paid (CBS, Fox, NBC, and ESPN). To share 20 Financial Resource Management: Sport, Tourism, and Leisure Services the broadcasting rights to NFL games more than $4 billion. Another NFL team, between 2004 and 2022, the networks the New England Patriots, experienced will pay the NFL $42.6 billion (Statista, phenomenal growth in value: the 2018). franchise was purchased in 1994 for $172 The NFL is not alone in realizing million. It was a record high price to pay significant financial benefits from for a team but, by 2018, its value had risen broadcast partnerships. The National to over $38 billion (Forbes, 2018). Basketball Association (NBA) increased Forbes magazine conducts an annual its revenue by $24 billion in 2016 by survey and publishes the actual market signing a 9-year extension to its broadcast value of all professional sport franchises agreement with ESPN and TNT (CBC, in the country. The survey takes into 2014). consideration a number of valuating Major League Baseball and the factors, such as the franchise’s annual National Hockey League (NHL) also operating income, the stadium/arena experienced success in negotiating their value, the size of the market in which the own television and broadcast contracts. club operates, the aggregate value of the For broadcast rights between 2014 and roster, etc. The highest valued teams in 2022, Fox, TBS, and ESPN will pay MLB 2016 are shown in Table 1.2. $12.4 billion. From 2013 to 2025, the Players’ contracts have also been Canadian network Rogers Sportsnet will increasing in value. In 2018-2019, the pay the NHL $5.2 billion (Settimi, 2012; NBA paid the highest average player salary Sportsnet, 2017). ($7.4 million) (Basketball Reference There are also noteworthy develop- 2018). Its highest paid player was Stephen ments in intercollegiate sports. Some Curry, who received $37.5 million for National Collegiate Athletic Association his services (ESPN, 2018). The average (NCAA) conferences have established salary for a MLB player in 2016 was broadcast new channels dedicated to $4.4 million, and Clayton Kershaw was showcasing sporting events and other the highest paid team member, earning accomplishments of its member institu- $32 million. NHL player compensation tions. As joint ventures between the con- in the 2016-17 season averaged $2.9 ference and broadcast networks, these million. The highest paid man on ice was channels produce and transmit programs Anze Kopitar with a $10 million salary. that are designed to dramatically increase Although NFL franchises are the most the visibility of the conference and, of valuable, professional football players’ course, generate additional revenue. average salary in 2016 was “only” $2.1 million. The highest paid gridiron star Franchise Values and Player was Drew Brees ($31.25 million). The top Salaries earning Major League Soccer (MLS) in 2016 was Ricardo Kaka. He earned $7.2 Additional evidence of the importance million. The average MLS player salary and magnitude of professional sports was $309,000 (Badenhausen, 2016). business can be found in skyrocketing values of franchises and player contracts. Attendance Costs of Sporting Franchises in almost all major leagues Events have experienced significant increases Gate receipts for amateur, college, in their value and, by 2016, at least one and professional sports significantly (Dallas Cowboys [NFL]) was worth Sector and Industry Comparisons 21

Table 1.2 /PNOLZ[=HS\LK<:HUK*HUHKPHU7YVMLZZPVUHS:WVY[MYHUJOPZLZPU Rank Team / Value Rank Team / Value National Football League National Basketball Association 1 Dallas Cowboys 4 New York Knicks $4.2 billion $3.3 billion 3 New England Patriots 6 Los Angeles Lakers $3.4 billion $3.0 billion 5 New York Giants 16 Golden State Warriors $3.1 billion $2.6 billion 6 San Francisco 49ers 18 Chicago Bulls $3.0 billion $2.5 billion 8 Washington Redskins 26 Boston Celtics $2.95 billion $2.2 billion

Major League Baseball National Hockey League 2 New York Yankees >40 New York Rangers $3.7 billion $1.5 billion 10 Los Angeles Dodgers >40 Montreal Canadiens $2.75 billion $1.25 billion 12 Boston Red Sox >40 Toronto Maple Leafs $2.7 billion $1.4 billion 14 Chicago Cubs >40 Chicago Blackhawks $2.68 billion $1.0 billion 15 San Francisco Giants >40 Boston Bruins $2.65 billion $890 million Source:-VYILZ2017 contribute to the multibillion-dollar spend during a night out at a professional impact the sport industry has on the U.S. sporting event. The FCI is simply the sum economy. In 2015/16, the NFL averaged of costs for four average-price tickets; four 69,487 spectators per game in its regular small soft drinks; two small beers; four season (Statista, 2017). In the same year, hot dogs; two game programs; parking; MLB recorded an average regular season and two adult-size team caps. game attendance of 30,163. High average According to the 2015 FCI, the most attendance was also recorded at regular expensive sport facility hosting an NFL contests in MLS (21,693), the NBA game was the Dallas Cowboys’ AT&T (17,849), and the NHL (17,548) (Statista, Stadium. The average ticket price was 2017). $110.20. The Cowboys’ 2015 FCI was With attendance in professional $634.80 (which was almost $154 higher sports hitting an all-time high, there are than the NFL average). The average NFL some concerns about the escalating costs game ticket was priced at $85.83, while of attending a sporting event, especially the league average FCI was $480.89. In for middle- and low-income individuals 2015, the NBA average FCI was $333.58, and families. The Fan Cost Index (FCI), and, in the same year, the National a survey conducted annually by Team Hockey League (NHL) recorded an Marketing Report provides a measure average FCI of $363.58. The 2015 FCI of how much a family of four will likely for Major League Baseball (MLB) was 22 Financial Resource Management: Sport, Tourism, and Leisure Services

$211.68. Sample FCIs for teams from four of the major professional leagues in the U.S. are presented in Tables 1.3–1.6. Item costs that contribute to the calculation of the FCI are also shown. Table 1.3 0[LT*VZ[ HUK-HU*VZ[0UKL_LZ-*0MVY:LSLJ[LK5H[PVUHS-VV[IHSS3LHN\L ;LHTZ Team Avg. Beer Soda Hot Dog Parking Program Cap FCI Ticket Dallas Cowboys 110.20 8.50 5.00 5.50 75.00 10.00 20.00 634.80 Chicago Bears 108.44 9.25 5.00 5.00 49.00 5.00 25.00 601.20 Atlanta Falcons 78.83 7.50 6.50 5.50 20.00 0 20.00 438.33 New York Jets 105.66 5.00 3.00 6.00 25.00 10.00 20.00 553.63 Pittsburg Steelers 83.97 8.00 4.75 5.25 40.00 5.00 19.95 481.78 NFL Average 85.83 7.42 4.79 5.29 31.21 3.91 21.46 480.89 Table 1.4 0[LT *VZ[ HUK -HU *VZ[ 0UKL_LZ -*0 MVY :LSLJ[LK 4HQVY 3LHN\L )HZLIHSS ;LHTZ Team Avg. Beer Soda Hot Dog Parking Program Cap FCI Ticket Boston Red Sox 52.34 7.75 5.00 5.25 35.00 -- 25.00 350.86 Washington Nationals 36.02 6.50 5.00 5.25 10.00 -- 12.00 232.08 Los Angeles Dodgers 28.61 6.25 6.00 5.50 10.00 -- 18.00 218.94 Atlanta Braves 19.14 7.25 4.75 4.75 15.00 -- 15.00 174.06 Arizona 17.98 4.00 1.50 2.75 10.00 -- 9.99 126.89 Diamondbacks MLB Average 28.94 5.98 4.07 4.39 15.89 -- 17.12 211.68 Table 1.5 0[LT JVZ[ HUK -HU *VZ[ 0UKL_LZ -*0 MVY :LSLJ[LK 5H[PVUHS )HZRL[IHSS (ZZVJPH[PVU;LHTZ Team Avg. Beer Soda Hot Dog Parking Program Cap FCI Ticket Boston Red Sox 52.34 7.75 5.00 5.25 35.00 -- 25.00 350.86 Washington Nationals 36.02 6.50 5.00 5.25 10.00 -- 12.00 232.08 Los Angeles Dodgers 28.61 6.25 6.00 5.50 10.00 -- 18.00 218.94 Atlanta Braves 19.14 7.25 4.75 4.75 15.00 -- 15.00 174.06 Arizona 17.98 4.00 1.50 2.75 10.00 -- 9.99 126.89 Diamondbacks MLB Average 28.94 5.98 4.07 4.39 15.89 -- 17.12 211.68 Table 1.6 0[LT*VZ[ HUK-HU*VZ[0UKL_LZ-*0MVY:LSLJ[LK5H[PVUHS/VJRL`3LHN\L ;LHTZ Team Avg. Beer Soda Hot Dog Parking Program Cap FCI Ticket Boston Bruins 88.70 8.50 5.75 5.75 42.00 5.00 20.00 509.80 Pittsburg Penguins 73.59 5.25 3.00 5.00 18.00 0 18.00 390.84 San Jose Sharks 54.68 6.25 4.00 4.00 21.00 5.00 25.00 344.42 New York Islanders 49.21 9.75 5.00 6.25 8.25 0 15.00 299.59 Florida Panthers 33.39 8.00 5.00 6.50 20.00 0 20.00 255.55 NHL Average 62.18 7.45 4.46 4.94 17.70 2.60 19.75 363.58 Sector and Industry Comparisons 23

Focus: Tourism and and commercial recreation organization will likely differ significantly. Tourism Commercial Recreation and commercial recreation are industries. Organizations Each industry is comprised of corporations, businesses, and organizations that By most economic standards, tour- have a common goal of generating finan- ism is the world’s third largest industry, cial and economic benefits for the own- and is, for many countries, states, regions, ers. Commercial recreation businesses or cities, the most important income gen- are an important part of the community erator. Commercial recreation enterpris- leisure service inventory, as well as to the es serve tourists and host communities local economy. Similarly, tourism enter- alike and contribute significantly to local prises are not public social services, but economies. The following discussion fo- their contributions to the economic well cuses on tourism and commercial recre- being of a community are significant, and ation industries and addresses several key they are likely to have positive social im- finance-related topics. pacts. Unlike commercial recreation Scope and Cross-Sector Nature businesses, tourism organizations operate Managing financial resources in in the public, private nonprofit, and tourism and commercial recreation en- commercial sectors. In some situations, terprises requires most of the same skills local, state, and national governments that should be applied in sport organiza- fund tourism agencies and attractions, tions or public and private nonprofit lei- and in other situations there are private sure service agencies. The skills may be nonprofit organizations that exist to the same, but the purpose of the tourism support industry and community efforts

Table 1.7 -\UKPUN :V\YJLZ HUK 4LHZ\YLZ VM :\JJLZZ MVY ;V\YPZT 6YNHUPaH[PVUZ PU [OL 7\ISPJ7YP]H[L5VUWYVÄ[HUK*VTTLYJPHS:LJ[VYZ

Sector Public Private Commercial Nonprofit Examples of State or city Destination Attractions, hotels, tourism tourism department marketing transportation, and organizations organization other profit- oriented businesses Sources of Primarily taxes Grants, earned Earned income revenue (general or income, donations, (investment, sales, lodging/meal taxes) tax transfers fees and charges)

Financial Tax revenue General “health of Liquidity, solvency, measures generated the industry,” profitability, return of success sales statistics on investment 24 Financial Resource Management: Sport, Tourism, and Leisure Services to attract visitors and guests. Of course, investment decisions and provides the commercial tourism enterprises are also tools for evaluating proposed initiatives. plentiful. The sources of funding and financial measures of success for tourism Debt and Inventory Management organizations in each sector are outlined in Table 1.7. In tourism and commercial recreation businesses, financial managers have Financial Objectives two major interests: liquidity and solvency. Liquidity refers to the corporation’s Financial decisions and operations ability to meet its short-term financial ob- in the tourism commercial recreation in- ligations. In other words, it must be able dustries must address the goal of creating to pay its bills. Assuring the availability of added value (improving the bottom line), sufficient cash (liquid assets) for the pay- and all appropriate accounting methods ment of bills is an ongoing management and investment activities should be ap- task. Solvency refers to the corporation’s plied to that end. In spite of a financial ability to meet its long-term financial ob- manager’s passion for the destination, at- ligations. Long-term obligations include traction, activity, or amenity, and regard- debt to creditors and the owner’s claim to less of any genuine interest in providing the corporation’s assets. The entire man- good service just because good service is agement team of the tourism or commer- the right thing to do, managers in tour- cial recreation organization must be con- ism and commercial recreation must re- cerned with maintaining an appropriate main focused on the ultimate goal of gen- level of debt and ensuring a suitable re- erating a measurable profit. turn on the owner’s investment. In these industries, decisions about Financial managers in tourism facilities to build or services to offer and commercial recreation enterprises are viewed as investment decisions. must also be concerned about inventory Whether or not a tourism or commercial turnover. An inventory turnover ratio recreation project is developed or a tells the manager how effectively the program is implemented depends on costs of delivery goods to customers how well it will generate expected returns are being contained. For example, a low under expected risk conditions. For inventory ratio indicates that there may example, a waterpark feature at a resort is be an overinvestment in inventory and, only worth building if it generates more therefore, unnecessarily high storage or short-term and long-term returns than distribution costs. would be realized by simply putting the required capital development funds in Account Management the bank in a nominal interest-bearing account. As exciting as the waterpark In the tourism industry especially, may be, it will not be built if the financial there are also some unique situations return is greater for some other profit- that affect the way accounts are managed. generating amenity on the same site. In a hotel or resort, for example, each Furthermore, investments are made not guest has an account to which charges just to satisfy markets but to attract and and payments may be made at any serve those markets with the greatest time of the day or night, any day of the spending potential. Chapter 16 discusses week. Thousands of those accounts Sector and Industry Comparisons 25 may be opened and closed each day at and statements of financial outcomes can one property. Additionally, payments be prepared relatively infrequently and for tourism services such as cruise ship for comparable periods of time. For ex- passage or air transportation may be made ample, monthly reports and statements in advance of the service being provided, may be sufficient for monitoring financial or may include some sort of deposit. progress at a year-round reception center, Payments received and expenditure even though there may be some peak pe- commitments made before and after a riods around wedding seasons and tradi- service is delivered affect cash flow and tional holidays. must be managed carefully. A third unique Special events and tourism desti- aspect of managing financial resources in nations, attractions, or amenities that tourism organizations is the use of foreign serve many people for short periods of currencies. Guests come from many parts time usually need more frequent reports of the world and may have limited ability of financial activity. Reports may be re- to submit deposits or guarantees in local quired as often as hourly in some cases. currency. Furthermore, the enterprise At resorts and hotels, for example, it is a itself may have overseas operations that common practice to prepare a daily oper- use a different currency. Not only is ations report, an event report, and a night there the need to convert currencies, audit. but the fluctuating exchange rate and government regulations on the cross- Performance Evaluation border flow of funds will also impact financial management in the tourism Profit is the goal in tourism and com- enterprise. Finally, tourism services are mercial recreation enterprises, and the notoriously susceptible to differential ultimate evaluation criterion will always pricing strategies. That is, many different be the amount of profit generated with prices may be applied to a service that respect to the amount of the investment differs in no substantial way between made, or in other words, the return on consumers or production/delivery costs. the investment. It would, of course, be Airline ticket pricing is a well-known foolish for any manager of a tourism or and somewhat mystifying example. commercial recreation enterprise to sim- Chapter 11 should help to demystify ply wait until the end of a fiscal period the application of differential pricing in and then look at the investment return businesses such as airlines and hotels. for that period before deciding how well The tourism financial manager must be the business is doing. Along the way, able to work with highly variable revenue there are many other ways to assess the models based on differential pricing. financial health and vitality of the organization. Reporting One important evaluation criterion that is widely used and is unique to the In many organizations, sales and lodging side of the tourism industry expenditures are predictable and some- is known by the acronym RevPAR. It times steady. This is so for tourism and focuses on revenue and lodging room commercial recreation organizations that availability, and measures how effectively know their markets, can control demand, the resort or hotel fills rooms during the and successfully attract a loyal clientele. low-rate off-season, as well as during In such cases, financial activity reports the high-rate peak season. RevPAR, 26 Financial Resource Management: Sport, Tourism, and Leisure Services identifies the Revenue Per Available leagues will be offered exclusively by Room, and differs from other measures the YMCA, while the city recreation that consider revenue per occupied room. department will offer all softball and Discussed further in Chapter 11, RevPAR baseball programs in the community. is a valuable indicator of management Furthermore, a commercial local sport effectiveness and is used by franchise management firm might be contracted companies, hotel owners, lenders, and by both agencies to train and manage management companies. the officials and the umpires for both the soccer and baseball leagues, or cooperate A Comparison with public and nonprofit organizations in hosting a tourism-generating regional Although public, private nonprofit, or national tournament. and commercial sport, leisure service, Competition among public, private and tourism organizations are alike nonprofit, and commercial agencies in many ways, there are important provides a number of benefits. They differences among the three sectors with include the following: respect to financial management goals and practices. The foregoing discussion • Greater choice for consumers (e.g., of differences is summarized in Table 1.8. variety in program features, schedul- ing, location, price) Cross-Sector Competition • Greater attention to high-quality ser- and Cooperation vice (necessary for maintaining competitive advantage) Although there are important • Greater ability to respond to increas- differences among sport, tourism, and ing demand leisure service organizations operating • Greater opportunity to focus on spe- in the public, private nonprofit, and cific market segments (i.e., establish commercial sectors, this does not a market niche) mean that these sectors never relate to each other. In one respect, they may be Cooperation among public, private competitors trying to serve the same nonprofit, and commercial sport and markets, provide the same kinds of leisure service agencies also provides services, or compete in other ways. In some benefits. They include the following: another respect, they may be cooperating in enterprises and activities that provide • Operational efficiency (by reducing mutual benefits. It would not be unusual, duplication of physical and human for example, to see similar aquatics resources) programs offered to a community by the • Synergism (i.e., the total benefit of YMCA, the local college, and the city agencies working together can be recreation department. In this case, the greater than the sum of the benefits three agencies (representing public and provided by each alone) private nonprofit sectors) are competing • A coordinated approach to the de- directly for customers. On the other livery of sport, tourism, and leisure hand, the city and the YMCA may also services in the community (ensuring have an agreement that youth soccer that a full range of needs and interests are considered) Sector and Industry Comparisons 27

Table 1.8 (:\TTHY`VM-PUHUJL9LSH[LK:PTPSHYP[PLZHUK+PMMLYLUJLZHTVUN 7\ISPJ7YP]H[L5VUWYVÄ[HUK*VTTLYJPHS:WVY[;V\YPZTHUK 3LPZ\YL:LY]PJL6YNHUPaH[PVUZ Area of Public Private Commercial AreaContrast of Public Private Nonprofit Not-for- Commercial Contrast Profit Ownership Usually Private Private corporation government organization Legal Authority Through enabling Through enabling Through legislation legislation and incorporation (state designation of tax and federal status government recognition, regulation, and protection) Mandate Serve social Serve specific Realize maximum welfare and social welfare return on commonwealth needs or leisure investment through needs of all citizens interests of a service to most specific population profitable market Source of Funds Taxes, grants, Grants, Investors, donations, earned memberships, creditors, earned income donations, income fundraising activities, earned income Market Market limited to Market defined by Market composed Management geographic/political particular need of those who can constituency pay Market segmented Defined by merit on basis of need Might not compete Success indicators Social change Social change Profitability Financial viability Growth Return on investment Opportunities Tax exemption Tax exemption Entrepreneurship Volunteers Volunteers Support for Bulk purchasing Public concern eliminating and discounts financially unsuccessful products Challenges Public Relative Developing and accountability and uncertainty maintaining skills scrutiny Reliance on Changing political gratuitous income directions and volunteers Limited, qualified staff Inconsistent leadership

• Conversion of competitive energy to achieved through a system that includes service energy organizations operating in the public, private nonprofit, and commercial sec- Summary tors. The purpose of financial management in public and nonprofit entities is to The delivery of sport, tourism, and enhance programs, service, facilities, and leisure service in the community is areas for the public good, to improve the 28 Financial Resource Management: Sport, Tourism, and Leisure Services quality of life of community members or sources a challenging task. Accounts may people in general, and to meet the goals be numerous and may be opened and of the organization in an effective and ef- closed in short periods of time. Short- ficient manner. term and long-term financial decisions Public agencies have a clear social require up-to-date data, thus requiring mandate and are supported by public accurate and frequent reports. Corporate funds, especially tax revenues. Public success in the tourism and commercial entities, while conforming to some com- sport and recreation industries is mea- mercial business practices, are nonprofit sured primarily in terms of efficiency and enterprises and generally are not expect- effectiveness in generating profits and en- ed to generate excess revenue. There are a hancing investments. few exceptions to this rule. Public organi- Although the three sectors differ zations operate within legislatively man- in other ways, those differences do not dated guidelines, reporting to elected or deny them opportunities for direct appointed lay and professional individu- competition and cooperation in service als. delivery. Private nonprofit agencies do not receive tax dollars to fund their operations, References but rather seek funding through donations and enterprise activities. They may, Appalachian Mountain Club. (2018). through service fees and other fundrais- Consolidated financial statement ing activities, generate profits; but those years ended December 31, 2017 and profits are used to maintain the organi- 2016. Tonneson & Co. zation and sustain other nonprofitable Baade, R. (1990). The impact of activities or services. Private nonprofit stadium and professional sports organizations have an internal structure on metropolitan area development for reporting with the Internal Revenue growth and change. A Journal of Service that, in turn, provides some ex- Urban and Regional Policy, 21 (1– ternal review for financial accountability. 14). Financial success is defined in terms of Badenhausen, K. (2016, December solvency while impacting positive per- 15). The average player salary and ceptions of the community, meeting so- highest paid in NBA, MLB, NHL, cial needs, providing opportunities for NFL and MLS. Forbes. Retrieved involvement, and reinforcing perception from https://www.forbes.com/sites/ of value in the sport, tourism, or leisure kurtbadenhausen/2016/12/15/ service. average-player-salaries-in- The purpose of financial investment major-american-sports- in tourism and commercial recreation leagues/#6153d9321050 enterprises is to generate added value Badenhausen, K. (2017, July 12). Full for the business or industry. Financial list: The world’s 50 most valuable decisions, management procedures, and sports teams 2017. Forbes. reporting mechanisms must address the Basketball Reference. (2018). 2018-19 achievement of this purpose. Tourism NBA player contracts. Retrieved from and commercial sport and recreation https://www.basketball-reference. businesses have some unique circum- com/contracts/players.html stances that make managing financial re- Sector and Industry Comparisons 29

CBC Sports. (2014). NBA TV deal: Forbes. (2018). Sports money: 2018 How the new $24B contract stacks NFL valuations. Retrieved from up against other leagues. Retrieved https://www.forbes.com/teams/new- from https://www.cbc.ca/sports/ england-patriots/ basketball/nba/nba-tv-deal-how- Foxsports. (2016, March 31). Taxpayers the-new-24b-contract-stacks-up- have spent a staggering amount of against-other-leagues-1.2790143 money on NFL stadiums in the last Charaf, T. (2016). The importance of sport 20 years. Retrieved from https:// from an economic and social point of www.foxsports.com/nfl/story/nfl- view. Retrieved from https://www. new-stadiums-public-funding-how- linkedin.com/pulse/importance- much-atlanta-san-diego-minnesota- sport-from-economic-social-point- los-angeles-033116 view-dr-tarek-charaf Settimi, C. (2012, October 12). Baseball Coates, D., & Humphreys, B. R. (2003). scores $12 billion in television Professional sports facilities, fran- deals. Forbes. Retrieved from chises and urban economic develop- https://www.forbes.com/sites/ ment. Public Finance &Management, christinasettimi/2012/10/02/ 3(3), 335. baseball-scores-12-billion-in- Coates, D., & Humphreys, B. (2004, Oc- television-deals/#32429d7771d3 tober). Caught stealing: Debunking Sportsnet. (2017). Rogers and CBC sign the economic case for D.C. Baseball. new 7-year deal for Hockey Night in CATO Institute. Canada. Retrieved from https://www. deMause, N. (2017, September 29). sportsnet.ca/hockey/nhl/rogers-cbc- Why are Georgia taxpayers paying sign-new-7-year-deal-hockey-night- $700m for a new NFL stadium? The canada/ Guardian. Retrieved from https:// Statista. (2017). Average per game www.theguardian.com/sport/2017/ attendance of the five major sports sep/29/why-are-georgia-taxpayers- leagues in North America 2015/16. paying-700m-for-a-new-nfl-stadium Retrieved from https://www.statista. ESPN (2018). NBA salaries. Retrieved com/statistics/207458/per-game- from http://www.espn.com/nba/ attendance-of-major-us-sports- salaries leagues/ Farren, M. (2017, July 3). America’s Statista. (2018). Total value of NFL priciest national pastime. Sports national TV broadcasting rights subsidies aren’t worth the cost deals from 2014 to 2022 (in billion to taxpayers. USA News and World U.S. dollars). Retrieved from https:// Report. Retrieved from https://www. www.statista.com/statistics/615678/ usnews.com/opinion/economic- nfl-national-television-broadcast- intelligence/articles/2017-07-03/ deals/ sport-subsidies-are-a-terrible-deal- for-american-taxpayers