This is an excerpt from Managing Sport Events by T. Christopher Greenwell,Leigh Ann Danzey-Bussell & David Shonk.
The budget consists of three primary elements: revenues, expenses, and net income or loss. Revenues represent money coming into the event or organization through an exchange of money for goods or services. For an event, revenues may come from the organizers selling tickets, merchandise, or concessions to spectators. Organizers may also generate revenues by selling advertising and sponsorship space to corporations and other organizations. Expenses, on the other hand, represent money flowing out of the event or organization and are the costs associated with generating revenues. Organizers will incur expenses as they attempt to generate revenues. For example, the event may create sales through parking. Organizers will hire or contract employees to manage those parking transactions -- collecting parking fees, directing traffic, and helpings fans get to the event quickly and safely. The third element of the budget is net income (or net loss), which is the difference between revenues and expenses. Net income occurs when revenues exceed expenses, while net loss occurs when revenues do not cover the incurred expenses. Obviously, event organizers will certainly hope that every event creates net income rather than net losses. Careful tracking of revenue streams and associated expenses will help event organizers as they attempt to achieve financial successes.
The revenue, expense, and net income (net loss) numbers are forecasted or identified by completing the five steps in the budget process outlined in the previous section. Gathering information helps determine potential revenues and expenses. Steps two and three ask event organizers to forecast sales, expenses, and related profits and losses. These steps require event organizers to spend time thinking about their sales or revenue opportunities along with the associated costs of generating revenue. Consideration of industry trends and capital needs may also have an effect on forecasting revenues, expenses, and the resulting net income.
Types of Budgets
The budgeting process involves five steps, and event organizers should create two budgets during the budgeting process: (1) a preliminary budget and (2) a working budget.
As the name suggests, preliminary budgets are constructed during the earliest phases of the event planning process. Event organizers spend time gathering information about projected revenues and expenses as they plan for the event. Preliminary budgets reflect this information gathering, whereby the event organizers continually make modifications to their estimates and the budget over time as they receive information from multiple sources. For example, you may talk to several potential sponsors and offer them a range of sponsorship opportunities. From these discussions, you may attempt to project or forecast which potential sponsors will agree to sponsor the event and how much they are willing to pay for the opportunity. The preliminary budget represents a work in progress; event organizers continue to gather additional information and modify the event budget over time.
Event organizers will continue to gather information and refine the budget. Doing so helps ensure they have the most accurate information and have considered multiple scenarios. At some point, however, they will believe the numbers presented in the preliminary budget reflect their most informed and accurate estimates. The preliminary budget then becomes a working budget, which occurs when the estimating process is complete and actual numbers are included. These numbers will guide the event organizers as they begin to organize and then host the event. The budget numbers should include specific and expected revenues. For example, sponsors may have signed contracts detailing that they will receive specified sponsorship benefits and pay a specified amount in return. Participants may have paid registration fees, and spectators may have purchased tickets. Similarly, event organizers may have signed contracts with vendors, agreeing to pay the suppliers a certain amount in exchange for the requested products.
These contractual numbers become part of the working budget. As organizers receive revenues and incur expenses, they will compare them to the working budget. This document will help them track how their actual financial performances compare to their detailed estimates and will help them make changes as needed. For instance, if you see that your incoming revenues are lower than expected, you may attempt to identify ways to increase the number of paying participants or spectators. If staffing costs are too high, you may look for ways to supplement your staff through the use of volunteers. Having a working budget helps organizers maximize every dollar spent in their pursuit of revenue and profit generation.
Types of Revenues
Revenues represent money coming into an organization, resulting from an exchange of goods or services. On an income statement, revenues are referred to as the top line because of their location on the income statement -- typically on the statement's first line. They are a key determinant of an event's potential financial success. Although high revenues do not necessarily guarantee financial success, they represent the cornerstone or the pathway toward a more profitable event. Event organizers should understand their available revenue streams and determine where they will focus their revenue generation efforts for upcoming events. This section provides a listing of common revenue streams with examples from various sporting events.
Tickets, Registrations, and Memberships
Tickets, registrations, and memberships from attendance at or participation in an event generate revenue. Sporting events such as the Olympic Games and NCAA championships generate revenues from spectators purchasing tickets to attend the event. Participatory events such as the Chicago Marathon and Ford Ironman generate revenue through participants paying registration fees. Other organizations such as USA Triathlon and the U.S. Tennis Association receive revenues when sporting event participants pay membership dues as part of their entry into the events. This revenue category is an important revenue stream; therefore, event organizers should work to identify multiple ways to facilitate purchase of tickets, registrations, and related membership fees.
Spectator and participatory sporting events often generate revenues through sponsorship rights by partnering with corporations and other organizations. Event organizers may agree to create signage, booths, or other displays promoting the sponsorship. In exchange for a sponsorship fee, the sponsor has the opportunity to reach a desired target market attending or participating in the event. Selected USA Triathlon Collegiate National Championship host cities receive $50,000 for promotions and advertising, and this benefit includes advertising in USA Triathlon Life and other triathlon-related publications. Additionally, corporate sponsors are featured on related websites, including the event's promotional web page and the governing body's national and regional websites (USA Triathlon 2012).
Sport organizations such as the International Olympic Committee (IOC) pride themselves on their offered sponsorship opportunities and have established programs to generate sponsorship revenues. The IOC's The Olympic Partner (TOP) program gives corporate sponsors the opportunity to feature their products on a global stage at the Summer, Winter, and Youth Olympic Games. Participating TOP program companies include McDonald's, General Electric Company, and VISA (Olympic.org 2012). Former TOP sponsor Johnson & Johnson paid an estimated $100 million over four years for the opportunity to sponsor the Olympic Games and reach athletes and spectators watching the events in person or on television and the Internet (Mickle 2008).
Chapter 6 provides more information about the potential benefits sponsors could receive as a result of their sponsorship participation and shows the specific language used by event organizers as they search for potential sponsorships.
Merchandising and Licensing
Sport organizations view sales of merchandise and licensing rights as another revenue opportunity. These products satisfy fans looking for ways to commemorate their attendance at various sporting events and to show their affiliation with a specific athlete, team, league, or sport. Spectators and participants alike appreciate the opportunity to purchase related merchandise. Event organizers can benefit financially from this revenue stream by offering a range of licensed products and merchandise to interested consumers. For example, in 2011 the Big Ten Conference partnered with MainGate to produce and sell the conference's merchandise at the football championship game. Fans attending the event made an estimated $1 million in purchases (Muret 2011).
When budgeting for merchandise sales, organizers need to estimate per capita spending (per cap) and the type of rights agreement (Lawrence and Wells 2009). Per capita spending reflects the amount of spending, per person, on merchandise at the event. For example, if $9,500 in sales is generated for an event attracting 1,000 spectators, per cap spending was $9.50. The type of agreement will also affect what you budget for merchandise sales. A flat fee may be exchanged for the rights to sell merchandise at the event, or event organizers and the facility will agree to a split of gross sales.
Events may also generate revenue by licensing their marks. The All England Lawn Tennis Club (2012), which hosts Wimbledon, created a licensing program with approximately 30 companies and sells products on an international level, partnering with tennis sporting goods providers Prince and Fila. Ralph Lauren, an additional partner, produces apparel and footwear for event personnel, including umpires, ball girls and boys, and other staff members. Spectators and tennis fans can purchase these licensed products at the facility kiosks, in retail stores, and online.
Food and Beverage Sales
Spectators may purchase concessions while attending an event, creating another revenue stream for sport organizations. Budgeting for food and beverage sales is very similar to budgeting for merchandise sales in that you have to consider per cap sales and the type of agreement you enter with your facility or concessionaire.
Food and beverage sales can also be a lucrative revenue stream if managed right. The demand has risen for specialty concessions beyond the ordinary fare of hot dogs and soft drinks, and event organizers have found ways to meet those needs. Stadiums and arenas now regularly offer upscale fare such as sushi, crab cakes, and short ribs accompanied by specialty beers and other beverages (Thomas 2010). Additionally, more event organizers have incorporated technology to better serve consumers interested in purchasing concessions. Fans can place food and drink orders from their seats, using smartphone applications where they input their seat locations and orders. The added convenience is a benefit to fans, who no longer have to leave the action in order to enjoy a range of concessions (Walker 2011). This option may also represent a new revenue opportunity for event organizers, as the added convenience may encourage fans to purchase and consume more -- while paying premium prices to do so.
Souvenir Program Sales
Many events will derive revenue from the sales of souvenir or commemorative programs. For example, Churchill Downs creates special programs for its annual Kentucky Oaks and Derby events (Kentucky Derby 2011). These programs sell for a premium over the usual price on a non-Oaks or non-Derby day. These programs provide customers with memorabilia that may appreciate in value over time. Keeping in mind that not everyone will be interested in purchasing a program, some events choose to give away programs in order to put the materials in the hands of more consumers and to provide more value for sponsors.
Corporations and other large organizations may express interest in corporate hospitality, whereby sport organizations or event organizers set aside seats and space for a group of company employees plus their families, friends, and customers. These corporate hospitality packages provide benefits for event organizers and the corporations purchasing them. Event organizers can work with a larger group of confirmed ticketholders, ensuring a large block of tickets sold. They have the opportunity to upsell the event by offering additional amenities not always offered to individual ticketholders, such as dedicated support staff catering to the guests. In turn, corporations can use these offerings to provide incentives to productive employees, thank current customers for their support, or attract new customers.
Fans who cannot attend the events in person may choose to watch on television or online. As such, event organizers may negotiate with various media outlets, exchanging the right to broadcast their events for contracted revenues. For example, the U.S. Open organizers renegotiated a television contract with CBS. In the previous contract, CBS paid the U.S. Tennis Association (USTA) approximately $20 to $25 million each year. The new contract represented a "slight increase" in dollars and extended the terms through 2014 (Sandomir 2011). SportsBusiness Daily noted a significant surge in media rights fees at the collegiate and professional sports levels and questioned whether this growth reflects a sustainable revenue stream or simply a market bubble (Ourand 2011). Media rights exist for a variety of channels, including television, terrestrial and satellite radio, and the Internet.
The biggest sporting events typically negotiate media rights. NBC paid $4.4 billion for media rights to the Olympic Games from 2014 to 2020. The contract extended NBC's rights, as the broadcast company paid $2.2 billion for the 2010 and 2012 Olympic Games (McCarthy 2011).
Radio is the oldest of the media offerings discussed here. Television and the Internet typically capture more media attention, yet radio still plays a sizeable role in broadcasting sporting events. In October 2011, the Los Angeles Dodgers signed a contract with Clear Channel Communications to broadcast its games for the 2012 through 2014 seasons plus postgame shows, several Spring Training games, and any postseason play (Los Angeles Dodgers 2011). Sport organizations and event organizers continue to use radio to reach fans, whether at home, in the office, or on the road.
Coupled with terrestrial radio, satellite radio is another way sports fans access information about and tune into various sporting events. Providers such as SiriusXM continue to negotiate with powerhouse conferences and sporting events, providing sizeable benefits for radio subscribers. In August 2011, SiriusXM signed a contract to broadcast football and basketball games plus coaches shows for the ACC, Big East, Big Ten, Big 12, Conference USA, Pac-12, SEC, and WAC (SiriusXM 2011).
The Internet continues to expand its reach as a medium by which fans can access sports. In addition to its television contract, the USTA negotiated with ESPN and Tennis Channel to broadcast the U.S. Open event via its USOpen.org website. The USTA also developed iPhone and Android smartphone applications, where fans could access additional content. In 2011, the Atlantic Coast Conference launched an advertising-supported digital network, theACC.com, to expand the amount of content they broadcast and expand their reach to more potential consumers. In addition to news and highlight shows, the network broadcasts numerous live events not available on traditional television outlets (Smith 2011, October 10).
These media channels and the accompanying media rights provide a significant revenue opportunity for event organizers. The largest and most popular events such as the Olympic Games, Super Bowl, and World Cup tend to command the largest media rights contracts. However, event organizers of regional and local levels may also have the opportunity to reach broadcasters and provide their events to a smaller but more targeted audience. The Internet especially has given smaller events a chance to showcase their offerings to dedicated and potentially curious audiences alike.
Although the list of revenue opportunities is long, event organizers should exercise caution in their pursuit and estimates of future revenue streams, as obtaining some revenues may be more challenging than others. Hurdles include shifting economic conditions and contractual conflicts of interest. The U.S. economy has witnessed ups and downs in recent years, and changing economic times can have a pronounced effect on consumer spending. Sports fans may feel reluctant to purchase tickets and related items during an economic downturn. Likewise, corporations and other organizations may want to invest in sponsorships but feel the heat from employees, stockholders, and industry watchdogs, who may frown upon sport-related investments even in the best of times. This reluctance to spend can affect event organizers who rely on sales of sponsorships, tickets, concessions, merchandise, and other items to support their events. In a recessionary period, event organizers must find creative ways to attract spectators and participants, whether through promotions, discounted pricing, or other marketing tactics. They also must employ savvy marketing strategies to justify these spending opportunities and convince potential corporate consumers and sponsors of their value.
In addition to economic conditions, event organizers may face challenges with negotiating contracts, particularly when existing contracts potentially conflict. For example, an event may take place in a stadium or arena that has preexisting signage located in and outside the facility. The facility's management team may have contracted pouring and other concessions rights with vendors, and the contracts can limit the event organizer's ability to secure revenues in these areas. Event organizers should take note of these potential conflicts as they select facilities. When conflicts do occur, organizers must be prepared to adjust their budgets to reflect and offset potential reductions in their various revenue opportunities.