Cracking the Financial Code of Sports Business

Sportswriters and business reporters are both used to having all the numbers they could ever hope to crunch right at their fingertips. From batting averages to price/earnings ratios, from points per game to earnings per share, both types of reporters are accustomed to easy access to reliable measures of success or failure in the fields they cover.

But when the two fields collide in the coverage of the business of sports, the hard numbers become much harder to come by.

Virtually all profit and loss numbers for teams are closely guarded secrets. Even teams owned by publicly held corporations generally are such relatively small units in the overall conglomerate that their results are not broken out in quarterly or annual reports. When numbers are released, such as when baseball Commissioner Bud Selig presented team-by-team financial results to congress after the 2001 season, they are sometimes more suspect than helpful. And the data quickly become dated.

But the influence that dollars and cents have on teams' rosters and performance has never been greater than it is now. So coverage of the business of sports is of more importance and interest than ever to both sports fans and business readers.

It's important to realize that even without access to teams' and leagues' profit and loss statements, reporters can still find a great deal of financial data available.

Financial figures for two areas of sports once thought to be purely amateur in nature -- college athletics and the Olympic games -- are relatively easily available.

The revenue and expenses of just about every team at every college in the country is available from the Department of Education. The International Olympics Committee has a public financial report through the 2000 Olympic games available on its Web site, which also has many details on revenue sources of 2002 and future games.

And while there are no sports teams that are publicly held, there are several companies involved purely in professional sports -- primarily in auto racing and horse racing -- that are publicly traded and therefore filing quarterly earnings reports.

They include International Speedway Corp., owned primarily by the France family that also controls NASCAR and Churchill Downs Inc., the owner of four major horse racing tracks in addition to the home of the Kentucky Derby.

Besides the financial reports available on these companies, each is followed by a number of Wall Street analysts who have built up an expertise in the finances of the industry as well as the specific companies.

In addition, financial reports filed with the Securities and Exchange Commission by a variety of sports-related companies can be mined for useful information.

For example, athletic shoemakers Nike and Reebok both have to detail the value of aggregate endorsement deal payments due to athletes in their annual 10-K filings.

Broadcasters' rights fees and in some cases profits and losses from sports programming are sometimes available in their parent company's financial reports. Fox Entertainment Group detailed rights fees and estimated future losses from football, baseball and NASCAR in its February 2002 10-Q report when it took nearly a $1 billion charge for those losses.

And business success and failure in sports can be measured by more than pure dollars and cents. Television ratings, easily available from Nielsen Media Research, as well as ad rates, are a key part of the business of sports today. Attendance figures are also easily available and comparable.

There are also many publications dedicated to the business side of sports that help to compile information that can be useful. Street & Smith's Sports Business Daily and SportsBusiness Journal are among the most useful, particularly in compiling data on the value of sports naming rights or broadcast rights deals. Team Marketing Report compiles the most useful data on ticket and concession prices for the four major team sports. Forbes does a comprehensive calculation of sports franchise valuations roughly at the start of each sport's season.

But because so many of the facts and hard numbers in the business of sports are never revealed to the public, it is more necessary than ever to develop good sources. Fortunately there is no shortage of places to look for knowledgeable sources.

Most media guides list teams' business executives such as ticket sales managers and chief financial officers. Some of these little-known officials are willing, even eager, to talk to reporters, although sometimes on only a not-for-attribution basis.

Some of the leagues are surprisingly helpful granting access to the business side executives. The NFL, by far the most profitable league, not surprisingly is most willing to let its executives tell their story.

On the players' side, agents often have a detailed knowledge of teams' and leagues' finances and are relatively comfortable talking with the media. Players unions are obviously watchdogs of their sports.

There is also a large universe of marketing and broadcasting consultants who are willing to talk. Investment bankers specializing in the sale and acquisitions of sports teams are invaluable, if usually not-for-attribution, sources. And there is a growing list of economics professors who have written about the business of sports and are willing, even eager to talk.

Finally, one of the most important things a reporter covering the business of sports can do is to challenge the common assumptions of fans and the claims of both ownership and players.

Fans are certain that lower revenue teams can't compete with deep-pocket franchises. Owners would like fans to believe that players' salaries determine ticket prices. Players, their unions and agents would like fans to believe that no owner loses money. Politicians and leagues would like taxpayers to believe that publicly financed stadiums and arenas pay for themselves in economic impact on the community.

These, and other, common assumptions all have huge holes when held up to scrutiny. The better you master the tools available to you, the better you can explain these and other issues of interest to readers of both the sports and business pages.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism