SESSION 1: INTRO TO SPORTS FINANCE

Sports Management
- Many people who are employed in business endeavors associated with sport
are engaged in a career field known as sport management.
- The study and practice of all people, activities, businesses, or organizations
involved in producing, facilitating, promoting, or organizing any sport-related
business or product.
- Application of management processes to sports environments
- Sport Managers need: management skills and experience and an
understanding of both the sport system and the value of sport in society.
The Scope of Sports Management
- The practice of sport management is not limited to large sport clubs only, but
effective and efficient sport management practice is equally important in
smaller sport organizations as well as in non-profit organizations such as
government departments, universities, schools etc. Good sport management
practice is applicable to every organization where one, two or more people
work together to achieve a set of goals.
Sport Finance
- a specialized field that combines traditional finance and economics with a
focus on the unique characteristics of the sports industry.
- Encompasses the financial management, decision-making, and economic
aspects of sports organizations, including professional sports teams and
leagues, as well as the financial implications of athlete contracts, sports
media, and marketing.
Financial Issues in Sports
 How have sports teams increased in value over the years?
 Why do sports broadcasting contracts continue to increase in value, whether
the high cost of sports sponsorship is appropriate?
 Whether government funding of sports facilities produces a benefit to the
local community or team?
Managing Money
- Business exists solely to make money for their owners and stakeholders.
- For example, even if the company’s primary goal is to make ecologically
friendly products to save the rain forest, the company will not be in business
if it is unable to sell those products at a price sufficient to cover the costs of
running the business.
- Nonprofit organizations also exist to make money so that they can further
their primary goals.
- Special Olympics needs to sell products, sponsorship, and advertising to raise
the funds necessary to offer programs for its athletes.
 - All managerial decisions require a comprehensive review of internal and
external constraint.
- Environmental factors such as the cost of borrowing money.
o Internal constraint – can include company’s credit history, sales
volume, product lines, accounts receivable, inventory balances and
management structure.
o External constraint – can include inflationary conditions, significant
competition, high interest rates, weak economic indicators, shrinking of
the money supply by the government and the political environment.
Financial Skills
- Executives do not just make decisions.
- The most successful executives use financial skills to plan their decisions.
- To document and plan for future financial success, a sports organization need
someone trained in developing, analyzing, projecting, and interpreting FS
information.
Accounting
- is the process of calculating revenue and expenses through receipts and
other facts to determine the numbers for company or entity.
Finance
- is the process of examining the numbers, determining what they mean, and
identifying what the past was, and future will be for the company or entity.
Economics
- in contrast, takes the number and financial projections from numerous
companies or entities to explore future trends.
Settings for Sporting Activities
1. Single sports
o Professional leagues, teams
2. Multi sports
o Athletic foundations
o High school sports
o Sport organizations
o Sport bureaus
3. College sports
o College associations
o College athletic departments
o Sport management degree programs

SESSION 2: BASIC FINANCIAL CONCEPT

Finance
 - is the art and science of managing money
- lifeblood of the business
- it is the body of facts, principles, and theories relating to raising and using
money.
Financial Management
- referred to as the: managerial finance, corporate finance, business finance
- is a decision making process concerned with planning, acquiring, and utilizing
funds in a manner that achieves the company’s objective.
- concerned with the acquisition, financing and management of assets with
some overall goal in mind
- the goal is to make money and add value for the owners
Goals of Financial Management
1. Profitability (short-term goal)
2. Sustainability (long-term goal)
Revenues
- represent money coming from a sport business
- ticket sales, broadcast contracts, concession sales, sponsorship agreements,
and a host of other opportunities
Expenses
- costs that are incurred
- player salaries, equipment, travel, executive salaries, and other expenses
ranging from rent to insurance premiums
Accounting
- requires the identification, measurement, recording, and communication of
financial information associated with various critical events
Objective of Accounting
 Making decisions about the use of limited resources, including the
identification of crucial decision areas and determination of objectives and
goals
 Effectively directing and controlling an organization’s human and material
resources
 Maintaining and reporting on the custodianship of resources
 Contributing to the overall effectiveness of the organization
Other Objectives:
 Internal Control
o Including the safeguarding of organization’s money and other property,
the regular collection and payment of sums of money owing to and by
 it and prevention and detection of inefficiency, waste and dishonesty
by the employees of the organization
 Measurement of Financial Data
o By means of recording transactions and events affecting the financial
state of the organization and their processing in accordance with
consistent rules
 Financial Reporting
o Reporting of financial information to proprietors, investors and other
interested persons, by presentation of annual or more frequent
financial statements

Reasons why everybody needs accounting

 Accounting is not limited to profit-oriented entities but also nonstock,
nonprofit organization and foundations, churches and government agencies
 We need to know where our funds came from and how it was spent
 We need to know if our business is earning profit or incurring losses
 Accounting tells us the amount of resources in our possession, our liabilities
and investment
 Accounting would provide tools in budgeting, financial planning, forecasting
and strategic management
How to understand the principles of accounting
 Accounting is not simply recording of transaction. We have to ensure
correctness and accuracy of recorded data.
 We can ensure correctness and accuracy by practicing the double entry
system
 Accounting focuses on balancing procedures to ensure correctness of
recorded data and transactions
 Misbalanced figure is an indication of error
Managerial Accounting vs Financial Accounting
 The primary user of reports produced by the managerial accounting process
are internal users, whereas financial accounting reports are used primarily by
stockholders, creditors, and regulators
 Managerial accounting reports are not audited, whereas financial accounting
reports are audited by certified public accountants
 Managerial accounting reports are detailed and often have a focus on
business subunits (such as concessions sales for a team), whereas financial
accounting reports focus on the entire organization, are not as detailed, and
follow the generally accepted accounting principles for validity
12 important objectives for a sports organization’s accounting system
 The data should be collected to help plan for the program’s future.
 The financial records must be kept in an orderly manner.
  An orderly and professional accounting method must be implemented to
track authorized expenditures.
 Appropriate forms must be prepared to help standardize and create a definite
paper trail for receipts and expenditures.
 A system or process needs to be developed and implemented to coordinate
the receipt of goods and services and to ensure that all such goods and
services meet required standards before any final payments on the goods or
services are made.
 Transactions need to be documented in such a way that an independent
auditor can examine the transactions and determine to whom money was
paid and for what purpose.
 Revenue must be tracked to determine if fiscal obligations can be paid.
Tracking should determine what funds were obtained, from whom and for
what purpose.
 Special funds need to be accounted for in a separate accounting manner to
track such items as planned giving and major gifts, which are nontraditional
revenue sources.
 All information documented through the accounting process needs to be
prepared in such a way that an external reviewer can adequately audit all
accounts.
 Any accounting system must be adequate to meet the organization’s needs,
with special consideration for size and complexity.
 Any accounting system must meet all state, national, regional and
association standards guidelines.
 Any accounting system must provide the opportunity to analyze management
decisions and produce appropriate reports to evaluate past managerial
decisions and pave the way for future decisions.
Cash vs Accrual Basis
 According to GAAP, revenues and expenses can be recorded either on a cash
basis or an accrual basis. The accrual basis is the preferred technique, but
the cash method is allowed by GAAP under specific limited circumstances,
such as when a business conducts all transactions with cash.
o Cash basis – income and expenses are recorded when cash is received
or paid; sales made on credit or bills that are owed are not recorded
until they are actually paid.
o Accrual basis – recognize revenues when they are earned and
recognize expenses when they are incurred.
Art of Accounting
- The language of business is called accounting, that information about a
business entity is communicated
- Accounting is science as well as art of an organization
- Financial statements are the end product report of accounting
- Financial statement is also an accurate portrait of a business based on data
analyzed by accountant – a human being who can also make errors.
 - Accounting systems also use professional judgments and estimates when
absolute objective evidence does not exist.
- Every businessman business has records of transactions in the books of
accounts followed by rules, maintained to the nature of the business and
after analyzing the facts determine the results.
Audited Financial Statements
 Accountants can make errors. An auditor is often the last person who can
possibly discover any discrepancies.
 The auditors prepare reports that include the following statements:
o The auditor is independent from the company’s management
o The Financial Statements were audited
o The financial statements are management’s responsibility, and the
auditor’s role is to express the opinion on the financial statements

 The final opinion reached by the auditor can be

o an unqualified opinion that the statements are accurate
o a qualified opinion
o an adverse opinion indicating that the statements do not conform with
required principles
o a disclaimer indicating that the auditor was unable to complete the
report because the company failed to provide certain data
Economics
- the study of social, governmental, and numerous other factors that can
influence the financial state of the sports industry, but economics is not
sports finance.
- economic analysis can highlight that the company is in tailspin or that the
oversupply of tickers will drive down the value of certain tickers. such
analysis would be important to help a sports organization make a decision. If
too many outstanding tickers exist, the sport organization will need to make a
financial decision.
Financial Planning
- establishes guideline for change and growth
- concerned with the major elements of a firm’s financial and investment
policies
- formulates the way in which financial goals are to be achieved
- guide in company’s operation
- control mechanism or barometer to which results of operations shall be
measured
Financial Planning Models
1. Economic Environment Assumptions
  The plan will have to state explicitly the economic environment in
which the firm expects to reside over the life of the plan (inflation
rates, level of interest rates and tax rates)
2. Sales Forecast
 The plan will focus on projected future sales and the assets and
financing needed to support those sales. Concerned with growth rate in
sales rather than as an explicit sales figure.
o Profit Margin – increase in PM will increase firm’s ability to
generate funds
o Dividend Policy – decrease in % of net income paid out of
dividends will increase retention ratio. This increases internally
generated equity.
o Financial Policy – increase in debt-equity ratio increases firm’s
financial leverage
o Total Asset Turnover – increase in the firm’s total asset turnover
increases the sales generated for each peso in assets.
3. Proforma Statements
 A financial plan will have a forecast statement of financial position,
income statement, statement of cash flows and statement of
stockholder’s equity.

4. Asset Requirements
 The financial plan will describe projected capital spending. It contains
the changes in total fixed assets and net working capital (firm’s total
capital budget).
5. Financial Requirements
 The financial plan will include a section about the necessary financing
arrangements. This plan includes dividend policy and debt policy.
Sometimes, firms will expect to raise cash by selling new shares of
stock or borrowing. In this case, the plan will have to consider what
kinds of securities have to be sold and what methods of issuance are
most appropriate.
6. Additional Funds Needed (AFN)
 An event where projected total assets will exceed total liabilities and
equity
o Financial plug – is the designated source(s) of external financing
needed to deal with any shortfall or surplus in financing thereby
bringing the statement of financial position into balance.
Proper Documentation
- The key to success in data collection is proper documentation.
- The ability to make appropriate financial decision is predicated on proper
documentation.
- When a sports business finds itself in a financial spotlight, the only way that it
can analyze the situation accurately is through proper documentation.
Financial Planning
- is often based on behavior learned from previous bad habits or mistakes
Financial Planning Process
1. Corporate Planning
 A formal, systematic, managerial process, that is organized by
responsibility, time and information to assure that strategic planning,
project planning and operational planning are carried out regularly to
enable top management to direct and control the future of the
company.
2. Strategic Planning
 This involves creation of strategies that are aimed to maximize the
entity’s future position taking into consideration the various elements
and factors that may permeate the company’s internal and external
environment.
 Strategy is a design that integrates the corporate objectives, policies
and programs in a well-developed unified whole.
 Strategic plans is a control measure that systematically distributes the
scarce resources of the entity in order to assure the best means of
achieving corporate objectives.
 Strategic planning involves the SWOT analysis
3. Operational Planning
 This is focused on how to efficiently and effectively utilize the
resources to achieve the company’s short-term and long-term
objectives set during the strategic planning.
Forecasting
- the key to financial planning
- the more distant the forecast period is, the greater the difficulty is in making
the forecast and the lower the likelihood is that the results will be accurate
Budgeting
- the act of preparing the budget
Budget
- a financial plan of the resources needed to carry out tasks and meet financial
goals
- quantitative plans for the future, stated in either physical or financial terms or
both
- when used in planning, a budget is a method for translating the goals and
strategies of an organization into operational terms
- used in control
SESSION 3: FINANCIAL STATEMENT ANALYSIS
The 4 Basic Financial Statements
 1. The Statement of Financial Position which shows the financial position –
assets, liabilities, and owner’s equity of the firm on a particular date such as
the end of a quarter or a year
2. The income or earning statement which represents the results of operations –
revenues, expenses, net profit or loss, for the accounting period
3. The statement of changes in equity which summarizes the changes in
company’s equity for a period of time (generally one year)
4. The cash flow statement which provides information about the cash inflows
and outflows from operating, financing, and investing activities during an
accounting period
Financial Statement Analysis
- the process of examining and interpreting a company's financial statements
to gain insight into its financial performance and health
Most Common Methods of FS Analysis
1. Ratio Analysis
 involves calculating financial ratios to assess a company’s financial
performance
 common ratios include liquidity ratios, profitability ratios, and leverage
ratios
2. Vertical Analysis
 involves expressing financial statement items as a percentage of a
base amount, such as total assets or total revenue
 useful for comparing financial statements of companies of different
sizes
3. Horizontal Analysis
 involves comparing financial statement items over time
 can identify trends in a company’s financial performance over time

4. Common Size Analysis

 involves expressing financial statement items as a percentage of a
total, such as all revenues or all expenses
 can help identify areas of a company’s operations that may be
underperforming
5. DuPont Analysis
 breaks down return on equity into three components: profitability,
efficiency, and financial leverage
 can help identify the sources of a company’s return on equity and can
be useful for comparing companies in the same industry
Primary Goal of Financial Management
- maximize shareholder’s wealth
- take advantage of the firm’s strength and correct its deficiencies and
weakness
Financial Ratio Analysis
1. Liquidity Ratios
 ability of a business to pay currently maturing obligation
o Current Ratio – primary test of solvency to meet current
obligations from current assets as going concern
o Quick Ratio – a more severe test of immediate solvency; test of
ability to meet demands from current assets
o Solvency Ratio – determines how strong the business is in
terms of being able to cover its liabilities
o Working Capital to Total Assets – indicates relative liquidity of
total assets and distribution of resources employed
o Net Working Capital – highlights the available current assets
after all the current liabilities are paid
2. Activity or Asset Management Ratios
 how efficiently the firm is using its assets
o Total Asset Turnover Ratio – how effective a firm manages its
assets
o Inventory Turnover Ratio – tells us how many times during the
year the inventory purchased and sold
o Receivable Turnover Ratio – velocity of collection of trade
accounts and notes; test of efficiency on collection
o Average collection period or number of days sales uncollected
– evaluates the liquidity of AR and the firm’s credit policies
3. Financial Leverage Rations or Debt Management Ratios
 how the firm has financed its assets as well as the firm’s ability to
repay its long-term debt
o Debt Ratio – shows proportion of all assets that are financed
with debt
o Equity Ratio – indicates proportion of assets provided by
owner; reflects financial strength and caution to creditors
o Debt to Equity Ratio – measures debt relative to amount of
resources provided by owners
o Interest Coverage Ratio – provides insight into whether a firm
has sufficient earnings to cover its interest expense
4. Profitability
 how profitable the firm is operating and utilizing its assets
o Gross Profit Margin – measures profit generated after
consideration of cost of product sold
o Net Profit Margin (Rate of Return on Net Sales) - measures
profit generated after consideration of all expenses and
revenues
o Return on Assets (ROA) – reflects the amount of profits earned
on the investment in all assets of the firm
o Return on Equity – measures profitability in terms of profit
earned in investment in the firm’s assets by stockholders only
 5. Company’s Value or Market Book Ratios
 tells us what investors think about the company and its prospects
o Market Value – price per share of common stock
o Book Value – based on historic cost of assets minus
accumulated depreciation; also refers to the Owner’s Equity
o Book Value Per Share – another measure of a company’s value
based on the owner’s equity obtained in the balance sheet
o Annual Return Per Share and the Annual Rate of Return –
analyze whether there was increase or decrease in a stock’s
value and whether any dividends were distributed to the
stockholders
o Price Earnings Ratio – how the stock market is valuing the
company
o Dividend Payout Ratio – shows percentage of earnings paid to
shareholders
o Earnings Per Share – peso return on each ordinary share;
indicative of ability to pay dividends
SESSION 4: TIME VALUE OF MONEY
Time Value of Money
- refers to the idea that money available at different points in time has
different values
- money can earn interest over time, which means that the value of money
changes depending on when it is received or paid
- it is an important concept in finance and accounting, it helps in financial
decision and taking into account the changing value of money over time
- money available at the present time is worth more than the same amount in
the future due to its earning potential capacity
- demonstrate that all being equal, it is better to have money now rather than
later
Reasons for TVM
1. Risk and Uncertainty
 As we know, future is never certain, and we can’t determine the risk
involved in the future because outflow of cash is in our hand as
payment whereas there is no certainty for future cash inflows

2. Inflation
 In an inflationary economy, the money received today has more
purchasing power than the money to be received in the future. IN other
words, a peso today represents a greater real purchasing power than a
peso in the future. Inflation is the fall in the purchasing power of
money. It makes money cheaper and the goods and services costlier.
3. Consumption
  Individuals generally prefer current consumption to future
consumption.
4. Investment Opportunities
 An investor can profitably use the received money today to get higher
return tomorrow or after a certain period of time. Money has the
potential to grow over a period of time because it can be invested
somewhere.
Importance of TVM
1. In Investment Decisions
 Small businesses often have limited resources to invest in business
operations, activities and expansion.
 One of the factors we have to look at is how to invest, is the time value
of money.
2. In Capital Budgeting Decisions
 When a business chooses to invest money in a project—such as an
expansion, a strategic acquisition or just the purchase of a new piece
of equipment—it may be years before that project begins producing a
positive cash flow.
 The business needs to know whether those future cash flows are worth
the upfront investment.
Interest
- cost of using money over time
- represents the time value of money
Interest Expense
- cost of excess resources to the borrower for the use of money
Interest Revenue
- benefit of the excess resources to the lender of the money
Present Value
- it is the current value of a future amount of money, or series of payments,
evaluated at an appropriate discount rate
Discount Rate
- rate of interest that is used to find present values