2008 presentation on profit and winning in sport

2. Owners are never the most popular sports figures
in a city. When a team loses consistently, the
owner is the person the fans blame; when the
team wins, the owner is the person the fans want
to get out of the way so that the announcer can
interview the coach and star players. There is a
reason that no owner has ever been pictured on a
football card.
-Gene Klein, former owner of the SD Chargers.

3.  Read Fort Chapter 4 pp. 109-127
 Complete Worksheet Q’s #5
09/26/08

4. • The short-run and long-run decisions that
confront sports team owners.
• Profit-maximization, subject to uncertainty,and
the short-run and long-run decisions of owners.
• The tension created between fans, players, and
owners by the owner’s financial bottom line.
• Profit variation and competitive balance.
• Sports accounting versus the value of
ownership.

5. “The whole thing is not really an issue
of big market, small market. It’s
larger revenue teams, with smaller
revenue teams complaining about
not making as much as their bigger
partners.”
- Don Fehr, MLBPA Executive Director.

7.  Individual-Oriented (Mark Cubin)
› Actual “Fantasy” Team?
 Corporate
› 99.9% always about the bottom line?
 What factors do owners have to
consider?
09/26/08

8. 09/26/08
Remember the Product: Steak v. Sizzle

9.  Rule #1: Give them a reason to keep you
on
 Rule #2: Understand the organizational
structure of the organization and its
relationship with the philosophy
› What is the salary structure?
› Benefits/perks?
› Is the primary benefit for your position that
you get to work in sports?
09/26/08

11. Remember your economics principles

12. Remember your economics principles
Short-run: Some factors of production are
fixed.

13. Remember your economics principles
Short-run: Some factors of production are
fixed.
Long-run: All factors of production are
variable, or open to alteration by the
producer.

14. Remember your economics principles
Short-run: Some factors of production are
fixed.
Long-run: All factors of production are
variable, or open to alteration by the
producer.
In the long-run, owners choose quality
(winning percent) to maximize profits. In
the short-run, they sell attendance and
broadcast rights to collect on this long-run
choice.

16. Short-run: Some factors of production are
fixed, like all contractual obligations in
place at a point in time. For example…

17. Short-run: Some factors of production are
fixed, like all contractual obligations in
place at a point in time. For example…
Talent, on and off the field, typically over the
course of a given season.

18. Short-run: Some factors of production are
fixed, like all contractual obligations in
place at a point in time. For example…
Talent, on and off the field, typically over the
course of a given season.
The facility the team plays in, typically over
its 20-30 year lifespan.

19. Short-run: Some factors of production are
fixed, like all contractual obligations in
place at a point in time. For example…
Talent, on and off the field, typically over the
course of a given season.
The facility the team plays in, typically over
its 20-30 year lifespan.
*Don’t confuse the short run with a short
period of actual physical time. The short-
run for stadiums can be decades!

21. What about roster alterations during the
season?

22. What about roster alterations during the
season?
If the owner is just making the changes that
he/she forecast to reach long term quality,
these are just short-run adjustments.

23. What about roster alterations during the
season?
If the owner is just making the changes that
he/she forecast to reach long term quality,
these are just short-run adjustments.
If the owner changes his/her mind about the
level of quality to put in front of fans, then
we’ve left the “short-run” and it’s time to
talk about the long-run.

25. Long-run: All factors of production are
variable, or open to alteration by the
producer. In the long-run…

26. Long-run: All factors of production are
variable, or open to alteration by the
producer. In the long-run…
New stadiums can be built.

27. Long-run: All factors of production are
variable, or open to alteration by the
producer. In the long-run…
New stadiums can be built.
The level of roster quality can be altered.

28. Long-run: All factors of production are
variable, or open to alteration by the
producer. In the long-run…
New stadiums can be built.
The level of roster quality can be altered.
Managers and coaches can be replaced.

29. Long-run: All factors of production are
variable, or open to alteration by the
producer. In the long-run…
New stadiums can be built.
The level of roster quality can be altered.
Managers and coaches can be replaced.
*Essentially, any time the owner steps back
and takes a “planning” view, long-run
considerations about team quality are
made.

40. 09/26/08

43. 09/26/08

44. 09/26/08

45. • The short-run and long-run decisions that
confront sports team owners.
• Profit-maximization, subject to uncertainty,and
the short-run and long-run decisions of owners.
• The tension created between fans, players, and
owners by the owner’s financial bottom line.
• Profit variation and competitive balance.
• Sports accounting versus the value of
ownership.