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FINANCIAL WORLD'S 1ST ANNUAL REPORT ON THE SPORTS INDUSTRY
Published February 3, 1995
For the first time, FINANCIAL WORLD dedicated an entire issue to the state of the sports industry. The annual FW issue on the franchise values is due out in May. In this issue, FW attempts "to explain exactly how the industry has changed and what is behind that change." Some of the industry segments examined: Labor, Hockey, Arena Football, Boxing, Tennis, Golf, Sailing, Soccer, Horse Racing, Gambling, Satellite TV, Fan Demographics, Stadiums, Auto Racing, Pro Wrestling and College Sports. Excerpts follow: INDUSTRY EVALUATION: In the opening piece, Michael Ozanian examines "sports as software" -- the growing trend to use sports as a way to build revenues indirectly, through cable TV, merchandise, advertising, etc. This trend explains why franchise values "have soared during the past few years even though profits have fallen." Ozanian writes, "Sports is not simply another big business. It is one of the fastest-growing industries in the U.S., and it is intertwined with virtually every aspect of the economy -- from media and apparel to food and advertising." Some stats: TV rights fees for the four major sports more than doubled to $1.5B in '93 from $704M in '88 -- an annualized rate of 17%. The annualized rate of nominal GDP growth over the same period: 5.3%. Spending by U.S. & Canadian companies to sponsor events increased 15%/year to $2.4B in '93 from $1.2B in '88. Retail sales of licensed merchandise for the four major sports hit $8.7B in '93, versus $2B in '88. LABOR: In a piece headlined "Adam Smith faces off against Karl Marx," Ozanian and Stephen Taub explain how the owners of major sports teams and their players "shuffle between capitalism and Communism as a matter of convenience. The result: strikes, lockouts and angry fans." Their suggestions for sports' labor problems: let all players become free agents as soon as their contracts end; no salary cap but also no set minimum salaries, no salary arbitration, no player drafts and allow franchises to move. HOCKEY: In an examination of the NHL's finances, Stephen Taub explains how the growth of players' salaries has slowed each year since '91 while the league "revenues are about to explode. So what's the problem?" Taub notes that potentially before the year 2000, 11 new arenas will open increasing each of those team's revenue streams. "If the league had just made the emotionally difficult decision to permit the weakest links to move their franchises, the sport would have been in very solid shape to make serious money and build its value as we head into the next century." In a separate piece, Jason Starr examines the Sharks' marketing success, including a pending movie project. DEMOGRAPHICS: Targeting the female audience is the focus of this piece by Brooke Grabarek. Noting the advent of more figure skating on TV, Grabarek concludes: "Given the favorable trend of female viewership and strong advertising support, it's a sure bet that there will continue to be greater diversity of televised sports." STADIUMS: Under the subhead, "Sports franchises are giving local taxpayers sleepless nights," Andrew Osterland examines the explosion of new facilities. "Why are these enormously expensive new venues so critical to a franchise's financial success? The answer is simple: With media revenues leveling off and player salaries rising, increased stadium income is the easiest way for owners to stay ahead." ARENA FOOTBALL: Anthony Baldo profiles the success of the League crediting it in part to AFL operating as a single entity, without separate franchise owners. AFL Commissioner James Drucker predicts team values will "skyrocket" to between $10-20M within three years. TENNIS: Ever since SPORTS ILLUSTRATED "plastered 'Is Tennis Dying?' on its cover last May, there has been endless banter about the game's imminent demise," writes Gregory David. But David notes the men's game is "far from needing life support." As for women's tennis, it "could use a bit more help." David concludes: "You can't help but remember what the Nancy Kerrigan comeback story did for figure skating. Hold the tennis obituaries for a while." SOCCER: Nick Gilber examines the pros and cons of starting Major League Soccer, from the success of the '94 World Cup to the unsuccessful NASL of the '80s. Gilbert notes that both McDonald's and Anheuser-Busch are in discussions about becoming sponsors of Major League Soccer (FINANCIAL WORLD, 2/14 issue).