Financial Systems and Structures


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  • GP Individuals or groups combine their resources to share in operating, managing, and controlling a business and share in its profits and liabilities Greater access to capital than sole proprietorships Profits are taxed only once when distributed to partners Two parties helps managerial decision making process easier Limited longevity tied to partners’ lives/existence Jointly and severally liable for partnership debt or liability Capital acquisition is limited GP can be an express pship (written) or implied pship (through actions of parties) LP GP responsible for managing the company and LP responsible for financial input GP has unlimited liability LP entitled to profit share but is not engaged in day-to-day mgmt LP liability therefore limited only to their investment amount Same advantages in terms of capital access and pass-through taxation LP can invest in many different businesses and manage their portfolio liability
  • Marketing Orientation EX: LPGA’s efforts to make the fans a priority; business plan designed to increase tour visibility and grow the tour Fan First Initiative – enable the fans to find a connection with the players Asked the players to adopt the 5 points of celebrity – performance, relevance, joy and passion, appearance, approachability 2003 – attendance up 10%, TV viewership up 22% on cable and 29% on broadcast, avg. purse doubled, total prize money has grown 87% Key Metrics – attendance, media coverage, employment
  • Vision (future facing) Where does org plan to go? What business do we want to be in? What customer need to we want to satisfy? What capabilities are required? Do we have them? Can we get them? Mission (communicate direction of org) What business are we currently in? Who are our current customers? (UMass – is it students?) What is the scope of our market? How do we currently meet the needs of our customers? Org Objectives (convert vision and mission into performance targets to be achieved within a specific timeframe) Define strategic (long term market position) and financial direction growth in rev, profit margins, ROI Market share, cust sat Marketing Goals (clarify diff b/w corp, business, functional level strategies) Group exercise – pick a sport org and develop marketing objectives for 2005; rationalize them based on other marketing elements
  • Financial Systems and Structures

    1. 1. Financial Systems & Management Structures Sport Finance
    2. 2. The Stock Market <ul><li>Stock exchanges: </li></ul><ul><ul><li>NYSE </li></ul></ul><ul><ul><li>NASDaq </li></ul></ul><ul><ul><li>Regional Exchanges </li></ul></ul><ul><li>Common and preferred stock </li></ul><ul><li>Bull and bear markets </li></ul><ul><li>Buying on margin (futures) </li></ul>
    3. 3. What are Stocks? <ul><li>Ownership of shares in a company. </li></ul><ul><li>The price of a stock rises and falls based on perceptions of the earnings potential of the company. </li></ul><ul><li>Owners of stock have a stake in the corporations assets and profits, some of which are commonly dispersed to shareholders. </li></ul>
    4. 4. Factors Influencing Stock Prices <ul><li>External Factors </li></ul><ul><ul><li>Antitrust decisions regarding the league </li></ul></ul><ul><ul><li>Labor disputes </li></ul></ul><ul><ul><li>Performance of competing leagues </li></ul></ul><ul><ul><li>Workplace regulation changes (i.e. food vendors are employees, not contractors) </li></ul></ul><ul><li>Internal Factors </li></ul><ul><ul><li>Player and coach movement </li></ul></ul><ul><ul><li>Whether to borrow more money or to pay dividends </li></ul></ul><ul><ul><li>Consolidate TV and radio broadcasting options in-house </li></ul></ul>
    5. 5. Common and Preferred Stock <ul><li>Preferred and common stocks are different in two key aspects: </li></ul><ul><li>Preferred stockholders have a greater claim to a company's assets and earnings. </li></ul><ul><li>Second, the dividends of preferred stocks are different from and generally greater than those of common stock. </li></ul><ul><li>When you buy a preferred stock, you will have an idea of when to expect a dividend because they are paid at regular intervals. This is not necessarily the case for common stock, as the company's board of directors will decide whether or not to pay out a dividend. </li></ul>
    6. 6. Securities and Exchange Commission <ul><li>The federal agency created by the Securities Exchange Act of 1934 to enforce federal securities laws. </li></ul><ul><li>All US companies with stock must abide by the SEC rules and regulations and are required to file quarterly status reports. </li></ul><ul><li>This agency is charged with protecting investors against fraud relating to the purchase of stock and investments. </li></ul>
    7. 7. Financial Management Structures <ul><li>For-profit business </li></ul><ul><li>Not-for-profit business </li></ul><ul><li>Sole proprietorship </li></ul><ul><li>General partnership </li></ul><ul><li>Limited partnership </li></ul><ul><li>Limited liability company </li></ul><ul><li>Limited liability partnership </li></ul><ul><li>S Corporation </li></ul><ul><li>C Corporation </li></ul>
    8. 8. Factors that Influence Structure <ul><li>Size of the organization. </li></ul><ul><li>Product diversity. </li></ul><ul><li>Management characteristics & objectives. </li></ul><ul><li>Tax and legal concerns & benefits </li></ul><ul><li>Employee characteristics. </li></ul>
    9. 9. Sole Proprietorships <ul><li>A business entity owned by a single person </li></ul><ul><li>Primary benefits </li></ul><ul><ul><li>No formal paperwork to begin </li></ul></ul><ul><ul><li>Low cost to organize </li></ul></ul><ul><ul><li>Profits and organization control not shared </li></ul></ul><ul><li>Primary Disadvantages </li></ul><ul><ul><li>Limited ability to raise significant capital </li></ul></ul><ul><ul><li>Unlimited personal liability for the owner </li></ul></ul><ul><li>Common form of organization for independent contractors </li></ul>
    10. 10. General and Limited Partnerships <ul><li>A business arrangement where there is division of ownership. </li></ul><ul><li>Primary Benefits </li></ul><ul><ul><li>Minimal formation costs </li></ul></ul><ul><ul><li>Few government regulations </li></ul></ul><ul><li>Primary Disadvantages </li></ul><ul><ul><li>Difficulty in raising capital </li></ul></ul><ul><ul><li>Unlimited personal and business liability for partners </li></ul></ul><ul><li>Two types: general partnership and limited partnership. </li></ul>
    11. 11. General Partnership vs. Limited Partnership <ul><li>GPs (General partners) are, in all major respects, in the same legal position: </li></ul><ul><ul><li>They have management control, </li></ul></ul><ul><ul><li>They share the profits of the firm in predefined proportions, </li></ul></ul><ul><ul><li>They have liability for the debts and actions of the partnership. </li></ul></ul><ul><li>A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners (GPs), there are one or more limited partners (LPs). </li></ul><ul><li>Like shareholders in a corporation, the LPs have limited liability, i.e. they are only liable on debts incurred by the firm to the extent of their registered investment, and they have no management authority. </li></ul>
    12. 12. Subchapter S Corporations <ul><li>Represented almost half of all businesses in the 90’s, until the LLC arrived. </li></ul><ul><li>Can have up to 35 shareholders and can own subsidiaries. </li></ul><ul><li>Primary Benefits </li></ul><ul><ul><li>Income flows through the corporation to the shareholders, who pay taxes as personal income – no double taxation; </li></ul></ul><ul><ul><li>Owning subsidiaries can shield S corps from liability </li></ul></ul><ul><li>Major Disadvantage </li></ul><ul><ul><li>Can only issue one kind of stock; therefore, same voting rights </li></ul></ul><ul><ul><li>Corporations, partnerships, int’l investors can’t invest in S </li></ul></ul>
    13. 13. What is an C Corporation? <ul><li>As a legal entity (an artificial person), the C corporation is separate and distinct from the stockholders – the owners of the corporation. </li></ul><ul><li>Characteristics of a C Corporation </li></ul><ul><ul><li>The corporation is a separate legal entity…the shareholders should generally have liability protection from the debts and obligations of the corporation. </li></ul></ul><ul><ul><li>Corporations can utilize corporate benefit health plans, which often offer better retirement options and benefits than those offered by non-corporate plans. </li></ul></ul><ul><ul><li>100% deductible health insurance for all employees as well as group term life insurance up to a specified amount per employee. </li></ul></ul><ul><ul><li>If a stockholder dies or wishes to sell out, the corporation continues. </li></ul></ul><ul><ul><li>Can offer employee incentive stock plans </li></ul></ul>
    14. 14. C Corporations <ul><li>Primary Advantages </li></ul><ul><ul><li>Liability protection available to shareholders; limited to the extent of corporate assets </li></ul></ul><ul><ul><li>Ownership interest easily transferable </li></ul></ul><ul><ul><li>Ability to issue publicly traded debt and equity </li></ul></ul><ul><li>Major Disadvantages </li></ul><ul><ul><li>Double taxation </li></ul></ul><ul><ul><li>Complexity involved with complying with gov’t regulations – documentation, filings, etc. </li></ul></ul><ul><ul><li>Cost of formation </li></ul></ul>
    15. 15. LLC’s and LLP’s <ul><li>Overtaking S Corporations as the preferred method of organizing. </li></ul><ul><li>Primary Benefits </li></ul><ul><ul><li>Classified as a partnership for federal tax purposes </li></ul></ul><ul><ul><li>Obtain liability protection afforded corporations </li></ul></ul><ul><ul><li>Can have corporate or partnership investors </li></ul></ul><ul><li>Primary Disadvantages </li></ul><ul><ul><li>Each state has unique rules and regulations; there is no national standard </li></ul></ul>
    16. 16. Sporting Club Ownership <ul><li>Single Owner / Private Investor Model </li></ul><ul><ul><li>Mark Cuban, Dallas Mavericks </li></ul></ul><ul><li>Multiple Owners / Private Investment Syndicate Model </li></ul><ul><ul><li>Boston Basketball Partners, LP </li></ul></ul><ul><ul><li>Frank Burke – Chattanooga Lookouts </li></ul></ul><ul><li>Multiple Owners / Publicly Traded Corp. </li></ul><ul><li>Clubs as Publicly Traded Corporations </li></ul><ul><ul><li>Green Bay Packers </li></ul></ul>
    17. 17. Objectives of Sporting Clubs <ul><li>Winning </li></ul><ul><li>Making money </li></ul><ul><li>Trophy on the mantle / break even </li></ul><ul><li>Community support / growth </li></ul>
    18. 18. Club Organization Structure Issues <ul><li>On-field component (playing team side) and off-field component (business side) </li></ul><ul><li>Four basic models in organization of responsibilities regarding on-field activities </li></ul><ul><ul><li>Ownership Centric (i.e. Jerry Jones) </li></ul></ul><ul><ul><li>CEO Centric (i.e. Carmen Policy) </li></ul></ul><ul><ul><li>GM Centric (i.e. most organizations) </li></ul></ul><ul><ul><li>Coach Centric (i.e. usually iconic coaches) </li></ul></ul>
    19. 19. Structural Impacts to Clubs <ul><li>What structural elements can impact how a team is managed? </li></ul><ul><ul><li>Objectives noted earlier </li></ul></ul><ul><ul><li>Owner’s financial capacity and willingness to commit resources (cost of capital or cash flow) </li></ul></ul><ul><ul><li>League infrastructure (i.e. salary caps) </li></ul></ul><ul><ul><li>Team’s endowed assets </li></ul></ul><ul><ul><ul><li>Stadium situation </li></ul></ul></ul><ul><ul><ul><li>Brand Value </li></ul></ul></ul><ul><ul><li>Controllability of situation </li></ul></ul><ul><ul><ul><li>Location </li></ul></ul></ul>