Exploring the business of sports
- 6th May 2015
- Business & Economy
In the aftermath of the record-revenue-breaking Mayweather vs Pacquiao boxing match, we explore what makes sport the money-making industry it is today.
Sport in the modern day is as much about business as it is athleticism. Many sports teams and sporting individuals have been moulded into internationally recognisable, money-spinning brands. Whole industries have developed around the sports that were once played for mere accolades.
The estimated revenue generated by the Mayweather-Pacquiao fight is projected to surpass a staggering $400 million. More than $70 million was made from ticket sales, with pay-per-view sales expected to top $300 million. Putting ticket sales aside, the rest of Las Vegas prepared to make the most of an economic boost generated by the event.
A surge in endorsements, hotel bookings, advertising, bets and tourism were expected as a result of hosting the fight. It’s a testament to the lucrativeness of the sports industry and the mighty corporations it has produced.
Product of technology
Most sports have benefited from the advances made in technology over the last few decades. Many teams and sportsmen and women now have dedicated followers in all corners of the globe, which may not have been possible before the arrival of satellite television and the internet.
When technology began allowing fans from all over the world to consume events in real-time, local teams and sports could be taken international. In turn, this created a wealth of opportunities to generate revenue from sports in a much wider market.
This internationalisation has been grouped with marketing, advertising, promotions and many more services that complement the sporting industry, ultimately generating even more money. It’s no surprise that many of the world’s top professional sports leagues see annual revenues running into billions of dollars.
The wealthiest sporting team in the world is Real Madrid. Forbes estimates the team is worth $3.4 billion and Deloitte’s figures suggest it generated more than $615 million in the 2013/14 season.
Jaw-dropping set of figures such as these only act as evidence of the sporting industry’s ability to make money. While European football teams come top in terms of value, the American National Football League (NFL) has the largest estimated annual revenue of $9.5 billion per year.
Despite the fact that the NFL is a non-profit organisation, it appears to be run more like a business - as an organisation that provides a service to make a profit. This is true for many more sporting leagues, as the UK’s Premier League also generates an impressive annual revenue of $4.8 billion.
Bust to boom
Like many businesses, some sporting teams find themselves running out of cash. Individual franchises often collapse within the overall profitable league.
Famously, Leeds United Football Club (LUFC) entered voluntary administration in 2008 due to crippling debts. Furthermore, it risked being declared bankrupt in 2014 due to an alleged unpaid debt, which shows that even relatively successful teams can suffer the results of bad business decisions.
Other notable collapses include Serie A Parma FC who found themselves $106 million in debt, and the Texas Rangers baseball team who racked up an estimated debt of $575 million. Despite some high profile bankruptcies, the majority of sports teams are run effectively and go on to be profitable enterprises.
In the UK, the sports industry is thought to be worth £20 billion and provides support for over 450,000 jobs, according to Deloitte. Sports attract sponsorship and investment from the corporate sector while benefitting the economy through the events they create.
The industry will continue to enjoy greater growth than the wider economy will see over the next decade, which indicates the high potential of the business side of sport.
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