Blog Entry Our Choice #4: The Financial aspects of Keeping a Head Coach and Restructuring Contracts

In my last blog entry I talked about the financial ramifications of firing a head coach before his contract is up. For this entry, I will discuss the impact of retaining a head coach and the financials that go into restructuring a coach’s contract. This only seems fitting after what Louisville fans had to endure with the Charlie String saga. Obviously, Strong did not stay at Louisville because of the money; he stayed because he has integrity and is loyal, which is a trait that often is overlooked nowadays in college sports. It was reported that the University of Tennessee offered Strong a lucrative contract believed to be around the $3.5 million range, which would have made him the tenth highest paid football coach in college football (McMurphy, 2012). Strong declined that offer and is now reportedly expected to sign a contract extension with the University of Louisville reportedly to be an eight year extension that will keep him here until the year 2020. One of the aspects that some people may forget or overlook with his contract is that he receives a large amount of money in achievement bonuses. These primarily include winning the big east conference, going to a BCS bowl, ranking in the AP top 25, and gaining coaching awards. What really stood out to me about this situation is that a coach has finally decided that having morals and immense gratitude towards their athletic director are more important than jumping to  another job that may appear on the surface to be the next “big thing”. Far too many coaches get greedy and decide to take the job that offers the bigger paycheck without really considering any of the consequences it may have or the fact that it may tarnish their reputation. One of the points that some people were bringing up was that generally when a coach is coming off a good year and has other suitors, they can gain more leverage and use that to force the schools to either pay them enormous amounts or they will walk away from their current job and go to the school that throws them the most money (Fowler, 2012). It is so hard to predict and pinpoint whether or not the coach will continue to have sustained success at a high level. Sometimes athletic directors act too swiftly and offer their coaches long term extensions and the coaches end up doing poorly. One of the crucial things to remember is that the more years that are added to the contract extension, the more money that is owed in the buyout in case they are fired. Many head coaches do not even get to coach up until the courtesy three years that is usually the time that most universities give head coaches to turn the program around. If they do not show significant progress or demonstrate that the program is headed in the right direction than they can be terminated early. For many programs, it is better to have a head coach that is highly pursued or desired than be stuck with a coach who is unsuccessful and needs to be essentially paid to leave.    

 Fowler,
J. (2012, November 27). Seeking stability, contract extensions for coaches
can be expensive error
. Retrieved from http://www.cbssports.com/collegefootball/story/21159156/seeking-stability-contract-extensions-for-coaches-can-be-expensive-error/rss

McMurphy, B. (2012, December 6). Charlie strong gets new deal. Retrieved from http://espn.go.com/college-football/story/_/id/8719806/charlie-strong-staying-coach-louisville-cardinals

 

 

 

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Blog Entry Our Choice # 3: The Financial Consequences of Firing a Head Coach

In today’s world of football, especially in college and the NFL many head coaches that are hired are given huge contracts and are expected to win right away. Those huge expectations from the fans, students, school administrators, and even media can be too much to handle for some coaches and at the end of the day it all comes down to results. I think that there is a clearer cut reason for why NFL coaches get fired and that is due to their lack of success. In the NFL, it comes down to wins and whether or not you can take the team to the next level. Coaches in the NFL realize that it is a business and many of them end up with jobs being assistants or coordinators for other teams. In college football however, there are more factors that can determine whether or not a coach is fired or retained. This includes fan support, attendance increases, and an increase in ticket sales and merchandise. One of the major factors is the financial consequences that the school has to face from terminating a head coach before his contract is up. With the amount of recently fired coaches in college football including Auburn’s Gene Chizik, Joker Phillips from Kentucky, and Derek Dooley from Tennessee, it is easy to see how important the financial aspect is in firing a coach. These coaches come from large revenue earning schools in perhaps the most competitive conference in college football that includes a huge television deal with CBS. Often times the school is required to pay the coach’s remaining  salary that he is owed as part of what is known as a buyout (Cirminiello, 2012). Essentially, the school is paying for the coach to leave. When you think about it, this actually does not affect the fired coach in a bad way considering that they still get paid. In some situations, if the coach violates their morals clause then the school does not have to pay them. Auburn was required to pay Chizik about $11 million in buyouts to the coaching staff, and Chizik would receive $7.5 million on his own and he had three years remaining on his contract (Longman, 2012). He was supposed to be paid about $208,334 a month for the next 36 months. As a student and also a fan of college football, I already think that the schools invest too much money in some of these coaches and when they are forced to buy out the coaches’ contract then that puts a dent in the university’s budget. It can also impact who the schools target to be the next head coach and the type of contract that they offer. Bobby Petrino is another great example and he was offered a $10 million dollar contract extension by Tom Jurich which he signed and then he proceeded to bolt for the Atlanta Falcons coaching position. It is a very risky decision to not only fire a head coach but to also hire one and sometimes athletic directors act prematurely based on early results.

 Longman, J. (2012, November 29). Firing a coach, at a price, with little evidence the move pays off. Retrieved from http://www.cnbc.com/id/50014754/Firing_a_Coach_at_a_Price_With_Little_Evidence_the_Move_Pays_Off

 Cirminiello, R. (2012, October 29). Thought: Here come the fired coaches. Retrieved from http://cfn.scout.com/2/1234561.html

 

 

Blog Entry # 9: College Athletics and My Issue with the NCAA

This semester we have continually discussed college sports and the impact that revenues have on college athletics. One particular organization that has a huge impact on college athletics and ultimately dictates how things are done is the NCAA. This is the governing body for all of college athletics and oversees virtually every aspect from compliance to academics, to ticket revenue, and sponsorships. One of the most interesting aspects of the NCAA is that they force the college athletes to adhere to a strict set of rules and principles which is good for the most part, however there are several flaws. In the past several years many of these flaws have been exposed and brought to the public’s attention. One of the main problems is the policy regarding what is deemed an “impermissible benefit” and what constitutes the player receiving special treatment. In our class we watched the video about the NCAA and the president Mark Emmert was being interviewed. One of the alarming things that stood out to me was how much money the NCAA makes and how much the actual schools keep. Even more disturbing is the fact that so many athletes cannot afford to have their family members and friends come see them play due to NCAA regulations. One of the more frustrating aspects is that Mark Emmert actually makes about $1.6 million per year which is alarming considering how the NCAA is supposed to be organized as a non-profit organization (Berkowitz, 2012). By rule, a university or coach cannot pay for that player’s family members to attend any games or even pay for them to stay in a hotel on a road trip. This is upsetting due to the fact that many of these players cannot afford to pay for their family to travel and traveling is expensive already. I definitely feel that some of the rules and policies of the NCAA need to be reviewed and ultimately altered to allow stipulations for the universities or even the NCAA to possibly pay for the player’s families to attend games or tournaments. One example of an incident relating to this topic was during last years’ NCAA March Madness tournament when a player from Kansas State University was suspended for having his former AAU basketball coach wire him money. To some of these players their former coaches are like family to them, so to them it may not seem like a violation and they are aware of the consequences regarding taking money or having contacts from agents. It seems as if nowadays, anytime a college player is given a ride to dinner or is spotted with a former player from that school who is now a professional; the NCAA is investigating and is quick to jump to conclusions. I believe that the ultimate purpose of the NCAA should be to ensure that the student athletes are being treated fairly and are receiving a proper education while having the opportunity to excel in athletics as well. They should focus less on trying to find ways to deem a player ineligible or get that player in trouble and focus more on helping them to grow as young adults. Another critical decision made by Emmert which some may find to be too severe was his punishments that he handed down to Penn State. It will almost cripple the school financially and set them back for the next ten to fifteen tears (Mandel, 2012). Along this subject, there is also the debate about whether or not college athletes should get paid. I do not believe that college athletes should get “salaries” but I do think that they should get small allowances, however I think that their coaches should be in charge of their allowances so that they do not abuse the money. Many Division I college athletes, especially basketball and football players already have their tuition paid for as well as a decent meal plan, and they also receive countless clothing and apparel from the school. They also receive rewards for going to bowl games and tournaments, so I think that they are already receiving a good deal financially. I believe that the NCAA could re-shift their focus towards implementing barriers to keep agents away from college campuses or to have some sort of first time offenders plan thereby if a player did something wrong by accident they could provide a legitimate reason and possibly be given a warning. Many of these ideas may seem far-fetched but I just feel that with all of the money that the NCAA makes and retains, the organization could use some of that money more purposefully instead of trying to look for reasons why a student athlete should not be able to participate.

 Berkowitz, S. (2012, July 9). Ncaa president mark emmert paid at nearly $1.6m per year. USA Today, Retrieved from http://usatoday30.usatoday.com/sports/college/story/2012-07-09/NCAA-Mark-Emmert-salary/56117864/1

 Mandel, S. (2012, July 23). Ncaa’s mark emmert overstepped bounds in hammering penn state. Sports Illustrated.com, Retrieved from http://sportsillustrated.cnn.com/2012/writers/stewart_mandel/07/23/penn-state-ncaa-sanctions/index.html

Blog Entry 7: Financial Impact of a World Series “sweep”

In class we have been discussing certain sporting events and how their particular outcome affects certain financial goals or projected impacts. Certain sporting events such as the Super Bowl or March Madness tournament can have dramatic impacts on ratings and can affect the amount of revenue that is generated through various mediums like television ratings. One example that I felt was particularly relevant to our discussions was the World Series in baseball that just ended this past Sunday night. The series was between the San Francisco Giants of the National League, and the Detroit Tigers of the American League. The Giants ended up sweeping the Tigers in four straight games, and while this is impressive to some fans, it was also extremely disappointing for television audiences. Many different stakeholder groups were affected including Fox network and both of the teams that played. Generally, the postseason has the potential to be a financial bargain for teams but this is only effective when the series goes for the maximum seven games. In order to truly cash in on their opportunities, the teams need to hope that the series extends longer and doesn’t result in a sweep. Since teams raise their ticket prices during the postseason, they are able to capitalize on the excitement of the playoff atmosphere.  In addition there is also a playoff bonus pool in which 60 % of the ticket revenue goes towards the players, 15 % is given to the commissioner’s office, and the teams receive 25% of the ticket revenue from the first four games of the World Series. For example, this year World Series tickets ranged between $110 to $330 for games 3 and 4 at Comerica Park in Detroit and between $230 to $1,040 for the first 2 games at AT&T Park in San Francisco. In addition to this, Fox recently announced that they extended their deal with Major League Baseball for eight more years through 2021 which would cost the network about $500 million annually (Badenhausen, 2012). Televising the World Series is included in this deal but based on the recent trends regarding ratings it appears quite concerning. The first two 2012 World Series games averaged about a 7.7 rating which is the lowest ever for the first two World Series games. While nothing is finalized yet, it is almost certainly projected that this will result in the lowest rated World Series of all-time. Advertising is another huge aspect that can be positively or negatively affected by the length of the series. The cost for about a thirty second advertising spot on Fox was roughly $425,000 and this equates to about $30 million in advertising revenue (Badenhausen, 2012). The main problem with this is that if there are low audiences than nobody will see the game or the ads and it becomes a waste of money. The low viewing audience is a problem on several levels and has many effects. With that being said, hosting a World Series is also another way that can dramatically boost a city’s economy. Businesses generate more revenue due to all of the fans arriving near the stadium and the city becomes a vibrant place to spend money while exploring restaurants and stores. According to the St. Louis Convention and Visitors Commission, it was estimated that the 2011 World Series brought about $2.6 million in direct spending to each Cardinals home game (Weiderman, 2012). It is an interesting topic considering on the one hand the team wants to play their best baseball and win as quickly as possible but on the other hand if the series is extended than they may generate more revenue. I am sure that most players and coaches would agree that they would prefer to sweep their opponents, but I wonder if any team owners or city officials would think differently. Another possible reason to want the series to be longer is that it gives more time for that city to gain national exposure on a grand scale television audience.

Badenhausen, K. (2012, October 29). World series sweep proves costly for giants, tigers and fox. Retrieved from http://www.forbes.com/sites/kurtbadenhausen/2012/10/29/world-series-sweep-proves-costly-for-giants-tigers-and-fox/

Weiderman, G. (2012). Playoff payoff: World series would bring $6.1 million per game to region. Retrieved from http://www.bizjournals.com/stlouis/news/2012/10/22/world-series-would-bring-61-million.html

Blog Entry 6: Economic Impact

In class this week, we have been discussing economic impact and how this affects sporting events, venues, or teams. One of the main aspects of this topic is that the more appealing the event is, the greater the economic impact will be. It will have a “ripple effect”. One of the prominent examples of this is with Chicago’s two baseball teams, the Cubs and the White Sox. The Chicago Cubs have always been regarded as the city’s number one team regardless of their “lovable losers” label and disappointing seasons. Wrigley Field is one of the oldest stadiums in professional baseball yet it is always packed and fans always attend games. U.S. Cellular Field, where the White Sox play, has continued to churn out disappointing attendance numbers and this is a somewhat disappointing trend considering the White Sox had a good season this year. They were averaging about 21,670 fans per game this year which ranks them 27 out of 3o for MLB teams (O’Donnell, 2012). Their stadium was renovated in 2003 for about $167 million. When the White Sox won the World Series in 2005 the attendance numbers increased dramatically and the year after in 2006 their numbers were steady. However, over the last several years their attendance numbers have been down and this is mainly due to the teams’ performance. When they don’t do amazing, the fans do not show up. Having star players certainly helps attract fans and it leads me to believe that if they were to sign a player such as Derek Jeter or Alex Rodriguez that it would attract more fans. However, if they aren’t making enough money through attendance then it makes it harder for them to afford star caliber players (O’Donnell, 2012). One of the other major reasons for the difference in the teams’ attendance is the demographics. The area where U.S. Cellular Field is has always been the working-class, poorer area with lots of middle-class families. Not all of them can afford to go to the games, whereas Wrigley Field is near the wealthy suburbs on the north side so the crowd is comprised of more affluent families (LaBanca, 2012). Everybody in the city of Chicago believes that U.S. Cellular Field is not making as much money as it should be and it is not considered a failure but it could be doing better. This is similar to our discussion about the YUM Center with the idea that you want your venue or facility to be working all the time. Another good example is when Michael Jordan and all of the star players from the 1990’s championship Bulls teams left after the 1998 season. Immediately after, the Bulls were not only a bad team but the attendance numbers were terrible and downright embarrassing for such a proud franchise. The trick is to know what the appealing concepts are that will attract fans. As a sports manager, you have to put aside your emotions or fan loyalty and make smart business decisions that will make your venue, stadium, or team successful. Even if it is something you might not personally choose to do or a team that you would not root for, you need to factor in what makes the most business sense for the long term.

 O’Donnell, R. (2012, June 20). White sox attendance is down, and they aren’t ashamed to tell you. Retrieved from http://chicago.sbnation.com/chicago-white-sox/2012/6/20/3097346/chicago-white-sox-tickets-attendance-2012-us-cellular-field

 LaBanca, N. (2012, Jue 19). The crosstown comparison: Wrigley field vs us cellular. Retrieved from http://goldcoasttickets.com/blog/index.php/2012/06/19/the-crosstown-comparison/28153

 

 

Blog Entry 4: Financial Statements

This past week in class we discussed financial statements and some of the trends to look out for when analyzing a company’s balance sheet or their income statements. Financial statements show how the company has done over the past few years in regards to the amount of money being brought in and the costs to produce those services. The company that I analyzed was FedEx Corporation. One of the first things that jumped out to me is that their revenues for 2012 were $42,680,000,000 and this is a nine percent increase from 2011. In 2008, their revenue totaled about 38 billion dollars and in 2009 it totaled about 35.5 billion. In 2010, their revenue continued to dip to roughly 34.7 billion before making a jump to 39.3 billion dollars in 2011. This is a direct result of the economic recession that occurred during this downward trend. Since FedEx is such a large company and brings in so much revenue, it relies on the economy to do well so when things are in good shape then their business is booming. This could be considered both a strength and a weakness. They are affected on a global level since they rely on business overseas. Revenue numbers do not really mean anything unless your company brings in operating income in positive ways.  The jump in the year 2012 can be attributed to an increased demand for importing goods and services such as FedEx. Operating income also stands out and made a thirty-four percent increase in 2012 to a little over $3,186,000,000. What this tells us is that this company is improving year-to-year and has managed to survive some setbacks due to the economy and continue to improve. Their total net income for 2012 was $2,032,000,000 which was a forty percent increase from 2011. This amount represents the total amount of money that the company keeps when all is said and done and taxes and costs are subtracted. The operating margin percentage for 2012 was 7.5 % which is up from 6.1% in 2011. Another interesting statistic is that their cash/cash equivalents total about 2.8 billion so they could easily pay back what they owe in debt and still come out ahead since their debt was roughly 1.6 billion. One of the main strengths of FedEx is their ability to adapt well to changes and become more efficient with how they make money. They are very well-managed and organized and as a result have been able to spend less money to provide services and take in more money for the company. This is impressive considering all of the costs regarding their transportation services and the cost of fuel and airplanes. One of their other weaknesses is that they are vulnerable to oil prices and when these prices go up, then their operating income and operating margin goes down. I would definitely invest $1,000 dollars into this company because of their ability to adapt to change and recover. Since this is such a large company with a huge global following, there will constantly be some type of demand for their services. The numbers show that they continue to make billions of dollars and all signs indicate continued growth.

 

 FedEx Corporation (2012). Retrieved from http://www.google.com/finance?q=NYSE%3AFDX&ei=J8tMUPj-HJOilwPBHA

Burrows, D. (2012, September 5). Fedex profit warning is no surprise. Retrieved from http://www.investorplace.com/2012/09/fedex-profit-warning-is-no-surprise-fdx/

(2012). Fedex, pga tour extend partnership. (2012). [Print Photo]. Retrieved from http://video.cnbc.com/gallery/?video=3000074653

Fedex annual report 2012. (n.d.). Retrieved from http://fedexannualreport2012.hwaxis.com/Files/FedEx_Annual_Report_2012_Financials.pdf

 

Blog Entry 3: Stock Market

The company that I researched was FedEx Corporation. They are traded at the New York Stock Exchange and their current stock price is roughly $ 85.80 dollars. For their 52 week high price range it costs $97.19 and the 52 week low costs $64.07. The two main competitors of FedEx are United Parcel Service (UPS) and Air Transport Services Group Inc. UPS is very similar to FedEx in terms of cost and they appear to be in tight competition (FedEx, 2012). One of the main ways that FedEx distinguishes themselves from the rest of their competitors is through sponsorships, most notably the FedEx Cup. Very recently they announced a five year extension of their partnership with the PGA Tour to continue running the FedEx Cup through 2017. According to Mike Glenn, FedEx Executive VP of Marketing Development, the FedEx Cup offers $35 million dollars in total prize money including $10 million to the 1st place winner. This is the largest single bonus payout in sports (“Fedex, pga tour,”2012). This tournament receives a tremendous amount of exposure as the events are broadcasted to 715 million households in 225 different countries. The competition spans about 37 weeks and Glenn believes that this supports their brand and serves as a great marketing platform. Aside from building brand awareness, this tournament provides a great opportunity to connect with customers. One of the main reasons why FedEx stock has seen its fair share of ups and downs is due to the economy. However, many major companies and businesses are willing to pay more to use services like FedEx in order to ship their product quickly and more efficiently. By using FedEx to ship certain products, they are able to get into the market much faster and as a result more revenue is created. There will always be a need for services such as FedEx because major companies rely on fast delivery and cannot afford delays (Burrows, 2012). FedEx does a great job of reaching out to the high ranking business tycoons or executives that are avid golfers and make their company sound more appealing. By sponsoring an event such as the FedEx cup they are making themselves look very appealing to corporate executives who may be in charge of making decisions regarding shipping. Golf is the perfect sport for FedEx to relate to their customers and potentially form new business relationships. If I had $1,000 dollars I would invest in this company due to their solid reputation and ability to build brand awareness on a large level. I would definitely be cautious with my investment though.

Sources:

FedEx Corporation (2012). Retrieved from http://www.google.com/finance?q=NYSE%3AFDX&ei=J8tMUPj-HJOilwPBHA

Burrows, D. (2012, September 5). Fedex profit warning is no surprise. Retrieved from http://www.investorplace.com/2012/09/fedex-profit-warning-is-no-surprise-fdx/

(2012). Fedex, pga tour extend partnership. (2012). [Print Photo]. Retrieved from http://video.cnbc.com/gallery/?video=3000074653