The Role of Sports in U.S. Business Entertainment

The sports and entertainment industry is experimenting with new ways to reach a larger audience, raise revenue, and engage fans. As more business-minded owners unlock previously untapped potential, technology is altering the way players are recruited and rated. Meanwhile, American sports clubs and leagues are working to adopt a more global outlook. Crain's Custom recently spoke with EisnerAmper to obtain a better understanding of the industry's newest developments and what to expect in the future. EisnerAmper offers auditing services to public and private companies of all sizes. Her core specialty is sports and entertainment, and she manages engagements for two of EisnerAmper's top sports clients. EisnerAmper is also the creator and chair of EisnerAmper Cares, the company's community service initiative.

What are the key trends in the sports and entertainment industries in 2018?

One of the most significant is the growing influence of legalized gambling in sports. We now have professional football and hockey teams based in Las Vegas, which was previously inconceivable. Perhaps more important are the potential cash streams for teams involved in organized wagering. Witness the rise of wagering services like FanDuel and DraftKings, as well as the proliferation of fantasy sports leagues. Another tendency is the continuous improvement of sporting facilities. Players are investing in practice and training facilities. From the fans' perspective, there will be ongoing investment in auxiliary activities, particularly those that appeal to members of Generation Y and Generation Z, as well as those that are family-friendly, such as food options and mobile and interactive technology, including virtual reality. What are some important ways that technology will affect sports and entertainment in the short and long term? One of the most significant is the application of statistical analysis to sports data. Several years ago, few teams employed an analytics consultant. Many teams now have their own analytics departments. This group uses big data to affect decision-making in areas such as player acquisition and in-game tactics. Another rising technology field is collaborative spending on mobile applications. It's no secret that the majority of people spend their lives on their phones.

Fans can use their iPhones to get into the venue, order food, buy products, and more.

For those watching at home, Amazon and Twitter have made lucrative partnerships to stream NFL games, and Facebook is doing the same with MLB games. This portable viewing experience aligns with the need to attract younger fans. Which foreign markets are viable targets for US sports viewership, and how will this interest affect both international sports and investment in US sports? The NBA has done a terrific job of promoting its sport in Asia; the NFL has had a lot of success in Mexico and the United Kingdom; and MLB has made significant advances into Latin America and the Pacific Rim. Time will tell whether these approaches lead to a major US sport being established outside of North America. We are also seeing international investment and ownership, particularly in the NBA, with Russian and Indian nationals. Shahid Khan, a Pakistani-born athlete who came to the United States at the age of 16, is perhaps the best illustration of the global perspective in sports. He became a billionaire and now owns the Jacksonville Jaguars in the NFL. The prices of sports franchises have recently increased dramatically. What's driving the surge, and do you expect it to continue? Valuations continue to rise for a variety of reasons. First, each renewal increases the value of the broadcast rights multiple times. People like to watch sports live, therefore there is less influence on ad revenue. Another reason is that stadiums now provide additional chances for commercialization, such as sponsorships, suite configurations, seat licensing, and so on. Teams are constantly developing new revenue streams, such as jersey patches, which made their NBA debut this season.

Furthermore, today's athletes have additional options to promote themselves as personalities thanks to social media, which increases team value.

Finally, supply and demand should drive up values. There are only about 150 Major League sports clubs in the United States, and they change hands relatively seldom. Major sports leagues have different goals for financial parity. What commercial and accounting factors influence their attempts to maintain parity? Each league has its own systems for ensuring financial equity among teams, allowing smaller-market teams to buy players while remaining competitive. Parity schemes could be based on a percentage of net revenue, an equal share of national revenue, or a luxury tax system in which a team is penalized for spending more than a specific amount. The NFL's parity structure is built on national contracts for only 16 games, whereas MLB contracts are relatively local and spread out over 162 games. Private equity investment in sports has increased significantly during the last decade. These organizations adopted a more business-oriented approach and recognized the unrealized worth of sports leagues, as indicated by surging values. Traditionally, family owners of sports teams pass the team down from generation to generation, a sort of stability that leagues like. But what if one of the succeeding generations lacks the drive, business ability, or financial resources to sustain the team? While private equity investors may have the strong money and financial acumen to operate a successful team, they may be less committed to long-term ownership and community involvement. Going forward, it looks that private equity investment in sports and entertainment will benefit everyone involved.