Revenue Generation in Sports

India, a country of more than one billion population, is emerging as the economic superpower of the world. According to a forecast of the World Bank, the country will emerge as the fastest growing economy of the world by 2012 with a projected growth rate of 8.7%. Rapid growth in the middle class population provides a necessary impetus to this process. A report of Mckinsey Global Institute estimates that the spending power of the bourgeoisie population shall rise from US$ 380 billion in 2008 to US$ 1.5 trillion by 2025. It can be expected that a part of this increased spending will be directed towards sports and other forms of entertainment. Moreover, according to an estimate of the Planning Commission of India, the country will be the home of nearly 510 million people in the age group of 15 to 35 years by 2016. Hence, there is a possibility to enhance the passion for sports in this country. These two factors may play a significant role in creating a sustainable stream of revenue for sports in India. The trend has already been observed in Indian Premier League(IPL). The objective of this article is to discuss the various avenues for generating revenue in sports.

In sports, a player is considered to be a product while his/ her skill is viewed as the quality of the product. Hence, for sustainable development of the product called ‘player’, the inflow of fund is essential. Reputed leagues across the world generate revenue through various sources, such as sponsorship, broadcasting, gate revenue, merchandizing etc.

Today, sports has become a multi- billion dollar industry throughout the world and sponsorship becomes an important drive to run the business of sports. The importance of sponsorship is evident from the fact that most of the sporting entities arrange sponsors for their survival. For example, New Castle United, a Premier League Club, entered into a four-year agreement with Northern Rock Plc in 2010, according to which the sponsorship entitlement would vary from US$ 2.8 million to US$ 18.5 million depending on the performance of the team. One of the leading real estate developers of India, DLF, bagged the title sponsorship rights of IPL for a period of 5 years at a whopping amount of Rs. 200 crores. Most of the I- League Clubs of India receive Rs. 3- 5 crores from sponsorship. High attendance of these leagues attracts the advertisers to invest in these properties. For example, advertisers are ready to spend US$ 2.5- 3 million for a 30 seconds TV spot in a NFL or a Super Bowl match. This willingness of the advertisers lures the broadcasters to purchase the broadcasting rights of such leagues. The British TV broadcasting rights of the English Premier League(EPL) was sold to BSkyB and Setanta at US$ 3.30 billion for three seasons covering 414 matches. The broadcasters, on the other hand, earn revenue from ad sales and subscriptions.

Gate attendance is another important source of revenue which depends on two factors- the popularity of the discipline of sports in a specific region and the comfort available at the venue. The teams, participating in EPL, NFL, own stadiums and constantly upgrade the facilities to attract fans towards the stadiums. For example, Arsenal generated a revenue of £ 93,108,000 in 2011 through only gate and other match day revenue. However, in India, most of the stadiums lack basic amenities and thus fail to attract fans. For better maintenance, a Public Private Partnership model can be adopted where the Government will provide land and other facilities and the infrastructure will be developed and maintained by corporate entities.

Merchandizing plays an important role in enhancing the belonging of fans with the sporting entities and thereby generating revenue. Merchandizing refers to sports products or equipments carrying the name, logo or symbol of a team or organization or player. These products are sold in the market to attract fans and also to create a stream of revenue. For example, Celtic FC generated 18% of its revenue from merchandizing in 2007. In India, merchandizing is mainly restricted in cricket and few other disciplines like football. It can be said that, in this country, sports merchandizing is still at a nascent stage.

There are many other sources of generating revenue in sports, such as players’ trading, infrastructure management etc. In 2009, Cristiano Ronaldo was transferred from Manchester United to Real Madrid at a price of US$ 130.7 million. Arsenal generated £100 million by selling the naming right of its stadium to Emirates Airlines. These sources of revenue play a pivotal role in improving the quality of the game and developing sports icons. However, in India, lack of applications of these revenue generating streams result in poor financial status of sporting entities. It can be expected that the stakeholders of Indian sports will play a pro-active role in developing sound business model to sell sports in this country.