Entrepreneurialism in sport delivery

Entrepreneurs in Sport

An Entrepreneur is a person who owns a business enterprise and who, by risk and initiative, attempts to make profits from that business. In the sport industry, there are two major categories of entrepreneur:

Most Category 1 Entrepreneurs in sport have considerable notoriety, wealth and power and their contribution to sport, even though it is many millions of dollars, is more for personal enjoyment, or to maintain public profile or even as a tax deduction. Their investment in a sport team is often not a substantial part of the overall business empire. Good examples of Type 1 entrepreneurs include:

It is often the case though that Category 1 Entrepreneur experience financial problems in their main business ventures, and their sport teams suffer the consequences which are relieved only when the team is sold to a new owner. In Australia, Nathan Tinkler, a mining magnate from the Hunter Valley region of New South Wales formed the Hunter Sports Group which took ownership of both the Newcastle Jets Association Football and Newcastle Knights Rugby League teams. Nathan Tinkler's group of companies were placed into liquidation in 2012 and an action was taken by the Australian Tax Office to wind up the Hunter Sports Group which owed $2.7 million in unpaid taxes.

Small Business Activity in Sport

Category 2 Entrepreneurs in sport are people who invest their time and/or money heavily in a business that provides facilities or services, and must make a profitable return from that business. This is different from the Category 1 Entrepreneur who, whilst preferring to make a profit, accepts there is a significant chance they will at best break-even. The Category 2 Entrepreneur tends to invest in areas of the sport industry where there is good business profitability. Here is a sample of owner/operator businesses that exemplify the Category 2 Entrepreneur however in reality the list could be endless.

There are some important differences between the entrepreneurial and non-profit sectors in the way sport is delivered. In order to make a living from providing services or facilities to sport, the business needs (1) a sufficient level of demand and (2) an opportunity to charge participants a level of fees that is significantly greater than cost.

The non-profit entity is the overwhelmingly dominant form of business structure that operates in sport. However, non-profit entities cannot justify a level of fees that is higher than costs. There are always two forces that act on non-profit entities to keep prices low. The first force is the degree of price competition from other neighbouring non-profits either in the same sport or different sports. The second force is the opinion of club members for the benefit of whom the organisation exists. Members will always demand justification of price increases and if a club begins to make regular and significant profits, there is cause for members to feel that fees charged are too high.

Entrepreneurs, however, can exist only in special niches where non-profits tend not to operate or where demand outstrips supply. In these circumstances, the owner/operator business can derive a significant markup on costs.

This important difference partly explains the reasons why coaches operating at the grass roots level in some sports are paid by the hour e.g. tennis, golf, gymnastics, swimming and ice skating while in sports such as football, cricket, athletics and netball, coaches are mostly volunteer (unpaid).

Another important difference is that non-profit organisations cater well for the broad masses of people who engage in sport but have difficulty providing for participants who need a higher level of service i.e. are ambitious to attain elite status in sport. Even though 99% of participants do not or cannot aspire to elite level status, the 1% that do provide business for the owner/operator of a sport business.

 

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