Sports finance exam review Questions Rated 100% Correct!!

Which has a greater impact on financial management: the structure of a league or the structure of a team? - Answer-The structure of a league and of team ownership impact financial management decisions. What are the three major sections of the balance sheet? Provide at least one example of an item that would be found under each of those sections. - Answer-assets; cash. liabilities; accounts payable owners equity; accrued expenses What is the primary difference between an income statement and a statement of cash flows? - AnswerThe income statement shows revenues coming in to and expenses going out of an organization, whereas the statement of cash flows displays cash coming in and going out of the organization. Chapter 2 repeatedly states that financial ratios are most valuable when viewed in comparison to the organization's historical ratio values as well as to competitors. Why is this context valuable when examining financial ratio values? - Answer-How a company is being efficient with their resources and assets and using those ratios to compare their competitors. What must players and agents understand about risk? How should agents structure a player's contract if it contains deferred compensation? - Answer-The risk of time must be understood; risk increases as the length of time increases. As salary is deferred over time, risk increases proportionally to the amount of time the salary is deferred. If a player's salary includes deferred salary, the agent should get as much of the salary front-loaded as possible. Importantly, though, the amount paid in deferment must be adjusted to account for the risk of time. What aspects of the time value of money must professional sport organizations and athletes consider when negotiating contracts? - Answer-inflation, risk, future value of money and annuities, liquidity, present value of money and annuities, and interim compounding What are some advantages and disadvantages of deferring salaries (from both the players' and the team's perspectives)? - Answer-Players may defer salary if they do not have a need for the money immediately. They may also do this to potentially impact the timing of their tax payments. Team can useit to "win now" but can backfire if they don't win and cause decreased future revenues and make them downgrade. When deferring salaries, players and the team must estimate the potential impact of various rates of inflation, especially when salaries are deferred for extended periods of time. How do professional sports leagues use the concept of scarcity when locating franchises? - Answer-A professional league does not expand into every metropolitan area that could potentially support a team. Leagues restrict franchise movement to prevent a team from moving too close to an existing team. How does incremental budgeting differ from program planning budgeting? How does it differ from zerobased budgeting? - Answer-Incremental budgeting differs from program planning budgeting, as PPBS bases expenditures on programs of work rather than the character and object of the work. Incremental budgeting differs from zero-based budgeting as zero-based budgeting resets all expense and revenue lines at zero. What are the advantages and disadvantages of zero-based budgeting? - Answer-advantages; Forces budget setters to examine every item Allocates resources based on results and needs Fosters a questioning attitude Eliminates waste and budget slack Prevents creeping budgets (using the previous year's figures with an additional percentage) Encourages managers to look for alternatives Has a strong evaluation component. disadvantages; Is a complex, time-consuming process May result in emphasis on short-term benefits to the detriment of long-term planning Does not officially consider previous money outlays May be unrealistic (it is impossible to eliminate some programs, e.g., sports, although the budget indicates they should be) Is affected by internal politics and can lead to annual conflicts over budget allocationWhat is capital budgeting? - Answer-the process of evaluating, comparing, and selecting capital projects to achieve the best return on investment over time. It is investment decision making that justifies capital expenditures.