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How do sports teams make money? There are a variety of ways, but it typically comes down to three main sources: ticket sales, merchandise, and sponsorships.
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Ticket Sales
Ticket sales are a major source of revenue for sports teams, and the prices of tickets have been on the rise in recent years. The average price of an MLB ticket was $31.32 in 2017, up from $28.94 in 2016, according to data from Statista. And the average price of an NFL ticket was $86.65 in 2017, up from $81.54 in 2016.
Teams also make money from concession sales at their stadiums and arenas. According to a report from Bloomberg, concession revenue for MLB teams rose by 6% in 2017, to a total of $1.27 billion. And concession revenue for NBA teams rose by 4% in 2017, to a total of $979 million.
Merchandise Sales
A sports team merchandise is any product with the team name, colors, logos or players’ names. Fans buy this apparel and souvenir merchandise to show their support for the team. The revenue that a team generates from the sale of its merchandise is an important part of its business model and helps to fund other activities such as player salaries and stadium upkeep.
Sponsorships
Most sports teams in the U.S. generate the vast majority of their revenue from selling sponsorships, according to a report from consulting firm PriceWaterhouseCoopers LLP. The report, which looked at the business models of 26 professional sports teams across five leagues, found that sponsorships account for an average of 58% of total revenue for all teams studied.
Advertising
Most sports teams make their money through advertising. Advertisements are sold to companies who want to promote their products or services to the team’s fans. The team’s stadium or arena is usually filled with advertising, and the team’s uniforms often have advertisements on them as well. T-shirts, hats, and other team merchandise are also often sold with advertisements on them.
TV/Radio Rights
The biggest way that sports teams generate revenue is through television and radio rights. Rights fees are the payments that a team receives from a television network for the right to broadcast their games. These payments can be in the form of an upfront fee, which is a lump sum payment made at the beginning of the contract, or they can be in the form of a rights fee, which is a periodic payment made throughout the duration of the contract. The length of these contracts can vary, but they are typically between three and ten years.
Rights fees are not the only payments that a team will receive from a television network. Teams will also receive payments in the form of advertising revenue sharing. This is where the team will receive a portion of the advertising revenues that are generated by the network during their broadcasts. This revenue stream can be significant, and it is one that has been growing in recent years as more and more companies are willing to pay for advertising time during sporting events.
In addition to television rights, teams also generate revenue from radio rights. Similar to television rights, radio rights are payments that a team receives from a radio station for the right to broadcast their games. These payments are typically made on a per-game basis, and they are used to cover the costs of broadcasting the game, such as paying for air time and staff salaries.
Endorsements
Most people are only familiar with how sports teams make money from ticket and merchandise sales, but the reality is that endorsements make up a huge chunk of a team’s revenue. Endorsements are sponsorships from companies that pay the team to promote their products or services. For example, a company might pay a team to have its logo on the team’s uniforms, or to have advertising signage in the stadium.
In some cases, endorsements can be worth more than ticket and merchandise sales combined. For example, in 2017, the NFL’s Carolina Panthers earned $130 million from endorsements, while their total revenue from ticket and merchandise sales was $120 million.
According to Forbes, the most valuable NFL team in 2018, the Dallas Cowboys, generated $560 million from endorsements. This is more than double the next highest earner, the New England Patriots, who made $270 million from endorsements.
Although it might not be immediately obvious, endorsements are a vital source of income for sports teams. Without them, many teams would struggle to survive.
Licensing
Licensing is a big revenue stream for professional sports teams. Fans want to show their support for their favorite team by wearing jerseys, hats, and other gear with the team’s logo on it. Teams also license their logos and trademarks to be used on other products like food and drink, home decor, and even clothing.
Ticket Resale
While pro sports teams generate the vast majority of their revenue from TV deals, ticket resale is a significant source of extra income — especially for popular teams. The NFL, MLB, NBA and NHL all have secondary ticket markets where fans can buy and sell tickets to games. The leagues take a cut of every sale, and the most popular teams generate the most money from ticket resale. For example, the New York Yankees made $40 million from ticket resale in 2017, while the Milwaukee Brewers generated just $500,000.
Team-Owned Businesses
Though some may view sports teams primarily as entertainment, they are in fact businesses. And like any business, their goal is to make money. Though there are many ways for sports teams to make money, one way that is unique to them is through team-owned businesses.
Team-owned businesses are businesses that are either partially or entirely owned by a sports team. These businesses can take many different forms, but they all have one thing in common: they allow the team to generate revenue outside of ticket sales, merchandise sales, and TV contracts.
There are a few different ways that team-owned businesses can make money. The first is through advertising. Team-owned businesses often have a large customer base, which makes them attractive to advertisers. Advertisers will pay the team to place ads in the business, on the website, or even on the uniforms of the employees.
Another way that team-owned businesses make money is through licensing and merchandising. Teams will often license their logos and other trademarks to be used on products sold by the business. For example, a team-owned restaurant might sell t-shirts with the team’s logo on them. The team will receive a portion of the proceeds from every shirt sold.
Finally, team-owned businesses can generate revenue for the team through event hosting. Teams will often rent out their facilities to be used for events such as weddings, concerts, and conventions. The rental fees provide a stream of revenue that can be used to support the team’s operations.
Team-owned businesses are just one of the many ways that sports teams generate revenue. By diversifying their income sources, teams can insulate themselves from economic downturns and continue to operate even when ticket sales decline.
League Revenue Sharing
In order to ensure that all teams in the league are on relatively even footing, most professional leagues have some form of revenue sharing in place. This means that the league collects money from various sources (such as TV contracts, merchandise sales, and ticket sales) and then distributes it evenly among the teams. This ensures that every team has enough money to compete for the best players and put a competitive team on the field.
