Managing Sport Finance

Robert Wilson

• Publisher: Routledge
• Year: 2011
• ISBN:
  9781136959318
• Edition: 1
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

All good managers working in sport need to have a clear understanding of the principles of finance and accounting. Whether working in the private, public or voluntary sectors, a firm grasp of the basic concepts and techniques of financial management is essential if a manager is to make effective decisions and to implement those decisions successfully. Managing Sport Finance is the first book to offer a comprehensive introduction to financial management and accounting specifically designed for managers working in sport.

The book assumes no prior knowledge of finance or accounting on the part of the reader. It clearly and succinctly guides the reader through each key concept and practical technique, including:

• balance sheets
• income statements
• costing systems and decision making
• investment appraisal
• budgeting and budgetary control
• double entry bookkeeping
• funding for sport
• interpreting annual reports.

Using a rich variety of case studies, examples and data from the real world of sport management, the book places each concept into a managerial context, ensuring that the reader understands why that concept is important and how best to employ each technique. Each chapter also contains a range of useful features, including chapter introductions, learning objectives, activities, summaries, review questions and further reading. This is the most useful, comprehensive and accessible introduction to financial management for sport currently available and is essential reading for any student of sport management or sport development.

PART 1

FINANCIAL REPORTING

CHAPTER 1

FINANCIAL REPORTING IN CONTEXT

On completion of this chapter you will be able to:

communicate the purpose of accounting in a sporting context; identify and describe the users of accounting information; distinguish between financial and management accounts; understand the information needs of user groups; understand the statutory requirements of sport organisations.

INTRODUCTION

It is important before we start that we establish some ground rules; put simply, finance is not just about numbers and you do not have to be a skilled mathematician to understand a set of financial statements. Instead you need to understand the guiding rules and principles that help compile and structure a set of accounts. Put simply, accounting is a way of showing to external stakeholders and internal management how well a business has performed over a period of time and its prospects for continuing to operate.

The aim of Part 1 of this book is to focus on how to use accounts and accounting information so that you can understand them, if not necessarily produce them. As managers or future managers you need to be able to interpret and then communicate the meaning of accounts to a variety of people and for a variety of reasons. The identification of the users and their needs provides us with the reasons for the accounts. Without an understanding of why the accounts are being prepared, the numbers and the situation they portray will be meaningless. This chapter therefore aims to put financial reporting into a context that is meaningful and to identify the different user groups and their needs to illustrate why financial reporting is integral to the sport industry.

It stands to reason that you will have come across the terms ‘financial statements’ or ‘set of accounts’ but you won't necessarily understand what they actually mean. Indeed, anyone who follows Premier League football in England will have been confronted by such statements regularly over the past few seasons. At the time of writing this book the terms have been used in conjunction with Portsmouth Football Club and Manchester United Football Club on what seems like a daily basis, but many will not appreciate their importance. You may also have wondered who uses accounting information and what the purpose of accounting actually is. Some of you may even have thought that they were meaningless terms, given how professional football clubs seem to run themselves. So before we get stuck into some of the nuts and bolts let us start with a quick overview to help you understand what accounting is all about.

ACCOUNTING

Is about identifying, collecting, measuring, recording, summarising and communicating financial information.

ACCOUNT

A record that is kept as part of an accounting system. It will be a record of the transactions and will be recorded in monetary values.

FINANCIAL STATEMENTS

The complete set of accounts. This will include the balance sheet (which shows the organisation's assets and liabilities), income statement (the profit and loss account) and the cash flow statement. Also included will be notes on the accounting policies used and significant activities.

Why do you think financial statements and accounts are important?

Hopefully the answer here is straightforward. Financial statements enable us to see what is really going on with money in a particular organisation. Using the examples mentioned above, in Portsmouth FC's case, at the time of writing it is possible to examine the club's financial statements and see that it owes a great deal of money and cannot really afford to pay it, while Manchester United seems to have a significant level of debt (i.e. money owed to other people), although the club has sufficient income to look after itself.

As students or managers who work within the sport industry it is vital that you appreciate the importance of financial management and responsibility, and that you can communicate key financial information to both the internal and external stakeholders. Sport and leisure is now big business. Indeed, the Sport Industry Research Centre (2009) indicates that the sport and leisure sector is worth around £20 billion, which roughly equates to 2.5 per cent of consumer expenditure. By 2011 this is expected to rise to an estimated £24 billion (SIRC, 2009). This proves that sport and leisure is far more serious and less frivolous than people believe.

ACCOUNTING IN SPORT

Sport finance deals with financial management in all types of sport organisations and, while it is inevitable that much of the literature surrounding the subject is focused on professional team sports as the most high-profile and commercialised part of the industry, sport finance is relevant to all forms of sport organisations as they will all have objectives and will all need to manage their money. Indeed, the commodification and professionalisation of sport has led to vast sums of money being invested at all levels: for example, Tom Walkinshaw's investment in Gloucester Rugby Football Club in 1997 shortly after the sport turned professional; and Malcolm Glazer's £700 million purchase of Manchester United in 2005. Stewart (2007) also identifies that sport and leisure has established itself as a mechanism for creating personal meaning, cultural identity (e.g. the purchase of a replica football shirt) and a lucrative career path for many people all over the world. Deloitte's Annual Review of Football Finance (2008) identifies that ten clubs earned in excess of 200 million euros a year, while in the USA many professional sportsmen earn more than US$1 million a year.

Unfortunately, sport has lagged behind other business sectors from a financial management point of view. For the most part sport marketing, planning and strategy have dominated sport business management education and led to a growing maturity in such areas. Financial management has often been overlooked, anecdotally because individuals claim to have some sort of fear of numbers. There are still many sport managers and graduates with sport management degrees who struggle even to understand the basics of an income statement or balance sheet, let alone have the confidence to make informed judgements on the financial health of an organisation. However, every organisation ranging from multi-million-pound operations such as Manchester United Football Club through to small, local, voluntary sport clubs such as the City of Sheffield Swimming Club need to produce a set of financial statements at least once a year. Therefore, if organisations have to do it, the chances are that should managers wish to be successful in employment, they will also have to understand, communicate and use financial information.

The information that is provided in the accounts is concerned with the resources held by the organisation and how they are used. The accounts therefore show the organisation's financial position (something we shall come back to in Chapter 9) at the end of a financial period, an analysis of changes during the period, and point to the future prospects of the organisation. Such information will be of great importance to anyone who has an...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Contents
• Illustrations
• Preface
• Part 1 Financial reporting
• Part 2 Financial management
• Appendix A: Additional Case Study
• Appendix b answers to review questions
• Glossary of terms
• Index