Driving strategic financial integration across sports franchise negotiations

Better communications — or, better yet, improved integration into the process — would solve many problems. Jon Bell, Grant Thornton Senior Manager, Business Consulting, said, “If the finance and accounting team knows that they need to track against something, they can usually build in a process to do so. But it's truly the unknown piece that creates a lot of noise and friction in the organization.”

“Including finance as a trusted partner enables scenario analysis, modeling and other activities that lead to better informed reporting, budgets and forecasts moving forward.”

But the benefits of communication aren’t limited to better forecasts and reporting. When finance is brought in early, they can bring a valuable and different perspective. Bell noted, “Sometime I think the front of the house is focused on sales, sales and more sales, and not necessarily on the underlying costs.”  Finance can push back against some things that might be problematic.

Winning comes with new challenges 

More so than most brands, sports franchises can acquire value quickly as fan interest surges. While this is what everyone wants, wins on the field and incremental success adds complexity and new challenges as franchises take on more lucrative sponsorships and explore new licensing opportunities. Ownership may even start acquiring additional franchises. 

Teams that were run as tight family businesses in the past may shift to a more growth-focused corporate approach. For example, while ownership may have once viewed themselves as custodians of a community asset, they may now view themselves as drivers of investor value. They may be charged with financing new stadiums and developing adjacent properties. Growth means integrating new revenue streams and accounting for new expenses. If solid finance processes that accurately model, forecast and report revenue aren’t in place, they could hinder growth. Ownership changes only exacerbate these shifts. 

Since reporting strategies are closely aligned with a business philosophy of ownership, processes and metrics almost surely need be rethought. If they weren’t robust in the first place, that can be even more difficult.  Inefficiencies that a family-owned franchise can live with become magnified when the franchise becomes a part of a larger, faster-moving and more ambitious organization.  

Of course, sports have an additional level of integration, or, at least, alignment: the league will require certain financial information to be submitted from each of its constituent teams.

“Financial rigor is essential for sports organizations just like any other business,” said Deborah Newman, who leads the Media & Entertainment industry practice for Grant Thornton. “Sports should be fun for the fans and participants, but strong reporting and compliance creates the foundation for a winning result for everyone."

Sports is also distinct in another way: the culture of the players on the floor field or rink sets the tone for the entire organization. When sports franchises talk about creating a “culture of winning,” they aren’t being metaphorical.

Ideally, there’s a synergy between the team and how the overall business functions. According to Patrick Boruta, Grant Thornton Managing Director, Business Consulting, “All owners push their overall organizations to build a broad culture of winning, which in many cases for the back office means having access to the latest technology and the most efficient business processes. So the team is very successful. That culture tends to have a ripple effect throughout the entire organization, which influences enterprise-wide operations and decision-making.”

From a winning culture to real-time data analysis

The change that begins with culture is ideally transformed by leadership into policy. Bell said, “Start at the top with the key metrics you want to measure and what winning looks like and then work backwards to create a data strategy that captures that information in a way that people aren’t having to manually manipulate data to achieve the end result.”

That can mean identifying and working with your third-party vendors, incorporating your data strategy into your contract language, sales reporting and invoicing processes. If this is all automated, you can perform very meaningful real-time analyses. 

Boruta sees opportunities in “finding synergies with your current business processes, your organizational structure, and your technology and data landscape, while taking the opportunity to explore automation tools available in today’s marketplace that align to your organizational vision and strategic priorities. If a new ERP solution is not the right answer at this time, consider using low-code, no-code automation solutions in order to obtain better real-time data from disparate sources and properly format them to support more robust and accurate internal and league reporting.”

Key takeaways 

• In sports franchises, there is often a significant operational and even cultural gap between finance departments and the front office. Specifically, finance executives are often excluded from contract negotiations. 
• This exclusion can hamper their ability to model, forecast and report because they are unaware of consequential clauses in contracts with players and vendors. 
• Better communication, or full integration into the contract negotiation process, would mitigate this. 
• Sports teams can undergo rapid operational and cultural change as a result of winning or losing. This can be exacerbated by changes of ownership in the form of sales or mergers. The challenge of delivering robust financial metrics becomes more pronounced in these times of organizational change.
• The key to overcoming this communication gap is strong leadership that sets clear metrics, which can be translated into scalable processes and real-time, technology-enabled analysis.