In the world, there are two basic models of sport financing, namely American and European, which many Asian and Latin American countries also tend to. The first is characterized by the absence of direct support for sports from the budget of the country and the large number of tax incentives for the private sector, investing in the sports movement. The second model is characterized by mixed financing with a predominance of the state budget. The fact that the mass, children’s and youth sports and recreation movement are largely funded from local budgets is common to both models (Swayne and Dodds, 2011, p. 835-837). In the US, school, student and mass sports are entirely the prerogative of the local government. The main share of the costs for children and youth and student sports is given by local governments in Canada, France, Italy, Finland and other countries (Mullin, Hardy and Sutton, 2014, p. 337).
Physical training and sport as social sector is not directly involved in the formation of the gross national product and national income. However, despite this, physical training and sport has own sources of funding and the accumulation of funds. Own sources of funding include proceeds from the sale of sports goods produced by physical training organizations; sale of the published literature; provision of paid sports services; competitions and broadcasts of sports programs on TV; membership fees; and monetary and monetary and clothing lotteries (Madura, 2012, p. 43). These own revenues are insufficient to cover expenditure on the organization of sports activity and the maintenance and development of infrastructure, training and labor specialists. Therefore, there is a need to transfer part of the proceeds from the production and sales of products and services industries of material production in the formation of additional sources of financing for physical training and sports. Such sources include the state budget funds and bank lending; internal funds of state industrial associations that are self-financing; deductions from the income of non-state enterprises; and funds of the trade unions and social organizations (Brigham and Houston, 2011, p. 551).
For example, according to the information from Sokkaa (2015), Manchester United is the world’s most popular football club with 670 million fans from almost every continent. Manchester United is the most successful club since the inception of the Premier League. The success of the club began in 1993, when under the leadership of Sir Alex Ferguson, players for the first time in 26 years, won the national championship. As sport organization it has its sources of finance, namely, mostly sponsorship contracts (over 30%), broadcasting (more than 30%) and 25 % from the matchday. It applies sponsorship strategy by international, local and product-particular sectors. However, in order to take the decision on the sources of financing, MU should assess several factors (Blokhin, 2015).
When choosing sources of financing of the organization must solve five main objectives, namely to identify the need for short- and long-term capital; define possible changes in the composition of assets and capital in order to determine the optimal composition and structure; ensure the continued solvency and hence financial stability; use their own and borrowed funds with a maximum profit; and reduce cost of financing of economic activity (Slack and Parent, 2006, p. 79). The choice of methods and sources of financing of the organization depends on many factors such as the experience of the organization in the market, its current financial status and development trends, the availability of various sources of financing, the ability of the organization to prepare all the required documents and submit a draft to financing side as well as the conditions of funding (cost of capital). However, it should be noted that the organization can find the capital only on the terms, which at that time financing operations of similar businesses are really made, and only from sources that are interested in investing in the relevant market (in the country, industry, region). To get a complete picture of current market conditions of financing is possible without any problems and in the shortest time, interviewing with key financial institutions or contact a consultant in corporate finance. Both the existing financing conditions and the likelihood of success in attracting capital from the expected source should be accessed (Li, Maclntosh and Bravo, 2012, p. 319). Moreover, it is necessary to consider the reimbursement conditions and the creditor’s or financier’s terms. General financing terms take into account credit rank requirements and particular financial ratio analysis, namely debt-to-equity or interest coverage indicators. It is necessary to argue the terms offered to candidates with every creditor before arranging a loan request agreement (Ingram, n.d.).
For large organizations that have a sufficient number of assets as collateral, high economic ratings and good business reputation, a list of available financial instruments is much wider than for small and medium-sized organizations, which are just trying to consolidate their positions in the market (Blackshaw, 2011, p. 215). Thus, Manchester United due to its ranking among one of the top five UK greatest clubs and frequent qualifications for UEFA and Championship League faces a robust rivalry among firms ready to sponsor it. Sponsorship is the external source of finance, which can be both short- and long-term depending on the discussed terms. Companies as Adidas, Nike, Vodafone, Bulova, AIG, General Motors, Chevrolet and Toshiba are known to be MU’s active sponsors (Blokhin, 2015).
The second largest source for teams is the funds received from the sale of rights to broadcast. This is also external, but long-term source. Note that not the teams, but the league concludes contracts with TV and distributes the proceeds between them. However, the team reserves the right to contract with regional TV stations (Mullin, Hardy and Sutton, 2014, p. 341). Manchester United has its own branded network, MUTV, and signed agreement with the BSkyB Company (Blokhin, 2015).
Nevertheless, it is important to take into account the projected increase in inflation, which increases the share of real investment, because the prices for objects of real investment, as a rule, increase in proportion to inflation. The volume of financial investment in this case will fall as inflation devalues not only the size of the expected investment income, but also the value of financial instruments themselves (Li, Maclntosh and Bravo, 2012, p. 325).
Therefore, each organization depending on the profile of its activities, social and technical condition needs to attract funding. If the attraction of financing sources leads to an increased effectiveness of the organization, we can justifiably talk about the feasibility of the investments made. Thus, the question of due to what sources the growth took place – own or borrowed – arises. In order to define the sources of funding, it is vital to discuss factors of choosing proper source of financing. Reputation of the organization, its financial condition, available cost of capital and lender’s requirements are considered to be among the most important factors. Taken Manchester United as an example, it was found that its major sources of finance are sponsorship, broadcasting and proceeds from the day of game.
Blackshaw, I. S. (2011). Sports Marketing Agreements: Legal, Fiscal and Practical Aspects. The Hague: ASSER International Sports Law Series.
Blokhin, A. (2015). What are Manchester United’s (MANU) largest revenue sources? [online] Available at: <http://www.investopedia.com/ask/answers/052715/what-are-manchester-uniteds-manu-largest-revenue-sources.asp> [Accessed: 15 January 2016]
Brigham, E. F. and Houston, J. F. (2011). Fundamentals of Financial Management. Concise 7th ed. Cengage Learning.
Ingram, D. (n.d.). Factors to Consider When Choosing Methods of Financing a Business. [online] Available at: <http://smallbusiness.chron.com/factors-consider-choosing-methods-financing-business-1875.html> [Accessed: 15 January 2016]
Li, M., Maclntosh, E. W. and Bravo, G. A. (2012). International Sport Management. Champaign: Human Kinetics.
Madura, J. (2012). International financial management, 11th ed. Mason, OH: South-Western/Cengage Learning.
Mullin, B. J., Hardy, S. and Sutton, W. (2014). Sport Marketing. Champaign: Human Kinetics.
Slack, T. and Parent, M. M. (2006). Understanding Sport Organizations: The Application of Organization Theory. Champaign: Human Kinetics.
Sokkaa (2015). 10 Football Clubs with the Biggest Fanbase in the World Today. [online] Available September 1, 2015, at: <http://www.sokkaa.com/top510/10-football-clubs-with-the-biggest-fanbase-in-the-world-today> [Accessed: 15 January 2016]
Swayne, L. E. and Dodds, M. (2011). Encyclopedia of Sports Management and Marketing. Thousand Oaks: SAGE Publications.