Commercial evolution in the sports industry
Commercial evolution has been observed in the sports industry. In the past, entertainment was the primary purpose of sports. However, today’s sports are administered, marketed, mechanized and organized as a business. Commercial interests have been vital in influencing decisions in the sports sector. The sector has evolved from a kitchen table model to the corporate boardroom model, becoming a sophisticated industry from a financial point of view. Sports financing, therefore, plays a crucial role in determining the success of the sports sector in a country. In this paper, an analysis of sports financing in Germany will be carried out. The study will involve examining critical players in sports and their financial needs, the role that the state plays in sports funding, and the traditional and modern funding methods. The paper will also examine sports financing against the background of tax law and the funding of sports facilities.
Key Players In sports and Their Financial Needs
The sports industry in Germany is composed of multiple players who work together to ensure that the sector functions as a healthy ecosystem. Critical stakeholders in multiple sectors of the sports industry are required to work together to ensure that the sector works in an effective manner. Financial, human, and material resources are required to mobilize various sports activities. Players in the sports sector, therefore, require financial resources since the sporting practice has become an act of consumption. The method brings together a train of expenses for hiring equipment, transport prices, clothing goods, and entry tickets.
Individual Athlete
Various players exist in the sports sector in Germany. The individual athlete is a crucial player in the sports industry. They are the ones who perform sporting actions, and therefore, without them, sports cannot be carried out. Many athletes exist in Germany’s sports sector. Athletes have various financing needs; they need finances to devote themselves entirely to the extensive training that is required for them to compete at any level. They also require financial resources to cover their training costs. The maintenance of managers and agents requires fees and commissions. The athlete also incurs medical expenses; they include physiotherapy dietary costs and the cost of nutritional supplements. Insurance is also an essential requirement in the sports sector. Athletes are required to be insured and also to insure the equipment they use for both training and competitions. Other financial needs for athletes include legal fees, sports coaching, and travel expenses, among many others. Finances are therefore instrumental in developing the individual athlete. Individual athletes cannot function independently; they join sports clubs where they get their training.
Sports Clubs
Sports clubs are crucial players in the sports industry in Germany. The country is famously known for clubs such as Borussia Dortmund and FC Bayern Munich . For individuals that are not willing to compete on an international stage, the country has local sports clubs referred to as Verein. According to the DOSB, Germany has 91,000 sports clubs with approximately more than 27 million members. The clubs enable individuals to take part in sports without incurring significant financial costs. They also allow members to become actively involved in sports which is crucial for social cohesion and improving the members quality of lives. The clubs can be in every big or small town. Members are usually required to part with a small monthly fee to acquire membership. The clubs, therefore, require finances to operate. The financial needs of sports clubs include real estate ownership or rent. Funds are also needed to operate and maintain these facilities such as stadiums and arenas. Employees are employed to ensure that the facilities run properly; this necessitates the need for salaries. The clubs also need to be insured. Financial resources are also required for expenses such as office supplies, consumables, IT costs, sales, and marketing. These sports clubs are formed under various federations found in the country. The umbrella organization, which represents the federations, is referred to as the German Olympic Sports Confederation.
German Olympics sports Confederation
The German Olympics sports Confederation is a key player in the sports sector. It is a non-governmental umbrella organization that was formed as a result of a merger between the national Olympic committee and the German Sports Confederation. DOSB is a platform that offers advice, consultation and services to its members. As a result, the organization requires various financing needs. Finances are needed to plan, control and evaluate national and high-performance programs as well as the implementation of many initiatives which deal with mass participation of sports issues. Finances are also required in representing the interests of its members at the federal, state and municipal level. The DOSB is also responsible for promoting, safeguarding and furthering the Olympic idea, tasks which require finances for them to be carried out.
Sports Schools
Sports are taken seriously in Germany. The population relies a lot on sports clubs to enhance their prowess in different types of sports. Apart from the clubs, sport schools have also been developed with the main emphasis in teaching their students about sports. The schools are, therefore, players in the country’s sports industry. Sports schools are responsible for developing young athletes. They have shown tremendous success, with over 80% of the country’s participants in sports being former pupils of these institutions. The schools incorporate traditional school education into the curriculum, ensuring that young athletes receive a strong educational foundation that will assist them in pursuing vocational studies or when they want to enter into higher education. Sport schools have incorporated high-level training in three ways: through the techniques of sport stressed classes, elite schools of sport and sports boarding schools. Elite sports schools are filled with various facilities such as indoor arenas, wrestling halls, judo halls, multipurpose halls for the university and indoor athletic tracks among many others. The schools offer multiple services such as providing high-performance training from qualified coaches and support services that are provided by the Olympic training center. All these services require financial needs. Funds are also needed to ensure that the schools are kept up and running. Teacher and coaches need to be paid, utilities such as electricity also need to be paid and other support staff who keep the school running.
Other players in the sports section include coaches, agents, medical personnel, and nutritional experts, among many others. A coach works together with the individual athlete to ensure that they have enhanced their sports skills. In most cases, the coach is usually an expert in the field in which they are offering training. Some coaches have taken up the job full time and therefore rely on the job for all their financial needs, such as the maintenance of their lives and that of their families. Agents represent the athlete and look for various opportunities that can earn the individual money. They are vital in determining the financial decisions of the athlete, for instance, which endorsements they will take or teams they will play in. Similar to the coaches, agents rely on the fee paid by the athletes for all their financial needs. Medical personnel such as physiotherapists are required to ensure that the health of the athlete is at its best. They offer various services, such as treating a person when they have an injury. Their financial needs are based on the maintenance of their daily lives since they rely on; they have taken their practice full time. Even though these players are critical in the sports sector, they often go unnoticed since they have been absorbed into various institutions such as sports clubs and elite sports training schools.
All these players cannot perform well without the support of the federal, state and local government. The government is responsible for providing a conducive environment in which all these practices and players can interact to ensure the enhancement of sports in the country. To perform all its functions at the federal, state and local level, the government has various financial needs. Further analysis of these needs will be offered in the next section.
Role of The State in Sports Funding
The sports sector in Germany is a source of national economic growth and is crucial in aspects such as providing employment opportunities and enlarging domestic demand among various others. The government is therefore required to be clear about its responsibility in developing the sports sector; it does this through funding the sports sector at the federal, state and local level. All levels of government are required to fund sports in the country. The Federal government is mainly focused on high financing performance sport; state governments also play a role in the funding. The municipal government, on the other hand, fund overall sports in the country, each year, they spend an estimated amount of 3.1 billion Euros. The amount is mainly directed towards sporting infrastructure and the participation of sports in the grass-root level. It subsidizes sports, builds and maintains facilities instead of dealing with high-performance measures.
Federal Government
The federal government of Germany offers support to the sports sector by concentrating on high-performance sport and sporting activities that are of national interest. Federal funding of the sports industry provides optimal facilities for competition and training, ensuring that the country is a leader in international sport. Sports facilities, associations and organizations are required by the budget law to finance their activities. The law requires them first to exhaust all their funding possibilities before they claim funds from the federal government. According to the principle of subsidiarity, the federal government is only required to provide additional funding . The success of federal funding is dependent on the cooperation and partnership between sports organizations and public agencies at all levels of the government. The federal ministry of the interior is the basis for federal funding. The department is tasked with the promotion of sports in the country. At this level of government, financial assistance is offered to the following areas: seminars, competition and training programs. The government funds staff members who work for the national sports associations, for example, administrators and coaches. The federal government is also responsible for hosting European and world championships in the country. It offers assistance in social measures, sport sciences, support and advice to elite athletes in a matter such as social affairs, training, physiotherapy and sports medicine. The federal government is also involved in the organization of central training measures for high-performance athletes and other measures such as the advanced training of coaches. The federal government is also required to construct the maintain sport facilities, including the procurement of sports equipment.
The federal government is mainly geared towards supporting high-performance sports. It does this by funding national sports associations; this includes macro sports bodies which represent every state. A large part of the income for the national sports associations is mainly from grants offered by the federal government. The federal government is also responsible for funding for Olympic training centers. These centers provide service facilities and care for national level athletes and coaches. The federal government continues to increase its budget allocation to the federal ministry of interior, building and community; this is the ministry which deals with the sports industry. The budget allocation for the ministry increased from 14.1 billion Euros in 2018 to 15.8 billion euros in 2019 . An increase in budget allocation for the sports sector was also noted when the industry was allocated 235 million euros in 2019 from 71 million euros in 2018. The increase in funds for the sports sector sends a positive message that the government is invested indirectly supporting the athletes in the country.
State Governments
Germany has 16 state governments whose main aim in the sports sector is to support mass participation of sporting activities. State governments also provide support for high-performance sport measures, for example, contributing to the maintenance of Olympic bases. In this study, North Rhine-Westphalia will be used as an example of a state, to highlight the role that states play in funding the sports sector. NRW is among the leading states in the country when it comes to sports. The state government, together with the Landessportbund Umbrella organization, have created a sports network aimed at strengthening community activities and volunteer work to promote sports that will benefit social cohesion . They are also aimed at upgrading sports infrastructure and facilities.
Municipalities/ Local Governments
In Germany, Municipalities are the principal providers of sports funding in the country. They are responsible for subsidizing sports clubs and in the provision and maintenance of sports facilities such as swimming pools, sports halls, and sports fields. It is estimated that each year, municipalities spend approximately 3.1 billion Euros on sports in the country .
Gambling
Sports financing in Germany is of great national importance to the extent that the law has recognized it as an activity of public interest. Similar to many European countries, the culture of betting and gambling hold a high place in Germany. Since the public owns a lot of the sports organizations in the country, they depend a lot on public financing which in some cases is often insufficient and scarce in fulfilling the functions of sports in the country. There is, therefore, a need for new sources of financing such as gambling. The government taxes industry profits gained from gambling, which are used in the funding of the sports sector. In Germany, a lot of gambling revenue is generated from sports betting. Sports betting is considered to be an enjoyable, pastime activity. Sports betting is mainly centered on football among other sports; this is as a result of the countries many wins in football over the years. Germany has won the FIFA World Cup four times, silver medals four times and held the third position on four occasions. Of all sport betting activities in Germany, football bets represent almost 80%, while ice hockey, tennis and handball share the remaining 20% .
Gambling generates total revenue of 14 billion euros annually in Germany . A large portion of the revenue is made from gambling such as online slots, land-based casinos and lotteries. The online industry, on the other hand, generates around 4 billion Euros . Revenue generated from this industry finances the sports sector. The German betting industry is, however, facing various challenges due to illegal market betting. Many of the criminal cases of gambling include online gambling. The country, therefore, needs to pass a gambling act, applicable to all the country.
Traditional Funding Methods
Before modern methods of financing in the sports sector were introduced, the industry relied a lot on traditional methods of funding which were present at the time. The commercialization of sports has occurred recently since sports were mainly meant for entertainment purposes . Gate receipts have been the primary source of revenue in Germany and other European countries throughout the 20th century. The national and local government provided subsidies in the country. Industrial patrons such as Peugeot and Philips also offered grants to the sports sector. During the 1960s and 1970s, advertising revenue and corporate sponsorship increased and became crucial for the sports sector. Firms wanted more directed identification when it came to the sales, audience, notoriety and image. In instances where a club received subsidies from the various levels of government, corporate sponsorship was still available. During the 1970s, revenue generated from gate receipts of professional teams was more significant than the revenue generated from amateur clubs. Professional clubs in the country received less of sponsorships, patrons and advertising. The spectator subsidies sponsor local model was used in Germany and the rest of the European countries. During the 1980s the sale of television rights appeared in the financing of German clubs. Television was, however, not an essential source of finance for football clubs in the country.it did not fit into strategies that were used for professional clubs and leagues. The leagues feared that the live broadcast of television would decrease ticket sales, which was their primary source of revenue at the time. During this period, the sports industry used various methods to fund itself. Finances were needed to support multiple teams to participate in numerous competitions in and out of the country. The government could not finance all sports activities, various methods such as ticket sales, broadcast revenue, concession sales and sponsorship deals were used to fund the sector. These methods, which are nowadays referred to as traditional methods of finance, can be classified into internal and external conventional methods of funding.
Internal financing
Internal sources of finance in the sports sector are funds that are generated within the industry. The sports sector generates these funds through various activities that it carries out. In the past, the sports industry relied a lot on internal financing. Football is an example of a sport in the country which depended a lot on internal funding. In this case, sources of finance can be expanded by decreasing expenditures and increasing revenue or releasing capital that is tied up. The primary sources of income using internal financing options are ticket sales, media rights, merchandising, and membership fees, among various others. Internal sources of finance are however heavily dependent on the results of the specific sport, for instance, the results of the football club. If hypothetical results were obtained, the revenue significantly reduced.
An example is media rights revenue that were sold through contracts before the sports season began. The growth of income was only achievable as a result of the sports results. Revenue from various sources of media was therefore considered based on the results in the previous season. An example can be in the football sector during the 2008/2009 Bundesliga 1 season where the revenues increased by 40% compared to the 2006/2007 season.
Ticket Sales
The need to sell tickets arose with the commercialization of sports. Tickets were sold at the entrance of various sports facilities to finance their practices. They are made up of a piece of card or paper, which gives the holder the right to access certain places and in these sporting venues . An individual is required to pay for the ticket; it can, however, be given free of charge. Tickets serve as proofs of reservation or entitlement and can be valid for a specific seat or any seat. In Germany, football is one of the leading sports which has been generating a lot of ticket sales for an extended period. In the past, individuals were required to purchase the tickets through a ticket counter or window. Tickets were also available from resellers who would buy them in bulk and sell them back to people with an increase in the initial amount. People buy from resellers due to issues such as availability and convenience. The availability factor is associated with the initial tickets being issued, selling out. The purchaser had an option of not seeing the show or rebuying them from the reseller. The convenience factor, on the other hand, is associated with being able to buy the tickets locally or making alternate selections if the performance that a person wanted is not available.
At the beginning of the sales of tickets, cards, and paper were the materials that were mainly used to make tickets . However, with the progression of time, plastic was used due to durability issues. Nowadays, some tickets contain magnetic code or barcode for keeping the information stored in them while others use chips to prevent the production of counterfeit ones and to store more data. Paper tickets were mainly perforated for them to be separated into two different parts, one to be kept by the ticket controller and the other by customer. In the past, ticket sales were the primary sources of revenue for sports activities such as football.
In most cases, revenue generated from the sale of tickets would be used to finance the sports clubs, individual athletes, coaches, and various other players in the sports sector. The importance of sports is widely known in the country. Consequently, Germany is filled with a lot of sports facilities in which the sports tournaments are carried out. The increased facilities meant that the stadiums would hold a more significant number of people, translating to increased sales. Ticket sales were not only used in the past but are also substantial sources of revenue today in the country for various sports activities. Changes have, however, been observed in the sale of tickets since they are now available on online platforms.
Ticket Demand
The demand for tickets in the spot economy tends to vary. Factors such as day and time of the sporting activity or weather tend to affect the ticket demand while other factors such as unemployment rate, and consumer expenditure tend to affect ticket demand in the long run. Uncertainty is a critical factor which affects the demand for tickets. The general assumption when it comes to uncertainty is that an increase in the demand of tickets tends to occur, the more uncertain the outcome of a football match is. Some studies, however, claim that uncertainty does not play a significant role in explaining the attendance of people in German football matches. The effect of Television coverage on the game also plays an influence on the demand for ticket sales. Some studies have suggested that the broadcasting of games can affect the need for the tickets. However, this is not the case since most people in Germany prefer live action than to watch the match on television; this is highly attributed to the sports culture that can be found in the country.
Ticket Demands on the Bundesliga
In this section, the Bundesliga and its economic effects will be used to analyze the sale of tickets in Germany. As mentioned earlier, the Bundesliga was founded in 1963. While investigating the ticket demands in Germany, one has to use a restricted model since many matches in the country are sold out. The limited model can be used to analyze the sale of tickets in Germany. In the Bundesliga of 2008, the average number of visitors was approximately 39,000 which translated to a total number of 12 million visitors during the whole season; this figure highlights that the Bundesliga is among the most successful leagues in Europe . The league highly depends on entrance fees, which are low in other countries such as Italy and England.
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