5 Financial Lessons that Sports Franchises can Teach Us

Professional sports are one of the most highly respected industries in the world. From the outside, it appears that owners of professional sports teams have an unlimited amount of financial resources and are making a lot of money by simply owning their teams. In reality, those that own professional sports teams have many of the same problems that small businesses and individuals deal with on a daily basis. Because of this, people can often learn from financial lessons that have been taught to professional sports teams over the years. There are five financial lessons in particular that people should focus on.

Risk and Reward Needs to be Considered

One of the most common lessons taught to professional sports owners is that there is a large trade-off between risk and reward. Sports owners have over-spent on free agents a countless amount of times. In each case, the owners have taken on a risk in the home that it would payoff in a championship. While it has worked out at time, such as when the Celtics and Miami Heat brought in several star players to bring championships home, it has often not worked out as well. In many cases, these bad signings can set teams back over a decade. Small businesses and individuals should learn they need to carefully figure out the risks and how it could impact them in the long term.

Third-Party Advice is Critical

While they used to not be involved as much, general managers and team presidents are now heavily relied upon for all major decisions. Owners today almost always get consultation from these people before making a major personnel decision. This is very common to an individual investor receiving sound advice from a financial planner or investment manager before re-allocating their investments.

Long-Term Success Can Take A Long Time

During the 2016 MLB season, the Chicago Cubs won their first world series in over 100 years. Four years prior to the championship, the Cubs management was very honest when saying that the team would need to struggle for a few years before getting better. While the Cubs won prior than expected, they still had several years of finishing in last place before winning the World Series. This is very similar to long-term financial planning in which individuals need to stay focused on the long-term success and goals as opposed to short-term returns.

Do Your Diligence

Many of the worst free agent mistakes and draft picks over the past ten years could have been avoided by simply doing more research. This is very similar to investing, particularly when you are taking an investment risk. It is important that you spend a lot of time reading about a company, the growth potential, and future risks before making any investment choices.

Success Does Not Always Equal Profits

During the NBA season that ended in 2016, the Cleveland Cavaliers won their first title for the City of Cleveland in over 50 years. While it was very exciting, and people flooded to the stadium and bought a lot of merchandise (like long lasting work boots, tees, Basketballs, etc), it did not end up being profitable for them. The Cavaliers reportedly lost over $40 million that season alone due to extremely high player contracts. From this, the average business can learn that just because they are a leader in sales or innovation, it may not lead to profits. Instead, through the use of sales training and financial planning, a business should be able to properly project their bottom line based on sales volume, revenue, and expense ratios.

In conclusion, professional sports teams appear that they are extremely profitable and impervious to financial struggles. In reality, professional sports teams deal with many of the same financial struggles that small businesses do. Over the past few years, professional sports owners have learned five financial lessons in particular.

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