Sports Franchise Agreement

Major League Baseball teams have sports franchise agreements.

Sports franchises can be moneymakers, not only for the investors and the media but for the players as well. If a sport is marketable, a franchise agreement between owners, players and media outlets is necessary so everyone knows what to expect when it comes to making --- and losing --- money.

Sports League Associations

Major sports, and some minor ones, are represented by league associations. Sports league associations help with negotiating television, radio and Internet broadcast rights, promotions and commercial sponsorships.

Revenue Sharing

Sports leagues typically have plans that allow the division of revenue between teams regardless of a particular team's number of televised games, win-loss record or fan-drawing ability. Players and sports franchises may share licensed merchandise income, and players may also have clauses in their contracts that specify financial gains from gate receipts or other income. Gate receipts are not specifically part of a league's revenue sharing plan because those can vary, for example, a home team may keep the entire gate income or split it with the visiting team.

Sponsorship Income

Sports teams generate income by soliciting, representing and advertising local and national sponsors such as soft drink and concessions providers, airlines, banks and naming rights. Local revenue contracts are generally between the sponsors and the team and not shared with the league association.

Assets

Sports franchise assets include sponsorship agreements, league-revenue sharing, player contracts, lease agreements and cash liquidity. The Internal Revenue Service (IRS) considers approximately 90 percent of the franchise's income intangible because the amount of money a sports franchise makes is dependent on variable factors such as media rights, player contract evaluation, gate receipts and preferred seating rights. The IRS requires the sports franchisee to list the purchase price of the team among his assets but acknowledges differences in the amortization tables for evaluating things like player contracts and media rights.

References

• Department of the Treasury, Internal Revenue Service: Marketing Segment Specialization Training Program: Sports Franchises
• Internal Revenue Service: Examination of Sports Franchise Acquisitions
• Internal Revenue Service: Examination Procedures for Sports Franchise Acquisitions
• Internal Revenue Service: Coordinated Issue Paper Media Industry - Like-Kind Exchanges Involving Federal Communications Commission Licenses

Resources

• Internal Revenue Service