ECON 250 Economics of Sport



Franchise Management

 Cost Management

1. Fixed costs:

Player salaries are typically the greatest expense for a professional sports franchise. Each team is endowed with 10 million dollars at the beginning of the season.  Students use their revenue and cost projections to budget for player salaries. The commissioner will enter each franchise's total payroll for the season. Players receive their paycheck the end of each game which split the amount over the 10-period regular season and enter the amount into each franchise's financial statement. Each owner should realize that throughout the season, as franchises trade players, a franchise's payroll may change.

2. Variable costs:

  • Team Administration is an expense that every franchise must pay to manage a front office. It is a fixed amount, and each team will pay the same administrative expense for the fantasy season. This is a fixed $500,000 per week per franchise.
  • Game-day expenses (vendors, concessions, and parking) is a fixed amount, and each team pays the same game day expenses for each home game during the season. This is a fixed $500,000 for each franchise when they are a home team.
  • Travel expenses is a fixed amount that a franchise pays to travel for an away game. Each team will pay the same travel expense for each away game during the season. This is a fixed $300,000 for each franchise when they are a visiting team.
  • Trades and Deals Costs should not be budgeted for, but it may be a cost for a franchise during the season. All franchises will have opportunity to trade players and include cash as a component of the deal.
  • League Fines - The commissioner can fine any franchise any time for any reason.
  • Interest Expense - A team that is losing money will have to pay the Commissioner's Bank and Trust 0.4% of the losses (losses * 0.004) in the next period. A line on the financial statement will be included that calculates this expense if the franchise's total profits were negative in the previous period.