Sport Finance Strategy for Exiting

Sport Finance

Strategy for exiting a business is not something that is generally found in business literature. Indeed, there is little need to consider it, as the process is simple. The company stops operating, lays off staff and liquidates assets. Subtlety and nuance are not part of the strategy, as there is no point in lingering over an organization that will no longer be performing its core function.

Changing an operating structure is another matter altogether. This falls under the concepts of organizational change and strategic management. Dutton and Duncan (1987) make the case that unwinding an operating structure to replace it with a new one requires the building of momentum for change. This process involves identifying key strategic issues, and undertaking a diagnosis to determine why those issues remain unresolved and what can be done to resolve them. By creating a sense of urgency throughout the organization, implementing the change will be easier.

If the change requires significant loss of employment for people, there are a number of strategies that can be employed. One theory is that by announcing the decision early, the employees will be better prepared for the transition. A counter to this is that such an announcement will result in an exodus, often of the best people. The result is that financial performance of the division will decline. Layoffs do not enhance performance, even if it seems like the right thing to do for the employees (DeMeuse, Vanderheiden & Bergmann, 2006). The finance department remains responsible for the preservation of the business' wealth, even if the business is being discontinued. Thus, the finance department should make the case that any unwinding of the business should involve layoffs only at the last minute. Once the plan for unwinding or restructuring the organization has been implemented, it is best to work quickly in order to minimizing the financial damage inflicted on the organization still paying salaries and overhead while no longer receiving any revenue.

If a sports business wants to exit a business entirely, there are likely to be a number of issues that arise. The first is that most sports businesses operate within a franchise model, and do not have the capacity to simply exit or even to restructure the business. The business would most likely need to go through a multi-step process. This process would begin with identifying the financial problems that the business is having, and communicating those problems to the other clubs with whom the team is affiliated, especially if the business is in a league. The next step would be to attempt to sell the business -- normally a sports franchise cannot simply be shut down. If a buyer cannot be found, however, the business may be positioned for an exit strategy. Normally, this would involve announcing the decision and working with the league to move the rights to the talent.

Internally, the organization would need to unwind quickly, as there would no longer be any revenues to support it. It is important that the sports business would protect its employees, and even help them find work elsewhere. The sports business will also often have number of ties in the community, and these will also need to be unwound. In particular, breaking relationships with charitable organizations is something that will be a challenge for management. However, the business will soon need to move onto the business of liquidating the assets, which could include stadiums.

If there are fixed assets involved in either an unwinding of a business or restructuring of the business, the company needs to take into account the disposal of these assets. Sometimes, a fixed asset like an arena or stadium can be sold. This is likely to be the case if there was any government funding for constructing the building. However, it is not responsible to leave such a fixed asset unsold, even if it is a challenge to find a buyer. A sports business that owns such assets should have a contingency plan at all times for the disposal of that asset in the event of unwinding or restructuring.

For the finance professional, restructuring or unwinding a sports business is not much different than for any other corporation. The objectives must be determined, and then steps taken to control the finances of the process and thereby ensure that the change is done in the most efficient manner. It is important especially when a business is being unwound that the financial manager understands what obligations the organization has to the creditors, and that it takes steps to protect the value of its assets. This is important because people within the organization could attempt to funnel some assets away from the organization, and it is the financial manager's role to ensure that does not happen.