Franchises and Baseball

Franchises: A type of ownership of a business where a person starts the business with a bought license with another firm's benefits (a.k.a. name, trademark, logo, and brands).

The franchisor (original owner of the firm) receives not only a license fee for the original costs of buying the brand, but also receives a royalty payment (the commissions) from the franchisee (the purchaser of the franchise).

Examples of Franchises:
- McDonald's
- Pizza Hut
- Subway
- The Body Shop
- Quiznos

Good Traits for Franchise Possibilities:
- a good track record of profitability
- a unique or unusual concept
- broad geographic appeal
- easy to operate
- inexpensive
- easily duplicated

Benefits for Growth of Franchisor:
- less risky as the franchisor has to spend less money for the outlet itself
- gives international and national presence without higher personal cost
- gives benefits of economies of scale
- can grow without worrying about costs of operation
- receives royalty payments from franchisee
- there is more incentives to do well on the franchisees part and that gives more motivation than a salaried manager
- brings more awareness of local market and cultural differences

Advantages for Franchisee:
- low risk as business already has success
- lower start-up costs since business has already been started
- there is more incentive to ensure the franchise succeeds
- benefits from large scale advertising from a well-known parent company

Pitfalls for Franchisor:
- difficult to control the business
- huge risk of reputation as the business name is at stake if franchisee fails at improving the company
- there are faster methods of growth

Disadvantages for Franchisee:
- very expensive
- no guarantees of payback
- less profit as franchisees have to give a royalty payment to the franchisor
- less flexibility for innovation

A franchise opportunity provides the opportunities for growth and the ability to run your own business, without having all the risks involved. The goals for a franchise is to expand and grow, while a business could be that as well as work on making a profit and getting a name for themselves. A franchise gives the franchisee a chance to learn how to run a business successfully (hopefully) and is a good learning experience for those who do not want to have to go through the trouble of setting up their own business and reduce risk. It also provides the franchisors with a lot of new opportunities.

And now the baseball...

Baseball teams value has apparently risen 15% last year. This means there is a much greater business to be made in managing and owning baseball teams. Currently the teams in the USA and Canada are worth over 176 million dollars, and the highest team is worth 950 million dollars (in 2005 according to Forbes.com). Several of these teams are in substantial debt which means they are more venerable to be outbid and sold to rival bidders. Some of these are:

Arizona Diamondbacks - Debt: 103%, Value: $286 mil, Operating Income: $-18.7 mil
Although this team's value is moderate, the debt is very high. Unless the franchisees are able to make a large increase in profits and pay off these debts, it will be difficult for them to be able to hold onto the company. They also have a negative operating income, which means they are continuing to lose money, which obviously will lead to more debt and a higher risk of outbidding.

Los Angeles Dodgers - Debt: 99%, Value: $424 mil, Operating Income: $-7.4 mil
This teams debt is high, as well as a negative income, which means it is in a precarious position to defend itself against bidders, the value is fairly high, but it may go down as the debt increases.

The Oregon Stadium is an example of a rival bidder for teams:
The Oregon Stadium Campaign is working in collaboration with city and state leaders to secure a Major League Baseball franchise for Oregon. The Oregon Stadium Campaign served as the driving force behind passage of the MLB Jobs Bill, which authorizes the state to transfer income tax revenue from player salaries to finance approximately $115 million of a new Portland ballpark. The campaign continues to work closely with the City of Portland to bring Major League Baseball to Portland in a way that is sensible for both Oregonians and for Major League Baseball.
(As taken from http://www.oregonstadiumcampaign.com/)

If English soccer Premier League were to take over teams like the Major League Baseball did, there would be a lot of fan protest. Although the teams would make more money and there would be better financing for the sport, as soccer is already such a huge market, and very reliant on the fans, it would be difficult to convince the masses that moving teams around and making them neutral instead of affiliated with particular cities, would cause dissatisfaction. Soccer, a more internationally acclaimed sport, is very reliant on heavily vocal fans, and most of it is very patriotic, which would cause problems if the teams roots were to be taken out of their original cities. Much like how Montreal was upset that their baseball team, the Montreal Expos, was moved around so much that it ceased to remain loyal to Montreal, many fans would protest and grow angry if the same thing were to happen to soccer teams. Not to mention, it seems as though soccer has so much money already invested in it, that if there was any more, it would become even more corrupt and less about the sport, and more about the money. Soccer would lose public confidence and morale. It probably would not do well in the long term.

Although the clubs in the League would have more business and grow more profitable from the increase in teams and games and money being pumped into them, the soccer associations outside of the League would suffer from a loss in participants and such thing as the Championship etc. would become less valued and there would be less public interest. This would mean that more money would be pumped into the League, and the other teams would be pressured to join. But this would only work if the League had public support, which would be difficult to get originally as mentioned in the previous paragraph. But if it were to work out, the profits of the people involved in running the League would be enormous.

INTRODUCTION TO THE BLOG

This is my business class blog account. It is for school, so be forewarned ;) I hope that those who read this enjoy it, as it probably won't be all that interesting if you do not enjoy the idea and topic of business and related fields. Needless to say, please feel free to browse and enjoy :)

Anaira-La <3