SPORTS LEAGUE EX PAN SION

Strategy High difficulty

Leisure & Tourism Interviewer-led case

This case investigates the expansion of a new sports league in the United States. Candidates must
move from high-level conceptual thinking into detailed financial assessments, balancing qualitative and
quantitative information in their evaluations.

Sports League Expansion tests all elements of the case interview scorecard. It will challenge candidates
on Structuring and Numeracy, and provide opportunities for differentiation on Creativity as well.

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Problem definition

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Our client is Inside Football League (IFL), a professional indoor American Football league, that is
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working to increase its presence and footprint through adding expansion teams. A young league
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(currently in its 5th season of play), there are 10 existing teams each with growing the fan bases in their
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markets. The league recently announced that the Seattle ownership group has been selected and
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agreed to pay the $70 Million expansion fee to become one of the two teams that will be added in the
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upcoming round of expansion, and the league is actively deciding on which team will join them and bring
the total number of teams to 12 for the Y+2 season.
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Like many professional sports leagues, the Inside Football League generates revenues at the league
level, while individual franchises also have unique revenue streams. The league generates its revenue
from selling national media broadcast rights, as well as collecting a portion of fans’ spending on tickets
and merchandise from each of the franchises. Franchise owners retain all local media deal and
sponsorship revenue, as well as the bulk of ticket and merchandise sales. Given the IFL’s aspirations of
future growth, they want to do as much as possible to ensure that new franchises are both value-
accretive for the league as a whole and profitable in their own right to support the attractiveness of
future, additional expansion opportunities.

There are currently bids from prospective ownership groups in 10 cities, and the IFL has hired
you to recommend which city to expand into.

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Question 1 (Structuring)

Given that the IFL wants to maximize incremental revenue for the league, what factors should the
IFL consider in evaluating new potential franchisees? What data should the IFL gather to support
their assessment?

Additional information if requested:

• The primary goal is to maximize incremental revenue generated for the league; secondarily, they
want to grow the fan base for the sport
• A franchise expansion fee of $70MM (similar to that paid by Seattle) would be paid by the selected
ownership group
• Shared revenue is comprised by national media deals, and 40% of fan spend on tickets and

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merchandise within local markets. Local media deal and sponsorship revenue is kept by the teams

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• Timeline to select is imminent, but play will start in 2 years (Y+2)

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• The sport is played in the summer so as not to directly compete with NFL football
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• Proposals should be considered discrete and cannot be bundled

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• National media broadcast rights revenue has been negotiated based on the total number of teams,
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and will not be affected by the specific location chosen

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Possible answer
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We have been asked to help the Inside Football League determine which city to expand into in order to
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maximize fan and revenue growth.

1. Total Sports Value by market

a. Value from the potential fan bases
i. People in the metropolitan area
ii. % of people that would spend money on sports entertainment
1. Proxy: Fan bases of sports in the area
iii. $ spent / sports spender
1. Area Median Gross Income
2. Adjust for cost of living to estimate total discretionary income
3. Average % of discretionary income spent on sports consumption (tickets,
merchandise, experiences, other)
b. Determine revenue potential beyond direct fan revenues
i. Local TV deals for sports advertisement/sponsorships
ii. National sports advertisements/sponsorships

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 iii. Other business spend (e.g., business purchases of season passes for client development)
c. Market growth
i. Population growth
ii. Median income growth
iii. GDP growth
2. Market Share (% of total sports value expected to be spent on Indoor football)
a. Competitors
i. Other sports existing in the city or metropolitan area
ii. Other IFL teams in the area (cannibalization)
iii. Average share of sports spend seen in existing cities
b. Revealed preferences
i. How does the IFL product compare to other entertainment offerings that do well in this
city?

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ii. Appetite for merchandise among fans (e.g., any data on local propensity to purchase add-

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ons)?

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iii. Cultural propensity for new products/services v. established options?
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3. Capabilities and risks

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a. Quality of ownership group behind proposal

b. Availability (and quality) of stadium and training facilities behind proposal
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c. Availability of talent (e.g., will high-quality players be willing to play?)

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d. Regulatory issues (e.g. international expansion considerations)

e. Distance considerations (e.g., travel challenges to/from existing locations time zone issues for
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broadcasts)
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Question 2 (Judgement and Insights)

Share Exhibits 1 and 2 with the candidate.

We’ve obtained the following information from the client regarding their existing footprint and initial
characteristics of the expansion cities under consideration.

Which three cities would you prioritize for more detailed research?

Additional information

• If a candidate asks about the relevance of geographic distribution to the client’s goals, reiterate that

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the goal is incremental revenue for the league

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• If a candidate asks whether it is important that the chosen city align with the other new expansion

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team (Seattle), respond that the league found Seattle to be an attractive location on its own merits,
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without contemplating any additional synergy

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• Candidates should recognize that the bubble chart gives directional guidance and that calculations
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are not expected at this stage

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• Note that candidates may choose other cities, so long as they articulate a thoughtful justification
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(e.g., challenges associated with taxation/international travel operating in Toronto)

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Possible answer
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I would consider Toronto, Austin, and Las Vegas for further investigation. WToronto’s large population
provides a high volume of potential fans, Austin’s high growth may indicate a market of new residents
who do not already have deep fan allegiances, and therefore are willing to engage with the IFL, and Las
Vegas’ similarly relatively high growth and proximity to the other West Coast teams would allow for
easier travel, beyond which the cultural alignment of sports and gambling is likely high. The “tourist
attraction” dimension of Las Vegas may also support casual attendance.

While Washington, D.C. has high incomes that could support additional spending, I would be concerned
about cannibalization of the nearby Baltimore team’s revenues, and the high density of existing teams
(MLB, NFL, NHL and multiple collegiate football teams in the area) might limit appetite for a new
franchise.

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Exhibit 1: League Map: IFL

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Exhibit 2: Characteristics of 10 Proposed IFL Expansion Cities

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Question 3 (Numeracy)

Share Exhibit 3 with the candidate. The selection committee has determined that Austin, Toronto, and
Las Vegas are finalists for the expansion franchise.

They have gathered more information about each option and want you to estimate the
incremental revenue that each would provide at the league level.

Additional information
• Inform the candidate that league revenue comprises national media deals (not shown, as these will
be unchanged), and 40% of fan spend on tickets and merchandise within local markets. Local media
deal and sponsorship revenues are kept 100% by the teams and not shared

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• If candidate does not recognize importance of: 1) dividing total sport spend across sports, 2) driving

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to the focus on implications to league shared revenues, or 3) bring up any cannibalization issues,

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nudge them accordingly

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• Once the candidate recognizes the need to find the share of total sport market, ask them to assume
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that once the IFL enters, it will capture ½ of the current spend on an average existing sports team,
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partly through stealing share in the market, and partly through attracting net new sports fans
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• If asked about incorporation of growth rates from Exhibit 1, you can inform the candidate that it is
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included in the “Estimated Households in 2 years” data

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• If asked about the trend of disposable income and expenditure on sport indicate that these have
remained relatively constant over recent years; we do not have a reason to assume further changes
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• Ownership group quality can be considered a proxy for ease of partnering with from the league’s
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perspective, stadium/infrastructure quality can be considered a proxy for reliability of realizing

potential revenue (4 stars is very good, 5 stars is excellent)

Possible answer

Las Vegas will contribute the most to the IFL, at $12.5 Million in incremental revenues. Toronto is next, at
nearly $10.7 Million, while Austin trails substantially, contributing only $7.5 Million. Based on this revenue
impact, Las Vegas appears to be the most attractive expansion location.

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 Finalist City Details

Austin Toronto Las Vegas

Market Opportunity Calculation

Total Households projected in

250,000 1,000,000 500,000
Y+2

Mean Disposable Household

$20,000 $16,000 $25,000
Income

% of disposable income spent

1.5% 1.0% 2.0%
on sports

Total fan spend on sports $75,000,000 $160,000,000 $250,000,000

Other major sports in market

2 3 4
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Dollars of fan spend for IFL

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(Assume equal division with $18,750,000 $26,670,000 $31,250,000
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½-share of existing teams)

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Shared Revenue / Cannibalization Calculation

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% of fan spend contributed to

40% 40% 40%
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IFL shared revenue

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Potential Contribution to IFL $7,500,000 $10,670,000 $12,500,000

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shared Revenue
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Exhibit 3: Finalist City Breakdowns

Finalist City Details

Austin Toronto Las Vegas

Total Households
250,000 1,000,000 500,000
projected in Y+2

Mean Disposable
$20,000 $16,000 $25,000
Household Income

% of Disposable Income 1.5% 1.0% 2.0%

spent on sports

Corporate sports
sponsorship + local 220,000,000 270,000,000 400,000,000
media deal spend

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Other Sports Teams in
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% of fan spend
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contributed to IFL 40% 40% 40%

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shared revenue
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Ownership Group
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Quality
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Stadium / Media
Infrastructure Quality
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Question 4 (Numeracy)

Ownership groups typically want to double their investment over 5 years of ownership. This can come
from profits generated as well as appreciation in the value of the franchise, were they to sell.

How much appreciation would the owners need to see in each city in order to achieve their
objectives?

Additional information

• Candidates do not need to consider the time value of money over the 5-year period
• Profit margins on revenues (net of IFL payments) are 20%

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Possible answer
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In order to meet management’s targets, Las Vegas would only require franchise appreciation of 1.8%,
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while Austin would need 5.4% and Toronto would require 12.9%. None of those levels seems
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impossible, but both Las Vegas and Austin’s underlying growth rates exceed their target thresholds,
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while Toronto’s does not. Las Vegas additionally seems to have more upside in the long term; the
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already-high value of sponsorships creates an opportunity to steal share and do better, while building
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“rivalries” with the California and Phoenix franchises relatively nearby.

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Note: The candidate might make the following case for Austin:
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Given the importance of franchise success to the long-term growth of the IFL, this information leads me
to re-evaluate my previous hypothesis, and I would lead with Austin. The city’s growth rate makes it likely
that the franchise’s appreciation will reach the owners’ targets, and we have the opportunity to be a
bigger fish in a smaller pond there. Given how football-focused Texas culture is, we might imagine that
the franchise can gain a disproportionate share of the local corporate sponsorship revenue, which would
further accelerate the payback period. Las Vegas’ economy’s dependence on tourists may also lead to
less consistent spending- in the event of a recession or pandemic, discretionary sports spending might
be harder hit there.

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 Austin Toronto Las Vegas

Expansion fee (Given in

$70,000,000 $70,000,000 $70,000,000
prompt)

Required Value Increase $70,000,000 $70,000,000 $70,000,000

Annual Fan Spend Revenue

$18,750,000 $26,670,000 $31,250,000
(From Exhibit 3)

Corporate Sponsorship
$55,000,000 $45,000,000 $50,000,000
Revenue (From Exhibit 3)

Revenue shared with IFL $7,500,000 $10,670,000 $12,500,000

Remaining revenue $66,250,000 $61,000,000 $68,750,000

Profit Margin 20.00% 20.00% 20.00%

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Annual Gross Profit from

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$13,250,000 $12,200,000 $13,750,000

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5-year net profit $66,250,000 $61,000,000 $68,750,000

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Required Asset
$3,750,000 $9,000,000 $1,250,000
Appreciation
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5-year growth 5.4% 12.9% 1.8%

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Question 5 (Creativity)

What are some items that the owners should consider to effectively realize the revenue potential
of their fan base?

Possible answer
I would advise the owners to think about three primary aspects to maximize revenue potential:
Outreach, Offerings, and Pricing.
1. Outreach
a. Marketing
i. Advertisements (particularly at other stadiums/sporting events)
ii. Engage local news organizations with press releases, comments

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iii. Promote heavily in other IFL publications to let existing fans know- potential referral

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options, (including “buy a friend a ticket in a new city, get 50% off your own”)

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b. Partnerships
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i. Ticket-bundling with other sports leagues

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ii. Discounted restaurant meals with a ticket stub

iii. Charitable events with star players at hospitals, schools, community organizations
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iv. Give jerseys to local celebrities (e.g., musicians) to gain recognition

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v. Discounted tickets for people with gym memberships or at athletic centers

2. Offerings
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a. For the first season, try a range of price points on food and beverage
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b. Get fan input via in-game polls and surveys on what they’d like to see next
c. Explore luxury box options to sell to businesses which they can write off as client development,
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or that casinos can give as perks to high rollers

3. Pricing
a. Bundle ticket sales with food, beverage, and merchandise discounts in-game
b. Discounted (or free) tickets for children; getting families in early will help build loyalty
c. Encourage fans to download the app in the stadium, enabling food/beverage purchases to their
seats. Track behavior by time, price point, etc. to A/B test and improve performance

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Question 6 (Synthesis)

How would you present your recommendation to the commissioner of the league?

Possible answer

We were brought in to evaluate the proposed locations for the IFL’s next franchise. Las Vegas presents
the most attractive combination of revenue potential for the IFL and its franchise owners, contributing >
$12 Million to the league each year, and only requiring 5-year appreciation of 1.8% to meet the owners’
financial targets.

Las Vegas’ leadership team is also exceptionally strong, so I believe that they will be able to meet or

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exceed this target through creative engagement of the community and use of technology to excite the

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local fan-base while engaging tourists. While the competitive landscape is intense, creative tie-ins and

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engagement can support the IFL’s success; we could explore, for example, bundling packages with other
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sports leagues, box seats.

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Alternatively, Austin presents a low-risk opportunity to add a franchise with attractive economics for the
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owner and good stability, although its net contributions to the IFL would be only $7.5 Million/year. We
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would recommend continuing to monitor its growth, as the opportunity there will likely be meaningfully
more attractive following further population increases in the city.
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