Understanding the Significance of Revenue Diversification in Nonprofit Sports Clubs

Abstract

Nonprofit sports organizations at ‘grass-roots’ are essential for the growth of sport. Often at the heart of their communities, they also encourage active participation and social engagement (Misener & Doherty, 2009). Yet provision of facilities required to deliver these grass-roots opportunities are increasingly costly (Nichols et al., 2005) potentially outstripping revenue from membership dues, trading activities, sponsorships and grants. While in some sports codes national sports organizations (national sports organisations) support local clubs through grant funding and services, other clubs maintain financial sustainability by drawing on predominantly local sources, by restricting opportunities for sport, or by borrowing. Insufficient revenue is a critical factor which leads to one in three German amateur sports to clubs reporting deficits (Wicker & Breuer, 2010). This is detrimental to the long-term sustainability of these clubs.

In the wider nonprofit arena, Chang and Tuckman (1996) argued that organizations with more diversified revenue bases were more likely to enjoy stable financial positions. This thesis has been further tested along with the converse proposition, that the ongoing financial sustainability of nonprofit organizations is impacted negatively when revenue generation is concentrated on a small number of potentially unpredictable sources. Sectors in which have been analysed include charities (Carroll & Stater, 2009; Greenlee & Trussel, 2000; Trussel & Greenlee, 2001; Trussel, 2002), and arts organizations (Hager, 2001). While in the Chang and Tuckman (1996) study of revenue concentration included a small selection of sports organizations, nonprofit (amateur) sports clubs have been largely ignored by this academic literature.

The objective of this research is to consider the extent to which the proposition of Chang and Tuckman was evident in nonprofit sports clubs. The revenue streams of these clubs are likely to differ in source from entities analysed in prior studies, due to the input of members. It is important to assess the degree to which these ‘grass-roots’ clubs’ revenue is concentrated, the drivers for dependence and tactics to reduce such dependence. The findings of this research should assist clubs’ management boards to reduce deficits through revenue generation strategies, and stimulate research in other nonprofit sectors on this and related issues.

To summarise: generating sufficient funding from a diversity of revenue streams is a critical issue for nonprofit sports organizations. Chang and Tuckman had proposed in 1996 that organizations with more diversified revenue bases were more likely to enjoy financial stability. The objective of this research is to consider the extent to which this proposition was evident in nonprofit sports clubs; and to assess the degree to which ‘grass-roots’ (amateur) sports clubs’ revenue is concentrated, as well as identify tactics to reduce dependence on limited sources. Quantitative and qualitative data were analyzed from: cricket, field hockey, golf, netball, rugby football and squash clubs, with financial data derived from 360 annual reports. Most clubs sought revenue from ‘traditional’ means and were risk averse rather than being risk-takers when it came to revenue diversification. The findings of this research will assist clubs’ management boards to better manage any trends towards deficits through revenue generation strategies.

Keywords: revenue concentration, revenue diversification, sports clubs, not-for-profit sector, non-profit sector

JEL Classification: M40, L30