The purpose of this study was to analyze the financial performance of korean professional baseball teams on the basis of published financial statements and to suggest efficient financial management by performance analysis. For this purpose, we obtained audit reports of five professional baseball teams from 2011 to 2016. We applied trend analysis, composition ratio analysis, and financial ratio analysis method with various figures in the attached financial statements. Also we reviewed the press releases related to baseball teams. The results of this study are as follows.
First, as a result of the trend analysis, sales of 5 teams are on an increasing trend and net profit is mostly in deficit. It is confirmed that they did not earn profit through operation of the baseball team. In addition, the four teams with parent company had the highest advertising(business) revenues, while Nexen Heroes had the highest other revenue. The revenue ratio of parent company subsidy, which is a related party transaction, was 70 ~ 80% of total revenue, indicating that the parent company has a high proportion of internal transactions. The dependence of parent company is about 45% and economic self??reliance is about 55%. It seems that there is still a long way to go until financial independence is reached.
On the other hand, assets, liabilities, and capital trends show that assets are increasing with increasing debt to equity. Lotte Giants and LG Twins have increased their capital adequacy ratio thanks to the paid??in capital increase of their parent companies. However, Doosan Bears and NC Dinos are expected to have a shortage of capital. Nexen Heroes is in urgent need of capital improvement because its debt has been in excess of its assets for a long time.
Second, as a result of the composition ratio analysis, the four companies receiving the support of the parent company have cost structures with 70 ~ 80% of cost of goods sold ratio and 20 ~ 30% of selling & administrative expense ratio. Despite the fact, the cost structure of Nexen Heroes succeeded in reducing costs by lowering the cost of goods sold ratio to 40% or less and the ratio of SG & A expense to less than 30% in 2016, when the COGS ratio was 70% and the SG & A ratio was 40% until 2015. In the case of assets and liabilities, the Nexen Heroes has enough current assets compared to current liabilities, but other teams have relatively low current assets that can repay current liabilities, so there is liquidity risk.
Third, as a result of the financial ratio analysis, the profitability ratio is very low due to the ratio of operating profit to the net sales and the ratio of net profit to net sales. The growth rate is rapidly increasing with the growth of sales and assets. In the liquidity ratio, except for Lotte Giants and Nexen Heroes, liquidity ratios do not meet the standard ratios, so there is concern about the liquidity crisis. In terms of stability ratio, except for Lotte Giants and LG Twins, Doosan Bears and NC Dinos have a very high debt ratio appear. In terms of shareholders'' equity, Lotte Giants and LG Twins were fully capitalized thanks to the paid??in capital increase, while Doosan Bears and NC Dinos did not have sufficient capital. Nexen Heroes was very good in terms of profitability ratios, growth ratios and liquidity ratios, but capital??related stability ratios deteriorated due to the impaired capital. In the cash flow ratio, except for Nexen Heroes, other teams''s internal cash holdings were insufficient because it could not earn cash through its main operating activities related to baseball.
Based on financial performance, we compare and analyze the commons and differences in the financial aspects of five professional baseball teams. Lotte Giants, despite the sluggish performance, is highly stable with financial support from the parent company. The LG Twins have a steady home??field visit to their fans, while the Doosan Bears are boasting the highest level of competitiveness thanks to the strength of player nurturing system. With the help of the parent company''s steep growth, it is easy to support NC Dinos from the parent company. With the introduction of Saver Metrix, a scientific baseball game strategy is expected. Even though Nexen Heroes is excellent in all fields, it is not expected to be diversified revenues due to the scheduled sentence of its owner and poor performance of overseas players.
Lastly, we carefully reviewed successful financial operations examples such as revenue sharing system, salary cap rule, financial fair play rule, Bundesliga clubs in Germany, Toyo Carp professional baseball team in Japan. Based on these, efficient financial management strategies for professional baseball teams will be adopted.