Objective 8.01

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CONTENT/TEACHING OUTLINE

COMPETENCY: 8.00 Discuss risk management from a sports and entertainmentmarketing perspective.

OBJECTIVE: 8.01 Summarize the concept of risk management.

Sports and Entertainment Marketing ISummer 2003

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A. Explain the types of risk.1. Risk is the possibility of a financial loss or failure. Individuals or companies are

willing to take a risk because of the opportunity for success or financial gain.2. Identify the three most common risks for a business.

a. Economic risk is the risk associated with the possibility of a loss due to achange in the economy.i. A business might experience monetary loss due to changes in overall

business conditions.ii. Competition, changing consumer lifestyles, inflation, population changes,

limited usefulness or popularity of some products, product obsolescence,

government regulation, and recession are economic risks.iii. For example, there was competition for consumer dollars when the

Carolina Hurricanes, Carolina Cobras, and NC State Basketball team allplayed at the RBC Center in Raleigh. The Carolina Cobras eventuallymoved to Charlotte where they had a better chance of making a profit.

b. Natural risk is the risk associated with the possibility of a loss due to naturalcauses.i. Droughts, fires, floods, hurricanes, tornadoes, lightning, earthquakes, and

other unexpected changes in normal weather conditions are natural risks.ii. For example, in Lubbock, Texas in 2002, a power outage due to a storm

forced the cancellation of a Britney Spears concert after only two songs.

c. Human risk is the risk associated with the possibility of a loss due to humanfactors.i. Customer unpredictability, employee or endorser unpredictability, and

human mistakes are human risks.ii. Risks affiliated with employees or endorsers might include dishonesty,

incompetence, accidents, illness, or negligence.iii. Risks affiliated with customers might include dishonesty, fraud, accidents,

or theft.iv. For example, Lowes Motor Speedway widened pedestrian walkways to

reduce the possibility of a potential hazard from tightly packed crowdsafter an event. Lowes Motor Speedway also removed the first two rows of

seats on the frontstretch of the track to protect fans from debris that mightharm fans after a wreck during a racing event.

B. Discuss the concept of risk management.1. Risk management is the management, control, and prevention of exposure to

internal or external risks.a. A risk management plan outlines procedures for handling all forms of

business risk.

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b. Four important considerations to be included in a risk management plan are:i. Identify the potential business risks.ii. Measure and prioritize potential business risks.iii. Determine how to effectively handle each risk.iv. Implement risk management plan.

2. Risk prevention and control involves dealing with risks before they occur.a. Screen potential employees. Interviews and aptitude tests are the two most

common ways businesses screen employees.b. Train and orient new employees to company policies and procedures.c. Provide safe conditions and safety instructions for employees. Proper safety

instruction can reduce the possibility of on-the-job accidents.

d. Prevent external theft. Shoplifting is stealing merchandise from a business.Robbery is stealing merchandise or money through the use of force or threat.

e. Prevent internal theft. Dishonest employees could steal merchandise(larceny) or money (embezzlement) from a company.

3. Risk transfer is passing risk.a. Purchasing insurance against a potential loss transfers the risk to another.

For example, property, liability, business interruption, and income.b. Warranties transfer risk to a manufacturer. A warranty is a written guarantee

that a product or service will meet certain quality standards. If the product orservice should not meet the expectations of the consumer, or if the productshould fail, then the manufacturer is held responsible. Most warranties have

specific time or use limits.c. The type of business determines how much risk is incurred by each owner. In

a sole proprietorship or partnership, all risks are assumed by the individualowner(s). In contrast, a corporation transfers risk to its shareholders.

4. Risk retention is assuming or acknowledging a business risk and the outcome.a. Businesses recognize that some risks are inevitable or uncontrollable.b. Businesses recognize that some risks cannot be transferred, avoided,

insured, or prevented. For example, an act of terrorism, such as September11, 2001.

c. Certain risks may never occur.5. Risk avoidance may be achieved by anticipating a business risk and preparing

for that risk in advance.a. Avoid opportunities or investments that have a potentially high risk.b. Pursue an option or strategy that involves less risk.

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Resources Teacher NotesPrinted References:Marketing Essentials, 3rded., pp. 622-637.Sports and Entertainment Marketing, pp. 272-277.Marketing, pp. 513, 520-523.

Suggested Activities: Have students brainstorm eight examples of

each type of risk (economic, natural, human)related to the sports and entertainment industry.

Have students brainstorm examples of riskprevention and control, risk transfer, riskretention, and risk avoidance in the sports andentertainment industry.

Think about a recent concert or pro team sportyou attended. What are all the potentialaccidents that could go wrong within thatevent? For example, the mascot offending afan or a fan getting food poisoning. Make a listof 15 risks.

There is a 8.00 project at the end of thiscompetency.

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Other Resources:8.01 PowerPoint Presentation

Objective 8.01

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