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Volume 2, Chapter 5Financial valuation of sports franchises

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Value of sports franchises Value of sports teams in 4 major professional

leagues in US grown average annual rate of 11.7% 1991-2006 Growth rate NFL>NBA>NHL>MLB Avg team value NFL>MLB>NBA>NHL, increasing

disparity among leagues 2010 data

NFL value 1022 M/team, revenue 8.02 B in 2009 MLB value 491 M/team, revenue 6.6 B in 2009 NBA value 329 M/team, revenue 3.8 B in 2009 NHL value 240 M/team, revenue 3.09 B in 2009 Most valuable teams: Dallas Cowboys (1800 M),

Yankees (1770 M), Knicks (655 M), Toronto Maple Leafs (521 M)

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Value of sports franchises

Highest team values in European football, 2006 England: Manchester United 1373 M Spain: Real Madrid 1012 M Italy: AC Milan 921 M Germany: Bayern Munich 769 M France : Olympique Lyonnais 208 M Portugal: FC Porto 106 M All significant increase from 2004

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Internet sources

US leagues http://www.forbes.com/lists/2011/33/baseball-va

luations-11_land.html http://www.forbes.com/lists/2010/30/football-

valuations-10_NFL-Team-Valuations_Rank.html

http://www.forbes.com/lists/2011/32/basketball-valuations-11_land.html

European football and US leagues http://www.rodneyfort.com/SportsData/

BizFrame.htm

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Changes in ownership

From toys/hobbies to franchise operations Demand and sales prices for franchises

increased in all 4 leagues

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Valuation methods Confidential by Forbes Value attributable to revenues shared within

league Value attributable to franchise’s market size Value attributable to franchise’s

stadium/arena Value attributable to franchise’s brand

management Mostly intangible, difficult to approximate

without a rigorous methodology

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Valuation: League issues Labor situation

Salary constraints cost certainty Labor stability

league-developed revenue streams Total revenue league revenue: TV, internet, sponsorship,

licensing… degree of revenue sharing Local revenue sharing

league rules regarding ownership and debt Limits on amount of debt a franchise can carry Availability of financial capital: establish leaguewide

credit facilities for debt at below-market prices/terms in NFL, MLB, NBA

NFL provide low price debt for new facility construction

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Valuation: specific team issues Market size most important

Less significant in NFL and NBA because higher degree of league and local revenue sharing

Arena/stadium situation New facility Lease arrangements, may share revenue with public sector that

founded the facility Other potential revenues around facility, e.g. real estate

Local media opportunity At/near end of existing local media deal: chance for bigger deal Formation of regional sports networks

Previous operation efficiency Long-term below-market sponsorship/media deals, significant long-

term player salary commitment…

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15Valuation methodology:revenue multiples Most industries: consider both profitability and

future growth Sports franchises: typically valued based on

revenue multiples Require minimal information Intentionally disregards cash flow variability (usually

changes in player salary) Disparity in average revenue multiple across

leagues Use the multiple as starting point for negotiation Not based on rigorous financial analysis, especially

on expense side Existing team losses, high payroll…

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Major League Baseball Franchise Valuations, 2013 by Bloomberg

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http://www.bloomberg.com/infographics/2013-10-23/mlb-team-values.html

Major League Baseball Franchise Valuations, 2013 by Bloomberg

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http://www.bloomberg.com/infographics/2013-10-23/mlb-team-values.html

Major League Soccer franchise values, 2012 by Forbes

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Major League Soccer franchise values, 2012 by Forbes

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http://www.forbes.com/sites/chrissmith/2013/11/20/major-league-soccers-most-valuable-teams/