Give them bread and circuses and they will never revolt. – Juvenal
This quote works on so many levels. From the economy to sports, to entertainment. Believe it or not, the Roman gladiator games were just their version of the content. Even today, sports is only worth the content it creates. No less than a reality TV show like Survivor or the Bachelor.
What does it take to buy, run, and sell a trophy asset like a sports team that creates unscripted content? We know it takes a lot of money…but how much?
Let’s see what a sports team is worth…
There are over 150 sports franchises in the five major leagues spread over 52 cities in America. NFL is the most coveted of all the major leagues with revenue of $16B, and the Dallas Cowboys as its most valuable franchise.
My colleague, Mike Shapiro, who has worked with SF Giants, Baltimore Orioles, Atlanta Braves and is President of the Pioneer Baseball League, will walk us thru the latest trends in sports team ownership.
All you Mike…
I want to talk about the sports franchise valuation and acquisition strategies.
- The marketplace for sports teams is all over the place right now.
- In large part because at least in baseball the industry has been turned upside down by major league baseball’s decision to change the relationship between the minor league clubs and the major league clubs on the major league level franchises have never been more valuable, in fact, it is harder and harder to acquire major league clubs because those valuations keep increasing to the extent that there are fewer and fewer buyers available and the entire industry is based on supply and demand at the minor league level.
- However, bargains can be found, and we find that the market is very strong.
- People see that there are good deals to be had in some of the choice markets that have either been abandoned by MLB in the relegation process or that our newfound leagues as independent leagues and so the buy-in for a minor league team that had been affiliated for example was probably starting in the six to eight million dollar range and as you got up into higher levels, it would go to the 20-30 million dollar range now for leagues that were affiliated and have now gone independent you are in the three-four million dollar range so while you lose affiliation status perhaps the value of a franchise at a much lower cost means there are some great deals to be had particularly at the minor league level in other sports I would say that the growth of the opportunities to get in at lower levels not having to go at for example in the NBA, you could go to the G-League level and other kinds of independent leagues that are all starting up because in large part because media values while they are high at the major league level at lower levels for streaming services and digital media you are able to get coverage of your games while not having to get engaged in heavy production costs and rights fee deals so we are finding in the marketplace lower-level minor clubs while again the values may be lower and the financials are at a much lower scale the values are much bigger.
Thanks, Mike. Great to have you…
Tell me if you have heard this before…
- What takes days to gain in flexibility, takes weeks in strength, and months in endurance.
- What I am about to share is less of a rule and more of a guideline, that will help you estimate the value of your favorite sports team.
Sports teams are worth 2-6x on revenue. Revenue includes ticket sales, merchandise, stadium, media, and national revenue from the league if it’s a franchise.
So next time you want to know what your favorite sports team is worth, just google their revenue, and first multiply by 2 and then by 6. You will get a range of what your favorite team is worth.
The spread between 2-6x depends on FOUR FACTORS –
- Market. Size does matter. If a sports team is located in a small city like Milwaukee with a population of 1.5 million, versus say Houston with a population of 7 million, it is much more difficult to get people to move to Milwaukee than to create more local fans in Houston via consistent outreach.
- Economy. Only a strong economy can create higher asset values and sustainably good returns for savers. – Ben Bernanke. The better the economy, the more billionaires there are who can buy sports teams from their recent market gains.
- Community. Contrary to popular belief management and performance has little to do with the team’s value. What makes the biggest difference is how deep is the team rooted in the local community. Are the players involved in local charities? Does the stadium host local school events? Are people buying sports jerseys for their newborns? How long is the waitlist for season tickets?
- Tax Benefits. Just like any trophy asset, most teams don’t make money, or barely break even. So why would anyone buy it? Have you noticed that most owners are rich? There is a reason for that. First is, of course, only the rich can write such checks, and second, only the rich need tax write-offs of such magnitude. A bleeding sports franchise is a fantastic gross tax adjustment for billionaires, making them an attractive investment.
Owning a sports team is like running a Hollywood studio. It’s not for the faint of heart. The unions and regulators watching your every move, the talent is ever demanding and sometimes crazy. The audience is easily distracted. And the owners have a bottomless appetite for profits.
It requires a massive investment upfront, and a willingness to lose money annually. It is a people business and only works well if you have good people, can attract good people, and retain good people. And if and only if, you can do these things, you may have a chance to make money when you sell.