There are primarily two approaches used to valuing a professional sports team:
- Income Approach – Projection of cash flows for the sports franchise through a discrete period and a residual value assumed to be earned at the end of the investment-holding period. The future cash flows are discounted at a rate of return commensurate with all the risk expected in the sports team.
- Market Approach – Comparison via the comparable franchises or the precedent transactions. ...
Why do I need a Sports Franchise Valuation?
What factors affect the value of a franchise?
What is asset valuation?
Which valuation approach is best used for sports franchises?
The precedent transaction methodThe precedent transaction method, where the value is estimated based on exchange prices in actual transactions, is the most frequently used method for valuation of a sports franchise.
How do you value a sports company?
Approaches to valuation. of sports companies.Methods. I.Assets-based approach. book value (net assets)adjusted book value (adjusted net assets) replacement.liquidation. II.Income-based approach. • capitalized profit.• Discounted Cash Flows (DCF) III.Market-based approach. • Comparable worth method.More items...
What is the highest valued sports franchise?
Dallas CowboysThe most valuable team is the NFL's Dallas Cowboys, who are worth $8 billion and have held the top spot since 2016. Rounding out the top five are the New England Patriots ($6.4 billion), the Los Angeles Rams ($6.2 billion) and the New York Yankees and New York Giants, both valued at $6 billion.
What is the least valued sports franchise?
As of 2017, the lowest valued team, the Buffalo Bills, is worth $1.5 billion.
How do sports franchises make money?
Professional sports teams are valuable properties, worth billions of dollars. Ticket sales, merchandise, broadcast rights, and marketing deals all contribute to the value of a franchise.
How do sports franchises work?
Essentially, a franchise in sport involves setting up your own business but taking on board the branding, name and ethos of an already established company involved in the sports sector.
How much is a Dallas Cowboys franchise worth?
$8 BillionNFL Team Values 2022: Dallas Cowboys Are The First Franchise Worth $8 Billion.
What makes NFL teams so valuable?
Sponsorship, which includes: naming rights, advertising, corporate partnerships, local merchandising (distinct from league licensing royalties in National Revenue). (iii.) Road Game Revenue, which includes the net share of each team's proportion of revenue generated from games played outside of its venue.
Who is the wealthiest sportsman in the world?
2010–2019 listRankNameEarnings1Floyd Mayweather Jr.$915 million2Cristiano Ronaldo$800 million3Lionel Messi$750 million4LeBron James$680 million6 more rows
How much is an NFL franchise worth?
Latest estimates value the franchise at eight billion U.S. dollars, some 1.6 billion U.S. dollars more than its nearest rival, the New England Patriots....Franchise value of National Football League teams in 2022 (in million U.S. dollars)CharacteristicFranchise value in million U.S. dollarsLos Angeles Rams6,20012 more rows•Sep 7, 2022
How much does an NFL franchise cost?
NFL teams on average are worth $4.14 billion, 18 percent more than last year, with the cheapest team the Cincinnati Bengals at $2.84 billion, a new valuation study from Sportico reports.
What is the Buffalo Bills franchise worth?
In 2022, the franchise value came to 3.4 billion U.S. dollars. The Buffalo Bills are owned by Terry and Kim Pegula....Buffalo Bills franchise value from 2002 to 2022 (in million U.S. dollars)CharacteristicFranchise value in million U.S. dollars20212,27020202,05020191,90020181,6009 more rows•Sep 2, 2022
What are the 7 sporting values?
Sport can teach values such as fairness, teambuilding, equality, discipline, inclusion, perseverance and respect.
What is the most important value a sportsman should be successful?
Respect. One value that is highly important in sports today is the value of respect and sportsmanship. Through playing against other individuals and teams, the youths learn the value of respecting the rules and the players of the sport.
How are you going to value the benefits of sports?
Clearly, sports can help you reach your fitness goals and maintain a healthy weight. However, they also encourage healthy decision-making such as not smoking and not drinking. Sports also have hidden health benefits such as lowering the chance of osteoporosis or breast cancer later in life.
What does integrity mean in sports?
What is sport integrity? The word integrity means to be whole and undivided but also the quality of being honest with strong moral principles. In sport, this means the manifestation of the ethics and values which promote confidence in sports, including positive conduct by its members and community.
The World’s Most Valuable Sports Empires 2022 - Forbes
These sports empires are more valuable than ever, led by Liberty Media. Liberty has total ownership of reigning World Series champion Atlanta Braves and the team’s mixed-use real estate project ...
How Much Does That Team Cost? Valuation of Sports Franchises
Sports franchises are a very lucrative category of business. According to Forbes, NFL teams are valued in the hundreds of millions even billions of dollars.The Dallas Cowboys, ranked the highest in value of NFL teams, at $3.2 billion.
How is the value of a sports franchise determined?
The valuation of a professional sports franchise is primarily driven by supply and demand forces. There is a limited supply of teams and a growing number of billionaires (potential buyers) that continue to bid acquisition prices higher as teams become available for sale.
What is a professional sports franchise?
Professional sports franchises comprise a distinct market where teams typically sell at prices in excess of what would be expected based on traditional valuation methodologies. Traditional fundamental variables (e.g., profitability or cash flows) do not tend to impact the valuation of professional sports teams as they would other businesses.
What is the most common valuation method for a sports team?
As noted in this article, the most commonly applied valuation method is the precedent transaction method , and consideration must be given to the facts and circumstances of each precedent transaction in selecting a multiple for the subject team. While the article focused on the most common valuation method for a professional sports team, depending on the league’s salary cap/revenue sharing mandates and team’s local market factors, positive cash flow may be consistently achieved and an income approach could also be applied in a valuation analysis. However, the value of professional sports franchises will continue to depend on the willingness and availability of individuals wealthy enough to pay a significant multiple of revenue to own these “trophy” assets.
What NBA franchises were sold in 2014?
The four sales of NBA franchises from 2014 through 2017 were: the Houston Rockets, Atlanta Hawks, Los Angeles Clippers, and Milwaukee Bucks.
How much did the Trail Blazers make in 2016?
The Trail Blazers' 2016-17 season revenue of $223 million. However, an additional $12 million was anticipated for the local television extension known to start for the 2017-18 season. Therefore, the adjusted Trail Blazers' revenue to use in the valuation is $235 million. Step 3: Application Revenue Multiples.
Why do you need to value a sports team?
Additionally, sports teams tend to be owned by individuals with gift and estate tax planning needs that require valuation work. Some additional reasons might include: business reorganizations, shareholder disputes, ...
What is the most valuable NFL team?
Forbes estimates team values for each league annually based on a proprietary methodology. Despite not going to the Super Bowl in 20 years, the Dallas Cowboys remain the most valuable sports franchise. Why? While it’s surely a combination of factors, the Cowboys have been pioneers in creative sponsorship deals, leading to revenue of over $150 million annually (over three times the league average sponsorship revenue last season). Also, the Cowboys are the only team in the NFL that retains all of its merchandise sales (the remaining 31 teams share equally in their merchandise sales), which combined with the team’s popularity contributes to thriving team merchandise sales.
How to value a sports franchise?
The most widely used method for determining sports franchise value is the guideline transaction method. The valuation process entails an analysis of the relationship between the price paid for a franchise and a relevant measure of team performance, typically revenue. This relationship between price and performance is evidenced in an implied valuation multiple, which is the ratio of price to revenue (or some other performance measure, such as earnings or cash flow). The selection of appropriate valuation multiples is a function of the specific facts and circumstances extant at the valuation date. By way of illustration, we provide a brief example of a major league baseball (MLB) franchise valuation performed by Appraisal Economics, including a discussion of the recent history and trends bearing on the valuation. Also, please see a power point presentation on valuing player contracts.
How does a new stadium affect the value of a franchise?
Financing of new stadiums is often subsidized by local, county, and/or state government agencies that issue tax-exempt bonds to fund all or a portion of the total stadium cost, which can exceed $1 billion. To the extent that the new stadium is publicly financed, there may be limitations imposed on the team such as restrictions on ownership transfer or team relocation over a certain time frame, with financial and other penalties should the team opt to relocate. Such penalties may take the form of phantom ownership, whereby the debt-issuing government agency is entitled to a portion of the sale price. The extent to which the franchise bears all or a portion of the total cost, and holds rights to various sources of income from the stadium, can have a major impact on value.
How much is the MLB franchise worth in 2016?
As evidence of the robust health of MLB, the median franchise value for all 30 teams entering the 2016 season was $1.1 billion, according to Forbes’ estimates, with the average team worth five times revenue. 1 Five franchises, or 20 percent of all teams, are valued at over $2.0 billion, led by the New York Yankees ($3.4 billion).
How long has MLB been in labor harmony?
As of the start of the 2016 season, MLB has enjoyed over 20 years of labor harmony, with the last players’ strike occurring in 1994. This marks the longest period of labor relations stability since the inception of free agency in 1975. Annual attendance for all 30 teams has been fairly stable over this decade at historically high levels, with the past ten years witnessing the ten highest attendance figures of all-time. Although attendance has fallen some 7 percent from the all-time high of 79.5 million in 2007, it has been fairly steady, ranging between 73.2 million and 74.0 million over the past six seasons (2010-2015). Six teams moved into new ballparks over the past decade (2006-2015), which has spurred attendance due to the so-called “honeymoon” effect; that is, the novelty factor associated with a new venue.
What will fetch higher multiples of revenue?
Teams in markets with more favorable demographics (e.g, higher population growth and average household disposable income, higher cable television penetration rates, etc), all else equal, will fetch higher multiples of revenue than teams with less favorable demographics.
How many teams made profit in 2015?
These unprecedented values have been buoyed in part by profits, as 27 of the 30 teams posted operating profits in 2015. Only the Los Angeles Dodgers, Philadelphia Phillies, and Washington Nationals reported losses.
Is a team based on cash flow?
Teams are not bought and sold based primarily on operating profit or cash flow (at least in the short term), given the substantial payments associated with the seven and eight figure player contracts that have become commonplace. Payroll expense (salaries and benefits) are usually the single largest expense for a professional sports franchise. Hefty player payrolls exert a depressive effect on profits. Therefore, it becomes problematic to attempt to estimate franchise values based on such conventional investment measures as profits or cash flow.
Why are sports teams valued?
Unlike industrial or financial business, which is generally valued on cash flow and assets, sport franchises are valued on their revenues. There are two reasons for this. First, in the long term, the operating expenses within each league are about the same for every team. Second, revenues most closely measure the quality of a team’s venue, and they also track athletic performance, ultimately the two most critical elements of team evaluation (Ozanian, 1994). The value of professional sport teams has risen over the past decade and is expected to rise to unpredictable levels during the next few years. The reason for the rise is revenues from the leagues, including gate receipts, broadcast rights fees, luxury boxes, club seats, concessions, advertising, and membership fees.
How does professional sports make money?
Traditionally, revenues earned by professional team sport were a combination of media revenues, game receipts, and especially luxury boxes and club seats. In the coming 10 years, media revenues, particularly, will increase, attaining what currently seems an unthinkable position. The main reason will be the consolidation of media and entertainment companies and the voracious appetite these companies will have for sport programming. Also, among the various private sources of revenue for sport franchises (stadiums’ and arenas’ proceeds from parking fees, concessions, advertising, corporate naming rights, and special seating), luxury boxes and club seats have become one of the most valuable. The revenue-generating potential that luxury boxes and club seats offer to professional sport franchises is second only to the potential for media revenue. In conclusion, professional sport franchises now see the importance of attracting fans to their stadiums and arenas in order to increase their private revenues. Sport, especially professional team sport, can earn money in more ways than one.
How many suites are there in the NFL?
Luxury suites in stadiums hosting NFL franchises range in number from 47 in Seattle’s Kingdome to 370 in Irving’s Texas Stadium. MLB facilities have suites numbering from 19 in New York’s Yankee Stadium up to 161 in Toronto’s Sky Dome. The number of luxury suites in arenas used by the NBA range from 12 in Charlotte’s Coliseum to 360 in Detroit’s Palace at Auburn Hills. NHL teams play in facilities that have suites numbering from 16 in Florida’s Miami Arena to 135 in Montreal’s Molson Center. Table 5 shows the number of luxury suites and club seats in professional sport venues.
Why are luxury boxes important for professional sports?
In conclusion, professional sport franchises now see the importance of attracting fans to their stadiums and arenas in order to increase their private revenues.
What is the baseball network?
The Baseball Network (TBN) is an example of creativity in advertising. TBN, in partnership with MLB, NBC, and ABC, was scheduled to run for six years beginning in 1994. As a media entity, TBN was charged with generating revenue for MLB by selling advertising time and promotional rights. Rather than take a projected 55% cut in rights fees and receive a typical rights fee from the networks, MLB agreed to accept 88% of the net revenue generated by TBN from sale of advertising and corporate sponsorship. Consequently, MLB shared the financial risk with the networks. It was thought that, if its advertising rates were reasonable, TBN would help the networks, MLB, corporate sponsors, and players market in sport. The networks stood to benefit because they reduced the risk associated with purchasing broadcast rights outright. (For example, in 1993, the year before the TBN deal, CBS had lost approximately $500 million on its four-year, $1.06 billion contract, due to its high bid and a shortfall in advertising revenue.) MLB and its players liked the new arrangement because the recently expanded play-off format would further line their already bulging pockets. Finally, the advertisers were excited about the arrangement with TBN because the new package included several changes intended to boost ratings, especially among younger viewers. Since this type of partnership appeared to please all parties involved, many thought other major sport leagues and their affiliated networks would eventually adopt it, thus furthering the growth of sport sponsorship and advertising (Carter, 1996).
How did television contribute to the nationalization of sport?
Television contributed to the nationalization of sport by making the prosperity of professional sport dependent on the creation of a broad-based national constituency. When NBC provided the first live network coverage of the World Series in 1949, fewer than 12% of U.S. households had television sets. By 1953, 15 of the 16 baseball clubs had local television contracts, and ABC introduced the first network game-of-the-week format. The share of U.S. households with televisions grew rapidly through the 1950s, reaching 67% of households (34.9 million homes) in 1955 and 87% of households (45.8 million homes) in 1960 (Zimbalist, 1992; Gorman, Calhoun, & Rozen, 1994). During the 1950s, none of the networks considered sport programming critical to their overall success. They put far more of their resources and effort into comedies, Westerns, and popular dramas.
How many hours of sport are broadcast per year?
More than 2,100 hours of televised sport are programmed per year by the four major networks, and cable televisionprovides an additional 6,000 hours. Professional sport and the media, especially television, are mutually dependent institutions, and extremely popular forms of entertainment.
How to determine shorthand valuation?
But the small, privately-held businesses that change hands on a daily basis lack the luxury of such a clear-cut benchmark. Various rules of thumb exist for determining shorthand valuations—two times revenue, for example, or three to four times EBITDA (earnings before interest, taxes, depreciation, and amortization).
Who wrote the franchise chatter guide?
This Franchise Chatter Guide on how to value a business was written by Daniel Slone.
What is sound valuation?
A sound valuation relies on multiple factors, all vetted to the extent possible by due diligence. Revenue is a useful guide to performance and provides some indicator of future direction. Assets (accurately valued) plus a multiple of cash flow represent a good starting point for a total value.
How long is FF&E depreciated?
No buyer would pay that for it. So how to value it? Per IRS rules, most FF&E of the type found in restaurants is depreciated over seven years . That means you can deduct one-seventh of the original purchase price per year of age to arrive at a fair market value (FMV) that the IRS would not likely challenge. Obviously, if the FF&E is seven or more years old, it has no value for transaction purposes.
Why is revenue important?
Revenue is important as an indicator of performance, and revenue trends (is it growing, by how much, and how have growth rates held up over time , for example) are even more important. Using revenue for valuation, however, in my opinion leaves much to be desired.
Is FF&E excessive?
Now, are they realistic? Maybe, and maybe not. The FF&E number is probably excessive. It’s highly unlikely that everything could be sold for that amount. As for the land and building, it depends on the condition of the building, the location of the lot, economic and real estate market conditions in the surrounding area, and more.
Is the appreciation in value unrealized?
That’s because the appreciation in value is an unrealized gain. In other words, until you actually sell it for $800,000, it’s not worth that much. Consider investing in stocks. If you buy 1,000 shares of a stock at $50 and the share price rises to $70, its value is now $70,000 versus the $50,000 you paid. Yet that $20,000 (and more) could evaporate five minutes after the opening bell tomorrow. So until you sell and “lock in” the gain, it is an unrealized or “paper” gain and nothing more.
How long should a franchise owner spend on operating costs?
Understanding how franchises are valued. To get the most money from the sale of an existing franchise unit, the seller should prepare to spend two to three years controlling operating costs and creating clean financial records. Franchise owners that cannot or do not take the time to do so run the risk of losing money in the long run.
How much is a cash flow multiplier worth?
The average range for cash flow multipliers is four to five times EBITDA. Therefore, if a business has clean tax returns showing $100,000 in EBITDA and an assumed five times cash flow multiplier, that business would be worth $500,000. However, if that same business could prove only $60,000 in EBITDA, and the multiplier remained the same, it would be worth $300,000.
Why should sellers be able to demonstrate positive trends in gross sales and EBITDA?
The seller should be able to demonstrate positive trends in gross sales and EBITDA because doing so will increase the value of the unit in question.
Do real estate leases affect franchise units?
Similarly, real estate leases will have a significant impact on the value of a franchise unit.
Can you refinance a franchise?
Finally, buyers who already own successful franchises have the option of refinancing their existing units to pay the down payment on new loans. For example, if you currently have a loan of $200,000 and you need $50,000 in cash, you could refinance at $250,000. This option is only available from a few lenders, including ApplePie Capital.
Why do I need a Sports Franchise Valuation?
Most people in the business of sports agree that traditional financial metrics cannot be used when attempting to predict what anyone is willing to pay for the acquisition of one of these unique assets. Valuing a franchise is particularly difficult, since there is a large disparity between big market and small market teams and the league-wide revenue sharing is evolving to balance the wide chasm of financial differences between teams.
What factors affect the value of a franchise?
These include:#N#Strength of the League, including new opportunities for revenue for the teams; popularity of the League versus other professional sports leagues#N#Ability of the team to generate positive cash flow#N#Recent trends in transactions# N#Management of the team#N#Location of the team#N#Contractual obligated income of the organization ( naming rights, local media, suites, and sponsorships)#N#Competition in the market from teams from other leagues (NHL, NBA, MLB & MLS).#N#The price one buyer is willing to pay for a professional sports franchise might be higher than what other buyers are willing to pay. Sports franchises are trophy assets with very limited availability and uber wealthy individuals have often developed their own rationale for determining price.
What is asset valuation?
An Asset Valuation, i.e. Purchase Price Allocation , is a recommendation as to the Fair Value of the assets acquired in a team. The purpose of this valuation is to meet both tax and financial reporting requirements. This type of analysis is complex, and a thorough understanding of the accounting and tax rules is required.
Introduction
Economics of Professional Sports Franchises
- While the goal of profit maximization is consistent with any business, the sources of revenue for professional sports teams and operating expenses are unique versus other industries. Certain financial information is reported in the press, mainly Forbes’ annual team valuations; however, the accuracy of this information is unknown and is sometimes disputed by the teams. However, det…
Unique valuation Considerations
- The valuation of professional sports franchises requires consideration of several unique factors that do not exist in most traditional business valuations. Professional sports franchises comprise a distinct market where teams typically sell at prices in excess of what would be expected based on traditional valuation methodologies. A significant reason for this is the limited number of tea…
Professional Sports Franchise valuation Methods
- Generally accepted valuation approaches typically include: 1. The income approach, via the discounted cash flow method, where the value is estimated based on the cash flows a business can expect to generate over its remaining useful life. 2. The market approach, via the comparable companies method and the precedent transaction method, where the val...
Hypothetical valuation of The Portland Trail Blazers
- As an example, I will estimate the hypothetical value of the Portland Trail Blazers through the application of the precedent transaction method. To estimate the value of the Trail Blazers, this section will first review the NBA economic environment, recent NBA team sales, and background on the Trail Blazers. Note that this hypothetical valuation example utilizes only financial informat…
Parting Thoughts
- As noted in this article, the most commonly applied valuation method is the precedent transaction method, and consideration must be given to the facts and circumstances of each precedent transaction in selecting a multiple for the subject team. While the article focused on the most common valuation method for a professional sports team, depending on the league’s salary cap…
The Value of A Sports Franchise
Revenues: from Gate Receipts to Media Contracts!
- My favorite sports team, the New York Yankees, was sold for $460,000 in 1914. At the time, it was a struggling franchise, with $20,000 in debt, and the new owners turned it around with two big investments: the storied acquisition of Babe Ruth from the Boston Red Sox for $100,000 and the construction of Yankee stadium for $3.1 million in 1923. In 1924, the Yankees reported EBITDA …
Expenses and Operating Profits
- The biggest expense associated with running a sports franchise is player expenses, and it should come as no surprise that each of the sports has gone through turmoil (including strikes and shut downs) around controlling these expenses. Players receive just over 50% of total revenues in the NFL and NBA, a little less in baseball and hockey and much less in soccer and cricket. Note that…
Risk
- How much risk is there in investing in or owning a professional sports team? While you can make a laundry list of potential risks, the best way to assess these risks is not by looking at anecdotal evidence on individual teams but at the collective performance of sports franchises over their history. The challenge that you face is that most of these teams are privately held, transactions …
Valuing The Clippers
- With that long lead in, we are in position to value a sports franchise, and in keeping with the news story that initiated this article, I will try to value the Los Angeles Clippers. In doing this valuation, I will make a couple of simplifying assumptions, which you are welcome to change. Given the risk discussion in the last section, I will attach a cost of capital of 7.50% for investing in the Clippers, …
The Pricing of Sports Franchises
- In keeping with the recent posts I have had about the divide between the value of an asset and its pricing, it is worth examining how sports franchises are priced. In fact, that is the reason why I did not talk about the well-publicized Forbes valuations of sports teams, even though I did use the raw data that they so helpfully provide on individual teams. The Forbes valuations are really franchis…
Market-Traded Sports Franchises
- As we noted earlier, most sports franchises are privately held and are not traded. The exceptions tend to be European soccer firms, where there are about a dozen that are traded primarily on mainland Europe. In the table below, we list the values attached by the market to these teams, both in terms of equity value and enterprise value, and relate these values to operating measure…
Transaction-Based Pricing
- While sports franchises are privately held, there are transactions that occur, albeit infrequently, where a team or a portion of a team is sold. It is difficult to compare transactions prices over time and across franchises, partly because they have to be inflation adjusted (which is easy to do) but more because the revenues and earnings potential for franchises change over time. The best wa…
Pricing The Clippers
- With this information on how investors/buyers have priced franchises in hand, I tried to price the Clippers using a rudimentary combination of variables: the annual revenues of the franchise and a multiple of revenues gleaned from the historical transactions: As with the intrinsic valuations, it is difficult to justify a $2 billion price tag on the Clippers, even with assumptions that stretch credib…
The Clippers as A Play Toy
- We may be spinning our wheels, trying to find rational (and financial) explanations for why Steve Ballmer paid the price that he did, when the answer may be much simpler. He has really wanted to own an NBA team, especially one in a glamorous media market. Last year, he was thwarted in his bid to buy the Sacramento Kings and this time, it looks like he is leaving nothing to chance. In eff…