Valuation of Sports Franchises
According to the Pittsburgh Business Times:
The Dallas Cowboys are the NFL’s most valuable franchise, according to Forbes magazine’s annual ranking of NFL teams.
Forbes values the Cowboys at $1.5 billion, a 28 percent increase from the previous year. The Washington Redskins, who held the top spot for the past seven years, fell to No. 2, with only a 3 percent increase in value to $1.47 billion.
The Cowboys overtook the Redskins thanks in part to the construction of a $1 billion stadium, expected to be ready for the 2009 season.
The Steelers ranked 16th with a team value of $929 million, up 6 percent from last season’s $880 million.
Forbes’ $782 million valuation for the Minnesota Vikings ranked the team as the least valuable of the NFL’s 32 franchises.
The valuation of sports franchises is an intriguing subject. To what degree does the value of a sports franchise depend upon the net income generated? Apparently, not all the value depends upon a positive cash flow. Anecdotal evidence suggests that the market for sports franchises is not economically rational. Even money-losing franchises sell for high prices. (I’m not specifically thinking of the Pirates or Penguins….)
So why would a buyer open the wallet for a business that bears a high purchase price, breaks even or loses money, and cannot be easily restructured or traded, due to heavy restrictions (franchise agreement, collective bargaining, municpal ownership of arenas, league oversight, etc.)??
Well, one reason is the prestige of being a team owner. As some have learned, being a team owner can bring publicity that is favorable (Mark Cuban) or unfavorable (Marge Schott, George Steinbrenner, Mark Cuban). But whether one is lionized or villanized by the public and press, there is an undeniable prestige in being a team owner.
Another reason might be access to celebrities. Being a team owner places one in a social circle that few could otherwise achieve, rubbing elbows with sports heroes, politicians, film and music stars, and moguls of weath and power. Perhaps there is some economic opportunity that can be realized by such access, but in most instances, I would venture to guess, the benefit is entirely personal and not financial.
I’m running out to get my copy of Forbes, just to find out what methodology they used in estimating the value of NFL franchises. I know they won’t go into much detail, but I’m curious. To me, it’s a fascinating subject.