It is hard to find anyone who doesn't enjoy watching some form of professional sports. Be it Football, Hockey, Baseball, Basketball, Soccer, or Cricket (thanks to India, cricket just might be the world's 2nd most popular sport), millions of people in the US, and billions of people worldwide identify with a specific team.
These fans drive revenue. This revenue ends up paying the best players millions of dollars per year (and the "worst" $350,000, in the NFL). Despite the enormous salaries earned by players, the owners of teams reap benefits worth even more. The most valuable teams are worth billions of dollars. This series of posts will attempt to explain why. By the end of this series, I hope you can all answer questions like the ones below.
What is the most valuable sports team in the world?
What range of valuation multiples do teams typically see?
How do teams generate revenue?
Why are the Cleveland Browns worth $1 Billion if they can't even maintain positive EBITDA?
For this post, we will explore revenue sources and team valuations.
Lets start with revenue sources. Teams earn money from seemingly unlimited ways, from that $25 dollar hot dog to your $100 parking pass, but they can be divided into three broad categories.
- Commercial Revenue
- Broadcasting Revenue
- Matchday Revenue
These categories are pretty simple, and I'd like to thank the great people at the Deloitte Sports Business Group for publishing the Football Money League Report, which breakdowns the worlds most valuable soccer teams revenue into these three categories. Don't worry, international soccer isn't that much different than professional sports in the US. Why don't we break down these even furthur, so you can see what it means for teams.
Commercial Revenue
Commercial revenue is the reason why Nike is suing Reebok. Nike reportedly paid $1.1 Billion for its 5-year apparel contract, but many think the deal will pay off.
Team's earn money through League wide contracts, such as the Nike deal or Bud Light's "official beer of the NFL," and they also earn money through team sponsorships. The logos we see wrapping around fields, courts, and rinks are a mix of league contracts and individual team sponsors. The biggest moneymaker for individual teams is stadium naming rights. Dan Snyder's deal with FedEx for rights to the Redskin's field set off a money making trend. Team's can expect to earn hundreds of millions of dollars over the life of a contract for the naming right to fields. This is money that goes to the team, not the league, making stadiums a big revenue source for any team.
In Europe, it works a little bit different. While leagues do sell league sponsorships, they have not developed the collective bargaining American leagues have. This ends up hurting the worst teams (who wants to sponsor a perpetual loser?) and benefitting the best. Because of this, team contracts can be extremely lucrative. A well known lacrosse and hockey outfitter, Warrior Sports, entered a $200 million contract with Liverpool to pave their entry into the international soccer market. We will see if their bet pays off, I think it will (Liverpool is a top apparel seller).
Commercial revenue includes the sale of branded products such as apparel, and also includes revenue earned by vendors during games. The NY Yankees, Dallas Cowboys, and Goldman Sachs recently hired a private equity executive to lead their joint venture, Legends Hospitality Management, focusing on stadium development, food and beverage services, and merchandising.
Broadcasting Revenue
This one is easy, TV, TV, TV, but don't forget radio (many MLB markets earn significant radio revenue). The NFL recently negotiated a new TV contract with FOx, NBC, and CBS, worth about $3 Billion per year. This is great news for owners, and not so great news for players (who lost a significant chunk of change under the new collective bargaining agreement). How is the NFL able to negotiate such a huge contract? Because they sell the entire league. Unlike in many European countries, US professional leagues sell leagu-wide broadcasting rights. In Europe, many teams must sell their own broadcasting rights. In Spain, this creates the problem of figuring out which channel the Barca game is on. Barcelona has four or five channels that play its game, and if you wanted to purchase these channels for your home television, you would spend close to 1000 euros a year.
To put it simply, a contract for every game by every team, is worth more than the contracts for individual teams. The value of the whole > the sum of the parts. Indvidual teams can also capitalize on broadcast revenue, this is a primary reason the LA Dodgers were sold for $2 Billion.
In case you are itching for more, I will go deeper into this subject in a future post.
Matchday Revenue
My favorite! Ticket sales, parking passes, and premium seating. The driver behind strong matchday revenue, is an amazing stadium. VIP Boxes and premium seating are the cash kings. Boxes can go for hundreds of thousands of dollars per season, and premium seats go for hundreds of dollars per game. When teams build new stadiums and arenas, you can be sure that they were designed to maximise matchday revenue. I'm going to cut this one a little short as well, to save some goodies for a future post on stadiums (don't worry, it will be worth the wait).
Team Valuations
For a more complete report of team valuations, see the links at the bottom of this post. I will just highlight some of the things I found interesting.
- No NBA team is worth more than $1 Billion. The most valuable team is the Laker's, at $900 Million (and a stunning 37.5 EBITDA multiple).
- The most valuable team in the world is Manchester United, worth $2.4 Billion and listing on the NYSE.
- The average value of an NFL franchise is $1 Billion, on average EBITDA of $30.6 Million (for a multiple of 32.7). The NFL is headlined by the Dallas Cowboys and Washington Redskins, worth $1.85 and $1.55 Billion respectively.
- Only two hockey teams are worth more than $500 million, the Toronto Maple Leafs and New York Rangers, at $521 and $507 Million respectively.
- The New York Yankee's are worth $1.85 Billion, as much as the Dallas Cowboys, yet only had $10 million in EBITDA, for a whopping multiple of 185 times EBITDA.
Yes, I know you are jealous of those multiples, when that TMT company you just sold barely got 13 times. But hey, it is sports, and people will do crazy things for the teams they love.
Topics for future posts in this series include Fans, Stadiums, and Players (the three revenue drivers), sports accounting (great invention), and the "other" billion dollar sport, Cricket. Let me know what you guys want to see for next week.
And don't forget to start reading.
Top sports franchise valuations are like super luxury real estate--their paper valuations rarely match their actual sales prices (sales prices are typically higher) because usually the person purchasing the property or franchise has more money than they know what to do with and it's a matter of obtaining something they really, REALLY want. You probably couldn't buy the Redskins or Cowboys for less than $2.5 or $3 billion (this isn't based on anything other than knowing these owners would never give up their babies).
It's also interesting to note that on the surface U.S. leagues are run somewhat socialistically, but when you break it down it's pure capitalism if the sum of the parts > the parts sold separately. Yeah, maybe the Jacksonville Jaguars don't pull their full weight in the NFL, but everyone is better off when selling in a total package.
Great points. The future post on stadiums will help explain why people will pay more than the "value" of a team. Hint, think networking.
Leagues in the US operate as a cartel, and they are much more effective than cartels like OPEC. I'm thinking of doing a US vs. Europe post about how leagues are structured and what that means for fans and owners. Let me know if this is something you'd be interested in.
Thanks a lot, glad this is something people are interested in. Are you in banking? There are a few investment banks that deal primarily in the sports industry.
Background: Graduating from PSU this December. Lifelong athlete, currently swimming, water polo, off road triathlon, snowboarding, and longboarding (skateboard not surf). The ideas behind this series of posts come from two classes I've taken: Sports Economics (PSU), and The Business of Sport in Europe (study abroad). It worked out really well, sports econ had a US focus, and BSE had a Europe/global focus. It's nice to be able to compare the differences of US vs. international (hopefully that will be a future post in this series). I've contacted my professors, so I might be able to get some quotes/opinions from them for certain posts in this series.
After graduating, I'm looking for a sports related career. Either sports banking, working for an agency, sports focused consultancy, or in the snow sports industry. I'm trying to network this summer and through my last semester at school, so I hope there will be an update on my plans sometime in the next several months.
Since you asked this, I think I have to make a post about it. Here's a teaser just to get you started, teams are allowed to depreciate player salaries. And that's just the tip of the iceberg.
I've learned a bit about F1 and NASCAR, but next to nothing about motogp, probably enough for just a single blog post if this is something people are interested in. Like you said, sponsorship is huge. In F1 sponsorship is not only about advertising, but also about prestige. You can bet Renault loves having its engines in Red Bull Racing's cars. You can also bet that Vettel and Webber are going to make a run at 1st place, and that RBR will win the constructors cup. The Vettel/Webber duo is one of the strongest pairings seen in a long time, and i think they will be at the top of the F1 circuit for the next several years.
F1 races are more of an event than just a race. There are parties, car shows, good food, the girls who stand next to the cars, etc. I can definitely see this turning into a future post, stay tuned.
I'm looking forward to future installments especially the installment about how the Dodgers were sold for $2 billion. Keep it up and SB for you!
I LOVE this. I've always had the outside goal of somehow getting into the business of sports. As I don't think getting a full-time mba, taking huge career risks or taking salary cuts are in my blood anymore I'm sure this won't happen (Note to younger guys - chase your dreams).
21- Do you mind sharing a brief background on yourself? You've probably done it before, but it'd be nice to see.
sports purchase multiples are unreal. they are def factoring in the "happiness dividend," that awesome street cred you get from owning a professional sports team.
I use the same rationalization for my boat.
Really depend on what sport you're buying, when you buy and where you buy. If you buy a team in the USA when the sport is taking off, such as in basketball, hockey, and to a lesser extent soccer, you're looking at a pretty good ROI in the future. If you're buying a soccer team in Europe you're looking to spend your fortune to keep up with the Joneses.
To 21: what's great about sports accounting?
To BC: what kind of boat?
any idea about motorsports, like formula 1 or motogp? i heard f1 drivers are paid handsomely and also seem to huge sponsors (Barclays lol, Credit Suisse, etc)
Just a side thought here. Growing up, I was a big wwe fan, and I really can't imagne why the company is worth so little. They have a couple things that should cause a depressed stock price ( terrible corporate governance, poor investments in tough to quantify movies, declining sales in the toy and video game space, along with maybe some additional competition from UFC... Sort of).
But when you think about it... If the dodgers are worth 2.2 billion with roughly similar revenues... Wouldn't you rather own the wwe... More internatinal, control a seemingly infinite amount of content, and have much more flexible sg&a because all wrestlers are independent contractors signed to short term deals. Why is that only worth 4 times ev/ ebitda?
Also, they are working on a new tv network, the raw tv deal expires in 2013 and they still haven't released 2q which has positive upside potential from rock v cena wrestlemania... Seems pretty crazy to me
Looks like it will be a great series.
Ebitda multiples aren't useful in sports vs. other industries, primarily because player expense (#1 cost) is the key driver to high or low ebitda. Revenues is the better multiple (industry standard).
I used EBITDA just to show what some teams are coming up with for cash flows using GAAP. Revenue can be just as misleading as EBITDA. Owners have numerous ways to change their stated revenue. Stay tuned for the post on sports accounting to find out how.
awesome and fascinating stuff. +1 SB for ya. Like accountingbay, I've always wanted to work in sports. I mean, I gotta be better than how some of the GMs in sports right?! (I am looking at you, dudes from Cleveland Browns, Charlotte Bobcats, Washington Wizards)
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