esm7i Professional sports franchises are continuing to sell at record prices. What drives a team such as the Dallas Cowboys to be the most valuable sports franchise in the United States despite not having won a Super Bowl for over 20 years?
Toptal Finance Expert David Turney gives an overview of professional sports economics. He also provides a unique valuation consideration and a team value example.
MLB approved the sale of the Miami Marlins in September 2017. This group, led by Bruce Sherman and including Derek Jeter, is the new owner. According to, the ownership group had agreed to buy the team for $1.2 billion. The reported purchase price of the Marlins is the second-highest in MLB history behind the $2 billion acquired by the LA Dodgers back in 2012. This chart shows Marlin’s financial performance over the last five years prior to its sale.
This article will explain why a company that had a $2.2 million operating loss during the previous year on revenues of $206.0 million, according to Forbes, could sell for such a high amount and how one should estimate the value of professional sports teams.
Forbes calculates team values annually for each league using a proprietary method. Dallas Cowboys are still the most valuable sports team despite not having been to the Super Bowl for 20 years. Why? It’s a combination, but the Cowboys are pioneers when it comes to creative sponsorship deals. They have generated revenue of more than 150 million per year (three times the average league sponsorship revenue from last season). The Cowboys, as the only NFL team that keeps all merchandise sales (the other 31 teams split the revenue equally), have a thriving merchandise business.
This table shows the top ten most valuable sports franchises (in US dollars) according to the latest team valuations released for the major leagues.
We will first discuss the economics of four of the major US sports leagues; then, we will look at the unique considerations in valuing a team. Then, we’ll move on to general valuation methods and their application to sports teams and conclude with a hypothetical analysis of the Portland Trail Blazers. This article focuses on the knowledge that I have gained from valuing professional sports franchises in the NFL. MLB, NBA and NHL. These sports team values were prepared to be used for gift and estate taxes, litigation, internal planning, and purchase price allocation.
Economic Analysis of Professional Sports Franchises
The goal of maximization of profits is the same for all businesses, but the revenue sources and operating costs of professional sports teams are different from those of other industries. The press reports certain financial data, such as Forbes’ annual sports team valuations. However, this information may not be accurate and can sometimes be disputed by teams. As all units are private, it is not possible to obtain detailed financial statements.
According to my experience, which is consistent with previously reported data, media revenue and gate receipts make up the majority of the total revenue, with sponsorships, merchandise, and other items making up the rest across all leagues. The major sports leagues’ operating expenses are dominated primarily by player salaries, which can change dramatically from one season to the next and have an impact on their profitability. The revenue-sharing system is different in each league.
Revenue Sources
Adam Ware is head of digital media for Tennis Channel in Santa Monica. He said that “live sports are the most valuable content” on the planet. Media rights revenue for professional sports programming has increased dramatically with every new agreement. Media rights fees for sports continue to grow because fans of professional sports tend to watch live events and are younger than other demographics (the target audience for advertising). This allows television networks to charge more money for commercial airtime compared to additional content. National and regional television contracts primarily generate media revenue. Radio, league-owned networks, and digital media are also important sources.
As shown in the following table, each of the four major leagues has national television contracts that bring significant revenue to their teams.
Current national television agreements have a long-term nature and provide a stable revenue source for the near future. The federal television revenue is shared equally by each of the major leagues.
Local television revenue is becoming increasingly important for MLB, NBA, and NHL teams. Recent agreements have provided a significant revenue source each year. In the NFL, local television contracts only cover preseason games. The Lakers and Knicks each received more than $100 million from local media last season. Four teams in the NBA received local revenue that was within $100 million of the Lakers. This can have a significant impact on the ability of a team to invest in players and profit.
Alternative media companies such as Amazon, Facebook, and Twitter have acquired nonexclusive rights to a variety of packages of professional sports games that they can broadcast on their platforms. In the future, fees charged by these technology companies for similar or expanded rights are expected to rise. As the agreements of the major TV networks expire, alternative media companies will likely bid for media rights. The leagues may see a record increase in revenue if alternative media companies bid for media rights when the current contracts expire.
Radio agreements at the local and national level are a source of revenue for each league, but they are still far less lucrative than television rights.
The gate receipts of a team are based on the ticket price and attendance. The local market’s demographics determine ticket prices. Attendance is heavily dependent on the performance of the group, but in some markets, high attendance can be maintained with poor team performance. The table below shows gate revenue by league, according to Forbes’ latest season.
The league and team levels generate corporate sponsorship revenue. NBA teams can wear jerseys that have 2.5 by 2.5-inch ads above the left breast. The Cleveland Cavaliers, who will receive over $10.0 million in sponsorship money from Akron-based Goodyear, are among the nine NBA teams that have signed agreements. The sponsorship revenue for the four major sports leagues has grown tremendously, even during the Great Recession.
Leagues receive revenue from the sale of merchandise such as jerseys, caps, and other products with team logos. Most teams also receive income from stadiums. This includes naming and advertising rights, luxury suites and parking, concessions, parking lots, and signage in the stadium. The amount of revenue that each team gets depends on whether the stadium is owned or leased.
