1 Volume 2, Chapter 5 Financial valuation of sports franchises

2 Value of sports franchises Value of sports teams in 4 major professional leagues in US grown average annual rate of 11.7% Growth rate NFL>NBA>NHL>MLB Avg team value NFL>MLB>NBA>NHL, increasing disparity among leagues 2010 data NFL value 1022 M/team, revenue 8.02 B in 2009 MLB value 491 M/team, revenue 6.6 B in 2009 NBA value 329 M/team, revenue 3.8 B in 2009 NHL value 240 M/team, revenue 3.09 B in 2009 Most valuable teams: Dallas Cowboys (1800 M), Yankees (1770 M), Knicks (655 M), Toronto Maple Leafs (521 M)

3

4 Value of sports franchises Highest team values in European football, 2006 England: Manchester United 1373 M Spain: Real Madrid 1012 M Italy: AC Milan 921 M Germany: Bayern Munich 769 M France : Olympique Lyonnais 208 M Portugal: FC Porto 106 M All significant increase from 2004

5 Internet sources US leagues valuations-11_land.html valuations-11_land.html valuations-10_NFL-Team-Valuations_Rank.html valuations-10_NFL-Team-Valuations_Rank.html valuations-11_land.html valuations-11_land.html European football and US leagues e.htm

6 Changes in ownership From toys/hobbies to franchise operations Demand and sales prices for franchises increased in all 4 leagues

7 Valuation methods Confidential by Forbes Value attributable to revenues shared within league Value attributable to franchise’s market size Value attributable to franchise’s stadium/arena Value attributable to franchise’s brand management Mostly intangible, difficult to approximate without a rigorous methodology

8 Valuation: League issues Labor situation Salary constraints  cost certainty Labor stability league-developed revenue streams Total revenue league revenue: TV, internet, sponsorship, licensing… degree of revenue sharing Local revenue sharing league rules regarding ownership and debt Limits on amount of debt a franchise can carry Availability of financial capital: establish leaguewide credit facilities for debt at below-market prices/terms in NFL, MLB, NBA NFL provide low price debt for new facility construction

9

10

11

12 Valuation: specific team issues Market size most important Less significant in NFL and NBA because higher degree of league and local revenue sharing Arena/stadium situation New facility Lease arrangements, may share revenue with public sector that founded the facility Other potential revenues around facility, e.g. real estate Local media opportunity At/near end of existing local media deal: chance for bigger deal Formation of regional sports networks Previous operation efficiency Long-term below-market sponsorship/media deals, significant long- term player salary commitment…

13

14

15 Valuation methodology: revenue multiples Most industries: consider both profitability and future growth Sports franchises: typically valued based on revenue multiples Require minimal information Intentionally disregards cash flow variability (usually changes in player salary) Disparity in average revenue multiple across leagues Use the multiple as starting point for negotiation Not based on rigorous financial analysis, especially on expense side Existing team losses, high payroll…

16

Major League Baseball Franchise Valuations, 2013 by Bloomberg /mlb-team-values.html /mlb-team-values.html

Major League Baseball Franchise Valuations, 2013 by Bloomberg 18

Major League Soccer franchise values, 2012 by Forbes 19

Major League Soccer franchise values, 2012 by Forbes 20