Infographic – Sports Franchise Values

As a follow up to one of our previous posts, we commissioned Curvity Design to create an infographic to demonstrate the risk vs. the reward in purchasing a professional sports franchise (including the Forbes’ evaluation of team value at or near the time of the team’s sale).  Hope you enjoy the results!  Thanks to Laura Bennett at Curvity Design for developing the graphic…great work Laura!  Follow her on Twitter at @curvitydesign.  She is also on Facebook at facebook.com/curvity and her website is www.curvity.com.

Also, many thanks to our blog manager, Griffin Booth, for his efforts in researching data for this infographic.  You can also see his previous post on the topic (“How Accurate are Forbes Franchise Evaluations?”) by clicking here.

Not pictured in the infographic is the current tug-of-war for the rights to the NBA’s Sacramento Kings franchise.  Reports suggest the franchise could be sold for upwards of $500 million, while Forbes currently puts a $525 million valuation on the team.  The current owners of the franchise paid just $156 million for the Kings in 1998.

Griffin Booth is in his first year as Sports Career Consulting’s Blog Manager.  He is a recent Washington State University graduate where he majored in communications with an emphasis in broadcasting.  Booth began his career as an intern with sports radio 950 KJR in Seattle where he was responsible for managing the show’s podcasts.  He later gained experience as a news anchor, producer, and reporter for Cable 8 news in the greater Pullman area. In addition to his role with Sports Career Consulting, he is currently an intern with Washington State University’s Cougar Athletic Fund, helping to raise money for student-athlete scholarships.  Born and raised in Seattle, Booth is a huge fan of all Seattle sports. For any questions, comments, or feedback please feel free to contact Griffin by email at gbooth206@gmail.com.  You can also follow him on Twitter @gbooth6.

 

How Accurate Are Forbes’ Franchise Values?

Today’s post comes courtesy of Griffin Booth, Sports Career Consulting’s blog manager.

While sporting events provide entertainment for fans, above all else, it is a business. Owners of professional sports organizations, like owners of any business, have a responsibility to strive for profitability. Unfortunately for many professional teams, turning a profit is extremely difficulty thanks to inflated player salaries.  Why then, would anyone actually want to own a franchise?  Well, good question…until you take a good look at the annual estimates of franchise values published by Forbes each year.  Just out of curiosity, we decided to compare and contrast the published Forbes franchise valuations against the actual recent sale price of sports teams.  The results might surprise you.

MLB

In March of 2012, Forbes valued the Los Angeles Dodgers at $1.4 billion.  The owner at that time, Frank McCourt, paid just $355 million for the team in 2004.  McCourt agreed to sell the team in late March to an ownership group that included NBA hall of famer Magic Johnson and longtime baseball executive Stan Kasten. The reported sale price was $2 billion dollars, shattering the record for the sale price of a professional sports team while allowing McCourt to enjoy a very generous profit.

Despite the large amount of money invested in purchasing the team, the franchise has yet to become legitimate contenders for a Major League Baseball championship. While the Dodgers made a splash at the MLB trade deadline, hauling in the large contract of former Marlins all-star Hanley Ramirez and despite a winning record, the Dodgers failed to make the playoffs last year.

Before the 2012 season began, the San Diego Padres were valued at $458 million dollars by Forbes.  In a season of struggles with the team finishing second to the last in the NL west division, the Padres were sold toward the end of season.  The sale price?  $800 million dollars, paid by an ownership group headed by beer distributed Ron Fowler, nearly twice the amount the previous owners paid just three years earlier.  Prior to that, the team was purchased in 1994 for only $94 million.

NBA

In 2012, Forbes listed the Memphis Grizzlies franchise value at $269 million, making it the second lowest valued team in the NBA (only the Milwaukee Bucks had a lower value). Former Grizzlies owner Michael Heisley entered into a sales agreement with Robert J. Pera, founder and CEO of the Ubiquiti Networks, in June with a purchase price of around a reported $350 million dollars.  By October 30th, the official sale price was listed at $377 million dollars. Heisley purchased the team in 2000 for $160 million dollars, netting a profit of roughly $217 million dollars.

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Is LeBron James Underpaid? ESPN the Magazine Thinks So

The average Major League Baseball salary is expected to be nearly $3.5 million in 2012, up 4.1% from last year, the steepest annual increase since 2008….To put that into perspective, consider Babe Ruth earned just over $910,000 TOTAL throughout his 22 year big league career (according to baseball-reference.com).  Yet a story published in ESPN the Magazine‘s recent “Money” issue argues many of today’s pro athletes are actually underpaid.

Here’s the thing.  They actually make a pretty compelling case.  In a market analysis conducted by ESPN, the magazine identifies the most undervalued and overvalued “assets” in the industry today.  To illustrate the point, the Mag points out that a recent survey conducted by Yahoo! Finance and Fitness magazine suggests Americans think LeBron James is the most overpaid celebrity not named Snooki or Kim Kardashian.  The Mag counters by suggesting that, while earning $16 million this season, LeBron would actually be worth an estimated $45 million on the open market if you consider the factors that prevent players from truly maximizing their salaried earning potential such as arbitration, the draft process, salary caps and luxury taxes.  Do these restrictive “policies” indeed prevent players from being compensated commensurate for what they are actually worth?  They do, according to ESPN the Magazine, primarily because owners of professional sports teams are in total control.

Also among the sports business assets described as “undervalued”, Albert Pujols (generated $93.3 million in value for the Cardinals the past three seasons while the club paid him $43.5 million), Danica Patrick (the 37.5 minutes Patrick’s GoDaddy car was on-screen during the Daytona 500 broadcast was worth nearly $12 million in exposure), and the commissioner of each of the “big four” professional U.S. sports leagues (according to Forbes, the value of the 122 major sport franchises has increased by $10 billion to a total of $70.5 billion over the past five years).

While the Mag suggests many in the sports biz are undervalued, the story also presents a case for those assets that are overvalued.  One such asset would be MLB closers, including Mariano Rivera (pre-injury).  As the article describes, “He became the Yankees closer in 1997, and since then, New York has won 97.2 percent of games it led entering the ninth. Meanwhile, the lowly Pirates have won 94.7 percent of those games with studs such as … exactly.”  The story also suggests assets such as “big-name managers” (apparently no statistical correlation exists between managers and player performance) and NBA draft picks chosen after the first five selections would also qualify as overvalued.

While most fans will likely cite evidence to the contrary, the “Money” issue does provide a strong position that many professional athletes are actually underpaid.  Either way, it is an interesting article that offers a different perspective on the “overpaid athletes” topic that has long been a lightning rod for criticism among sports fans.  If you aren’t a subscriber, I’d recommend grabbing a copy at the nearest newsstand.

 

Around the Horn: April 17th

Groundbreaking news from the racing world:  Announced today, the Ford Focus will become the first ever electric car to lead the field as the pace care at a NASCAR event during the April 28th Sprint Cup race in Richmond.  The decision drives homes NASCAR’s continued emphasis on green initiatives, but Ford has the most to gain by showcasing an electric model and educating a large number of consumers about new technologies.

Today a Kenyan runner won the men’s division of the Boston Marathon, marking the 19th time in 22 years that a Kenyan has won the prestigious race.  A Kenyan runner also finished first in the women’s race, the 3rd time that has happened in the previous 5 years.  The big winner, however, is the city of Boston.  According to estimates from the Greater Boston Convention & Visitors Bureau (via myfoxboston.com), the race was expected to bring in over $137 million to the Greater Boston area, an economic impact roughly equal to that of a Final Four.

With 22 million hits already, I must be one of the last to see this TNT viral video…however, if you are like me and hadn’t seen it yet, you should definitely check it out.  The stunt provided a brilliant means for building buzz surrounding the launch of the station in Belgium…

Did the Planned Parenthood PR debacle back in January really result in a significant drop in participation rates for Susan G. Komen for the Cure events as USA Today is reporting?  If so, that’s the sad end result of a botched crisis management effort, providing a perfect example of why the “all publicity is good publicity” theory isn’t exactly spot on…

Last night, the world of entertainment marketing gave us one of the most innovative things we’ve seen in a while after a performance at the Coachella music festival managed to create a frenzied buzz among fans all over the Internet.  During a Dr. Dre and Snoop Dogg concert, a 3-D hologram of Tupac Shakur (who died 15 years ago) created the illusion of the legendary rapper performing live.  As a testament to the stunt’s overwhelming popularity, 2pac’s HOLOGRAM had nearly 3,500 followers within 12 hours after his “appearance” on stage…

The Twitterverse (via @msament) presents this week’s installment of Things That Make You Go Hmmmmm:  “Misplaced priorities? KY public colleges fund subsidize athletics by $50M while state cuts school funds by $105M..http://bit.ly/HCr2ah.”

Around the Horn: March 28th

Anyone notice during the weekend March Madness telecasts that the NCAA is really pushing their social media platforms?  They even featured prominent courtside signage during games directing fans to visit the NCAA website (www.ncaa.org/socialmedia).  The page provides a portal to their Facebook, Twitter, YouTube and Foursquare pages. At first glance, it seems they could have done more with the page.  One glaring omission was the presence of a link to a Pinterest page.  Given the obvious emphasis on driving fans to visit NCAA social platforms, it seems capitalizing on the tournament hype would provide the ideal forum for the launch of a branded Pinterest effort.

Quick observation:  This year’s Final Four pits two adidas teams (Louisville, Kansas) against two Nike schools (Kentucky, Ohio State)…however, the early Vegas odds suggest it will be an all Nike final.

WOW.  Rick Pitino is now a masterful 10-0 in Sweet 16 games…guess that’s why they pay him the big bucks (he made $7.5 million last year).

From the Twitterverse (via @darrenrovell): “Nike bought Converse for about $300 million in 2003. Nike CFO Don Blair just said it is now a $2.5 billion global brand.”  Obviously more to the brand these days than just Chuck Taylors…

Stat of the Week (via Reuters news service):  UPS expects to handle 30 million items (from equipment & drug samples to beds for athletes’ village) for London Games…guess you could say their investment as a sponsor of the 2012 Olympics is already paying dividends.

According to a story published on Forbes.com today, if the Los Angeles Dodgers sale goes through (as it is expected to do), Frank McCourt will be the most financially successful Major League Baseball team owner in league history.  Perhaps Mr. McCourt knew what he was doing all along…

Around the Horn: March 27th

Mashable.com published an interesting story suggesting the Boston Bruins launch of a digital media “network” encompassing all their social media platforms as the first of its kind among professional sports teams…hard to believe that nobody has engaged in a similar initiative before but certainly seems likely that others will follow suit.  Either way, kudos to the Bruins for creating a mechanism that makes it easy for fans to streamline content from their various social platforms.

Tebow Mania is back, just in time to fill the void of over-the-top NY star gazing left by the fading Linsanity.  Immediately following the press conference introducing Tebow as the newest member of the New York Jets, Carnegie Deli (a NY restaurant institution) introduced a 3.5 pound Tebow-inspired “Jetbow” sandwich…the cost?  Just $22.22.

While we are on the topic of food, last year the Texas Rangers rolled out a 3 pound  pretzel as a concessions item. This year, the team introduced a 2 foot long hot dog slathered in chili, cheese, onions and jalapeno peppers, estimated to be between 2,000 and 3,000 calories.  The jumbo dog, called the “boomstick“, comes with a special carrier requiring handles and will set hungry fans back a whopping $26.

More food for thought:  Buffalo Wild Wings‘ stock (BWLD) price was trading at around $85 on March 6th, jumped to $91 on March 14th (the Monday when “bracket madness” began), and closed at almost $95 yesterday.  Savvy investors scooped up the stock for $55 per share back in October.

News from the world of entertainment…it was announced earlier today that all seven Harry Potter books will soon be available in digital format on Amazon’s kindle…how long will it take for J.K. Rowling to shoot up the best seller charts yet again?

Around the Horn: March 6th

Today the Oreo cookie celebrates its 100th birthday.  The popular dessert received plenty of attention on Twitter with “happy birthday” tweets coming from a long list (and wide range) of fans, including Yoda, the Food Network, NASCAR driver Ryan Newman, McDonald’s and PETA.  Among those not sending any birthday greetings, Shaq, Eli Manning, Apolo Ohno, the four athletes featured in last summer’s “Triple Double” promotional campaign…

From the Twitterverse, via @KellyTilghmanGC: “Honda Classic final rd ratings on NBC up 78% over each of last 3 yrs. It drew a 3.2 overnight, peaking at 4.3 #Tiger #Rory.”  Going out on a limb here but I bet event organizers, sponsors, NBC and advertisers were all pleased to get an up front and personal look at the “Tiger Effect.”

Apparently a Michigan man recently filed a lawsuit over movie theater concession prices…I’m sure stadium and arena managers will be keep a watchful eye on how that suit plays out.

Forbes recently published a fantastic piece that examines the Oscar winning documentary Undefeated (about a down-on-its-luck high school football team in Memphis) with an economic translation.  According to the story, “Life is economics, and Undefeated perhaps unwittingly offers clarity in certain areas.”