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.

34 year-old Pera earned a spot on Forbes list as one of the youngest billionaires in the world. Pera has welcomed NFL quarterback Peyton Manning, former NBA star Penny Hardaway, and Hollywood celebJustin Timberlake as minority owners in his purchasing group. The team is currently off to a hot start in the 2012-2013 season, and hopes to reach the Western Conference Playoffs for a third consecutive year.

Also according to Forbes, the New Orleans Hornets were valued at $285 million dollars at the start of the 2012 season. In April, Tom Benson, owner of the NFL franchise the New Orleans Saints, agreed to purchase the team from the league.  The NBA, which had been trying to sell the Hornets since buying the club from founder George Shinn in December of 2010, agreed to terms with Benson for a sale price of $338 million dollars.

While the league prepared to the sell the team, they assured a new stadium lease through 2024. This prevented re-location of the franchise from taking place. Benson, a New Orleans native, helped bring the Saints a Superbowl trophy post Hurricane Katrina. The organization has since landed the #1 draft pick in Anthony Davis, and recently announced a change in name from the Hornets to the Pelicans set to begin at the start of next season.

NFL

Despite only making the playoffs once since returning to Cleveland in 1999, the Browns were listed as the 30th most valued sports team in the world at $977 million dollars by Forbes.

Before the season began, former owner Randy Lerner agreed to sell the team in a deal worth a reported $1 billion. The team was sold to truck-stop magnate Jimmy Haslam Haslam is president and CEO of a company that is the largest operator of travel centers and travel plazas in North America. Lerner’s father originally purchased the inactive franchise from the NFL in 1998 for $530 million dollars.

NHL

In 2011, the relocation of the Atlanta Thrashers franchise to Winnipeg resulted in a $35 million increase over the Forbes valuation, thanks in large part to the new market’s hockey-friendly demographic. The sale price was ultimately worth $170 million dollars, including a $60 million relocation fee.

In the Jets opening year, the franchise enjoyed immense success, turning a $13.3 million profit in its first year and ranking 10th out of 30 NHL teams in net revenue.  Forbes has since re-evaluated the team’s value and lists the franchise at $200 million, a 22% jump from when the team was based in Atlanta.

Conclusion

Back to the original question.  Why, given the challenges in generating profits, would anyone actually want to own a major league sports franchise?  A simple analysis of franchise values (both Forbes’ estimates and actual reported sale price) suggests that franchise ownership of a professional sports team, over time, can lead to immense financial success.  Despite a struggling economy, all six franchises that recently traded hands, did so at a significant profit for the previous owner.  In each instance, the sale price came in higher than the Forbes’ estimate.  Regardless of the accuracy of Forbes’ estimates, many factors indicate the trend of rapidly increasing franchise values will continue.  For instance, whether or not the team wins (see Cleveland Browns), ownership will eventually pay dividends. The Dodgers’ blockbuster deal has set a whole new precedent into franchise values, raising the ceiling for everyone and the Winnipeg Jets move offers an example of how relocation can yield positive results as well. The bottom line is this, if there is money to be made, profit hungry business owners will be willing to pay a premium for the rights to own a professional sports franchise, even if the asking price is more than what Forbes’ estimates the team’s value to be.

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.

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