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.

Continue reading