Is Mickey Mantle one of the best ballplayers of all time, or one of the worst?
He was inducted into the Hall of Fame in 1974 and elected to the Baseball All-Century Team in 1999, but as he Mickey himself said, "During my 18 years in the pros, I came to bat almost 10,000 times. I struck out about 1,700 times and walked maybe 1,800 times. You figure a ballplayer will average about 500 at-bats a season. That means I played seven years without ever hitting the ball."
The quote reminds me of how perspective plays a role in interpreting data. This truism factors prominently in assigning value to a sports team, for in this arena, true value can exceed revenue projections.
In September, Pittsburgh Steeler TJ Watt Signed a four-year, $112 million contract. Numbers like this lead many to believe that owning a sports team is an incredibly lucrative endeavor. That may be true, but I would argue that perspective plays a large role in determining value.
How much money are we talking?
Sports teams are a formidable financial engine in America. More than 150 professional teams, based in more than 50 cities, in 5 major leagues, bring in annual revenue of approximately $16 billion.
Each of the five sports leagues generate hundreds of millions of dollars in revenue each year. The National Football League reigns as king in the revenue department. The Dallas Cowboys are the most valuable sports franchise, appraised at $6.5 billion in 2021. The least valuable team in the NFL, the Buffalo Bills, is valued at a mere $870 million.
In 2021, the average value of a major league basketball team is $2 billion. Still, some sports enterprises are, shall we say, more affordable.
In recent years, interest in minor league sports has increased. America's insatiable appetite for sports entertainment and cheaper tickets make minor league play attractive to the masses. Technological advances make media support, broadcasting, and marketing efforts relatively affordable and an increasingly attractive option for would-be team owners and investors.
Though far from the numbers associated with major league sports, the value of a minor league franchise is still significant. Most minor league sports franchises are valued at $20 million to $30 million. However, buy-in for a minor league team that had been affiliated can be in the $6 million-to-$8 million range. Leagues that were affiliated but are now independent are commonly valued in the $3 million-to-$4 million range.
Establishing the worth of a sports team
A general rule of thumb is that sports teams are worth two to six times the revenue they generate annually. Revenue is a broad term that includes income from merchandise and media streams, stadium sponsors and fees, ticket sales, and revenue from the league if the team is part of a franchise. What follows are five factors that help determine the value of a sports team.
- Location: Weather, access, and city size will impact the value of a franchise. For example, as a rule, inclement weather negatively impacts travel to certain areas--it is easy to see how this can make it difficult to meet attendance targets. Chicago and Green Bay are exceptions to the general rule. The ease of access to a sports center also plays a factor. Locations that are serviced by large airports and multiple interstates are prime locations (Dallas and New York are good examples). On the opposite end of the spectrum are islands (Hawaii) and rather remote areas such as Bismarck, North Dakota. And city size plays a factor in that, generally, the larger the surrounding population, the easier it is to fill stadiums and market product locally. City size, weather, and access can factor prominently in assessing value.
- Infrastructure: The age and size of the arena or stadium, nearby hotels, restaurants and entertainment options for travelers, good roads, an abundance of rental car options, shuttle service from airports, and proximity to airports all contribute to the value of a team. Cities with large airports are especially attractive.
- Community Connection: As a rule, high-value teams expertly market how they serve and engage their communities. Examples include team members speaking at events and launching local charities; and team colors, clothing, and bumper stickers and team signs with team-related slogans (such as Seattle's "The 12th Man") being popular in the region.
- Economy: A general rule of business is that values (prices) peak when the economy is strong.
- X factors:
- A love for the sport: Sports can be enjoyable and relaxing to watch, but owning a team is a fast-paced, high-stress proposition. Players can be temperamental, the public can be fickle, commentators and sportswriters can be merciless, and the quest for the win is fierce. A love for the game must supersede the stresses faced by those who play at this level. Owning a team is not for the faint of heart. The X factor (your love for the game) adds X dollars the value assigned to a team via the more traditional matrix of revenue sales, economy, community connection, location, etc.
- Tax benefits. Interestingly, many trophy assets do not produce huge income streams. Most professional team owners fall into the category of the very rich. Those who operate at this level are often looking for tax benefits and write-off options. If you love the game and are looking for a fantastic gross tax adjustment option, buying into a minor or major league team may be a good option for you.
It is said that when you do what you love, you'll never work a day in your life. It's not so much about what job you have or what you choose to do in life; it's how you play the game.
Special thanks to Mike Shapiro, president of the Pioneer Baseball League, who provided information for this post. Click here for additional information on how to value your business.