CBV

INSIGHTS
JULY 2023

VALUATION OF SPORTS TEAMS

AND FRANCHISES
Jeff Harris
Luc Ryu, CPA, CBV
Marco D’Elia, CPA, CBV
CBV
INSIGHTS

About Chartered Business Valuators Institute

(CBV Institute)
CBV Institute leads the Chartered Business Valuator (CBV) profession – Canada’s only designation dedicated
to business valuation since 1971. With CBVs and Students across Canada and around the world, we uphold the
highest standards of business valuation practice through education, accreditation and governance of the CBV,
for the benefit of the public interest. The integrity of the CBV accreditation is grounded in the rigorous CBV
Program of Studies and upheld by the Membership Qualification Examination and Code of Ethics.

CBV Insights
CBV Insights is a thought leadership periodical published throughout the year, sharing relevant insights on
emerging topics of interest to our network and the general public. The opinions expressed by contributing
authors in CBV Insights periodicals do not necessarily carry the endorsement of CBV Institute.

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 VALUATION OF SPORTS TEAMS AND FRANCHISES

INTRODUCTION
During times of global and regional division, sports are one of the few constants that bring us together. Transcending
language, borders, and cultures, sports help to bring a common ground for otherwise different communities. Sport truly is
a unique and unifying platform for communities, cities, and countries. However, the business aspects driving valuations are
not widely understood. As fans cheer for their favourite teams and players, an entirely unique economic ecosystem makes
it all possible. Over the past couple of decades, the growth in the value of sports franchises has noticeably outperformed
the S&P 5001, driven by increasingly lucrative media rights deals, the globalization of content, and an overall resilience to
macroeconomic downturns. As such, sports assets are attracting increasing attention from institutional investors.

Growth in Sports Franchise Value2

(USD billions)

12-year CAGR
$7.0 13.7%

$6.0 12-year CAGR

20.4% 12-year CAGR
$5.0 14.6%

$4.0

$3.0 12-year CAGR

13.3%
$2.0

$1.0

$-
2010 2022 2010 2022 2010 2022 2010 2022
NHL NBA MLB NFL

Media rights, revenue sharing, salary caps, luxury taxes, collective bargaining agreements: these are all terms that the casual
sports enthusiast might hear, but how does it all come together in valuing a sports franchise?

The difficulty in estimating the value of a sports franchise lies in the inherent opacity of the industry. With a limited number
of franchises in every major league, and with only a few of those companies publicly releasing their financial statements
(if any), it is relatively difficult to understand the key financial drivers of a sports franchise, and more importantly to identify
and compare subject companies against relevant guideline public companies.

However, this article aims to demystify the economics of sports franchises and provide an introduction into the world of
sports franchise valuations.

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 VALUATION OF SPORTS TEAMS AND FRANCHISES

Common valuation approaches

and methodologies
In the context of sports franchise valuations, the market approach, specifically the precedent transactions method, is
typically used as the primary valuation approach. This is primarily driven by the fact that the intrinsic value derived
from the income approach is an imperfect way to capture the value ascribed to sports franchises observed in market
transactions.
Additionally, some sports franchises fail to generate consistent and reliable positive operating cash flows, or they
generate marginally positive operating cash flows, which make an income approach difficult to implement in most
situations.
This disconnect between a sports franchise’s intrinsic value derived using the income approach and transacted values
observed in the market can be attributed to a variety of factors unique to sports franchises such as:
• Trophy asset / emotional value - An investor’s passion for the sport, specific locale, franchise and/or
the prestige associated with owning a sports franchise can drive the price paid for a sports franchise up
significantly.
• Scarcity value – Sports franchises are relatively unique in that there are a finite number in any given league,
and only a few of these may be available for sale at any given time. Combined with the sustained high level of
investor demand, this scarcity creates a supply / demand imbalance, which has ultimately driven strong value
appreciation of sports franchises over time.

In this manner, the prices that are transacted in the market may oftentimes be impacted by non-quantifiable factors,
biases, or synergies such as those listed above, which ultimately drives the inherent disconnect between “price” and
“fair market value”.3

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 VALUATION OF SPORTS TEAMS AND FRANCHISES

Market Approach

GUIDELINE PUBLIC COMPANIES

Before getting into the precedent transactions method, it is worth addressing the guideline public company method,
although its use is relatively limited. There are a small number of publicly traded sports franchises, most of them being
European soccer clubs. Even when valuing a European soccer club, implied valuation multiples from guideline public
companies tend to exhibit a significant discount relative to transacted values in the market. This is primarily driven by a
minority discount inherent in public markets. Most publicly traded sports franchises have a relatively small trading float
and more importantly, have a small number of controlling shareholders. These controlling shareholders tend to hold their
stakes for long periods of time and control the day-to-day operations of the franchise. Therefore, the discount applied in
public markets reflects the limited ability for minority shareholders to maximize value and liquidity through a private buyout.

PRECEDENT TRANSACTIONS
Turning back to precedent transactions, the most common valuation method in the world of sports franchises, the
starting point is identifying transactions with readily available and reliable data for comparable sports franchises.

Screening for guideline transactions and sourcing reliable data

Screening for guideline transactions typically begins with sourcing transactions in the same league.
Given the degree of public interest in sports, sports franchise transactions tend to be relatively easy to identify, with
headline prices typically shared in the public domain. With that said, it can be challenging to verify the accuracy of
reported prices without access to confidential transaction details, and it may be unclear whether headline prices reported
are an equity price paid or an enterprise value.
In addition, most sports franchises are privately owned businesses and therefore, sourcing reliable and accurate financial
information to derive implied valuation multiples can be difficult. With that said, publications like Forbes and Sportico
publish headline financial information that can be used to calculate broad (or general) implied valuation multiples.

Recent select sports franchise transactions4, 5, 6, 7

TEAM LEAGUE DATE REPORTED PRICE (USD)

Washington Commanders NFL May 2023 $6.0B

Nashville Predators NHL April 2023 $0.9B
Phoenix Suns NBA December 2022 $4.0B
Denver Broncos NFL June 2022 $4.7B
New York Mets MLB November 2020 $2.4B
Kansas City Royals MLB November 2019 $1.0B
Brooklyn Nets NBA August 2019 $3.3B

Determining implied multiples

As previously mentioned, some sports franchises are either loss making or generate marginally positive operating
profits. As a result, it is often difficult to determine an implied earnings-based multiple (e.g., EBITDA) and therefore,
the default implied multiple is typically an enterprise value (EV) to revenue multiple.

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 VALUATION OF SPORTS TEAMS AND FRANCHISES

Normalized revenue Calibration of market multiples

With guideline transactions screened, reliable data sourced Arguably the most difficult part in any market approach
and implied valuation multiples derived, the next step is valuation is the calibration of observed market multiples
to determine normalized revenue for the target sports to the target business. The same can be said, and is
franchise. Typically, last-twelve-months (LTM) revenue is likely exacerbated, when it comes it sports franchises.
used as a starting point for most sports franchises with Conceptually, this part of the process involves comparing
normalization adjustments made to reflect the steady- the target sports franchise against its peers across
state, long-term revenues generated by the target sports key value drivers and from this analysis, selecting an
franchise. These normalization adjustments can relate to appropriate multiple or range of multiples. The key
several franchise and/or league-wide developments such as: value drivers that are most relevant will vary by sport
and geography but broadly speaking, a potential buyer
•  djustments for a new broadcasting or
A
would seek to assess the strengths and weaknesses of the
sponsorship deal that has been secured but has
target sports franchise relative to the comparable sports
not come into effect in the historical period;
franchises at the time of their respective transactions,
•  on-recurring fees received, e.g., one-off
N across the following key value drivers:
expansion fees from creation of a new franchise
•  uality, degree of ownership and economics of
Q
that are distributed to existing teams;
stadium / arena infrastructure;
•  articipation in playoff games (or lack thereof);
P
•  trength and growth trajectory of the league in
S
and
which the franchise participates;
•  djustments for any changes in run-rate
A
• Strength and size of local market;
ticketing, gameday or sponsorship revenue
from progressed improvements to the target • Strength and size of fanbase;
franchise’s stadium / arena.
• Brand value;
• Operational efficiency;
• Profitability;
• Salary cap / financial regulation compliance;
• Collective bargaining risk / security;
• Historical team performance;
• Strength of players and associated player value;
• Strength of management team; and
•  layer development strategy, track record and
P
infrastructure.

Another important consideration in respect of sports

franchise valuations is the interplay between real
estate and sports franchises. Oftentimes and especially
prevalent for North American sports franchises, real estate
adjacencies will exist within transactions that warrant some
distinct, if not significant value considerations. These real
estate adjacencies can take the form of tangible, income-
producing real estate assets that are not used for sporting
purposes. On the other hand, these real estate adjacencies
can also come in the form of perceived synergies whereby
a sports franchise has a strong relationship with local
stakeholders, which can result in public funding for a new
stadium or public support for future income-producing real
estate developments.

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 VALUATION OF SPORTS TEAMS AND FRANCHISES

Income Approach
While the market approach is generally the main valuation approach used for sports franchises, the income approach
may provide an important sanity check on valuation conclusions. Additionally, the income approach, specifically
a discounted cash flow analysis, may be more appropriate for smaller sports franchises that are not as frequently
transacted by third parties.
As with any income approach analysis, the valuation outputs are only as reliable as the inputs, and as such, high levels of
scrutiny must be applied to the value drivers of the franchise. The following section will highlight key considerations for an
income approach valuation using a discounted cash flow analysis.

REVENUE
Sports organizations generally share similar revenue streams, irrespective of their sport, and size.
These revenue streams are:

Ticketing Revenue related to the sale of tickets • Ticket volumes are generally estimated as a
for live games in the form of season percentage of maximum capacity.
tickets, single game tickets, suite • Depending on the team, ticketing volumes and
sales, and other forms of ticketing. prices will have varying degrees of elasticity
depending on team success.

Broadcasting / Revenue related to league-wide TV • Broadcast figures are generally large, multi-year
League Distributions deals with national broadcasters contracts.
and sponsorship deals managed and • Renewal estimates, including both term and
distributed by respective leagues. amount, can be uncertain and can be impacted
by a number of factors.
In addition, franchises will generate
revenues from regional broadcasters,
which vary by franchise.

Game day Revenue related to other commercial • Attendance numbers are generally projected
aspects of game days, such as by applying a ‘turnstile’ factor to the ticketing
concessions. estimate used to drive ticketing revenue.
• Certain teams may have licensing agreements
with venues and/or retailers, and receive only
a portion of sales.

Sponsorship Revenue related to sponsorship deals • Estimates of future sponsorship generally

that leverage the team’s tangible and correlate to expected attendance, and therefore,
intangible assets team success.
• Most teams, irrespective of sport or league, will
have a minimum number of sponsorships that
are secured by long-term contracts (e.g., stadium
naming rights, title sponsors, etc.)

Merchandise Revenue related to the sale of team- • Certain teams and leagues may have licensing
branded merchandise agreements with retailers and manufacturers to
outsource merchandising business secured by
long-term contracts

The value drivers noted above will vary in terms of relevance across leagues and franchises. As an example, NHL franchises
are much more reliant on ticketing and game day revenue in comparison with NFL franchises that tend to rely more on
broadcasting revenue as part of their overall economic model.

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 VALUATION OF SPORTS TEAMS AND FRANCHISES

EXPENSES

The expenses for sports organizations are generally comprised of two major categories: team expenses and
business expenses.
Team expenses typically constitute the largest portion of total expenses, as they include the annual amounts of the
contracts paid out to players. In most North American leagues, a league-wide salary cap sets the ceiling for the total
annual player-related expenses8, while in other leagues, organizations must use discretion and optimize their decisions
to field the most competitive, but fiscally responsible roster of players.

Salary Cap by League, 2018 – 2022 (in USD)9 MLB10 NFL NBA NHL

250M

200M

150M

100M

50M
2018 2019 2020 2021 2022

We can look to publicly traded sports franchises, most of which play in top-tier European soccer leagues, to get a sense
of how much teams are generally willing to spend on their players. We highlight, however, that most European soccer
leagues do not implement a direct salary cap, and as such, these values may not be comparable relative to those observed
in North American sports leagues.

Select Player-Related Expenses by Team, as at June 30, 2022 (USD)11

TEAM ANNUAL PLAYER-RELATED EXPENSES % OF TOTAL REVENUE

Manchester United $401.8M 65.7%

Juventus $326.0M 71.3%
Borussia Dortmund $242.5M 55.9%
Ajax $114.7M 57.8%
Benfica $118.1M 66.5%

While player salaries comprise the largest component of team expenses, a major business expense for sports franchises
is venue cost. Most professional sports franchises will either own or lease their arena / stadium venue. This is a key
distinction that not only affects the related expenses, but also impacts the fee structure of certain revenue streams.
Additionally, there are further considerations, such as staffing levels during game days, insurance and health benefit
requirements for players, travel and lodging expenses, and administrative staff required for the operations of the
organization. Certain organizations may have minimum requirements as mandated by the league, or a collective
bargaining agreement.

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 VALUATION OF SPORTS TEAMS AND FRANCHISES

CASH FLOW ADJUSTMENTS

Given that many sports organizations sell tickets in advance, working capital adjustments may be required depending on
the valuation date.
The impact of capital expenditures for most sports organizations will be determined by their venue ownership strategy.
To the extent that franchises lease their venues or investments have recently been made to stadium / arena infrastructure,
capital expenditures may be minimal.

DISCOUNT RATE

While there is always subjectivity when it comes to estimating an appropriate discount rate to apply in a DCF-based
valuation, forecasting cash flow for major sports franchises is fairly straightforward. Excluding potentially large and
unpredictable swings in broadcasting and sponsorship revenues, most other key assumptions can be supported by
historical analysis. While fledgling leagues and organizations will likely have more difficulty attracting fans and viewers
in their early years; this emphasizes the importance of conducting adequate due diligence in advance of investing in and
understanding the pathway to profitability for the team.

EXIT MULTIPLE

For major sports franchises, the true difficulty in applying an income approach analysis is determining an appropriate exit
multiple. Generally, the practice in the industry is to assume the sale of an organization within 10 – 15 years, rather than
apply a constant rate of growth, such as is done with the Gordon Growth Model.12

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Concluding Thoughts
With so many tailwinds in respect of sports investment trends, whether it be the rise of women’s sports, sports betting,
the proliferation of sports-focused private equity funds, or others, the valuation of sports franchises will continue to be
a hot topic. Stakeholders may require a robust valuation for a variety of different reasons, which can range from tax,
financial reporting or M&A purposes. As a result, and keeping in mind the nuances and considerations that are unique to
the sports industry, sector-specific knowledge is vital in order to provide accurate insights needed to arrive at a robust
and sensible valuation conclusion.

REFERENCES

1. 
What’s behind the exploding prices of pro sports franchises? TheRinger.com, November 28, 2022:
https://www.theringer.com/sports/2022/11/28/23472636/sports-team-franchise-valuation-sale-prices.
2. Data is based on valuations conducted annually by Forbes and represents the average of the five most valuable franchises as at each date.
Team values are enterprise values (equity plus net debt) and include the economics of the team’s stadium (but exclude the value of the real estate itself),
based on comparable transactions.
3. Fair Market Value is defined in the International Valuation Glossary as the price, expressed in terms of cash equivalents, at which property would change hands
between a hypothetical willing and able buyer and a hypothetical willing and able seller, each acting at arms-length in an open and unrestricted market, when
neither is under compulsion to buy or to sell and when both have reasonable knowledge of relevant facts. (International Valuation Glossary - Business Valuation,
updated February 24, 2022 p. 5: https://cbvinstitute.com/wp-content/uploads/2021/11/International-Valuation-Glossary-Business-Valuation_EN.pdf).
4. Commanders selling for $6 billion: Where it ranks among most expensive American sports franchise sales, CBSSports.com, April 13, 2023:
https://www.cbssports.com/nfl/news/commanders-selling-for-6-billion-where-it-ranks-among-most-expensive-american-sports-franchise-sales/.
5. The most expensive sales of NBA teams ever, Hoopshype.com, January 2, 2023: https://hoopshype.com/gallery/the-most-expensive-sales-of-nba-teams-ever/.
6. Breaking news: NHL team sold for record price, BladeofSteel.com, April 11, 2023: https://www.bladeofsteel.com/Breaking-News-NHL-team-sold-for-record-
price-226265.
7. Here are the most expensive U.S. sports franchise sales, NBCSportsBayArea.com, February 7, 2023:
https://www.nbcsportsbayarea.com/nfl/san-francisco-49ers/here-are-the-most-expensive-u-s-sports-franchise-sales/1418168/.
8. We highlight that the salary cap does not equate to the cash payroll paid by a team. A contract’s impact on the salary cap is calculated by dividing the total
value over the length (average annual value, or “AAV”), while the payment structure itself may be different (i.e., front-loaded, etc.).
9. Source: www.spotrac.com.
10. The MLB does not have a salary cap. The numbers presented in this table represent the luxury tax threshold.
11. Source: Capital IQ; financial statements of companies. Figures have been converted based on the exchange rates as at June 30, 2022 of €1.0000:$1.0489,
and GBP1.0000:$1.2159
12. The Gordon Growth Model is a formula used to determine the value of a stock based on a future series of cash flows that grow at a constant rate, and is
typically used to estimate a terminal multiple.

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