Michael K. Ozanian (Forbes) and Donald A. Erickson (Erickson Partners Inc.) did a session on trends and drivers of franchise values for major league sports teams. Of course, comps are extremely difficult to find in this area.
Ozanian explained the approach to valuing sports teams used by Forbes, which puts out an annual listing of team values. Data on revenue and expenses is collected from a variety of sources, such as the leagues themselves, team owners, bankers, and the like. In addition to profitability and outlook, a key measure is the multiple of revenue to determine enterprise value. Adjustments are made for certain future events, such as a new stadium or a new deal for naming rights. The multiples are based on historical transactions and Forbes trend factors. The average estimated 2013 revenue multiple for NFL teams is 4.0, which is down from 4.7 in 2008. For MLB, the average estimated revenue multiple for 2013 is 3.3, up from 2.6 in 2008.
Unlike the Forbes approach, a professional appraiser has the financials of the teams and many times access to transactions via the league officials and other sources, according to Erickson, who has extensive experience in sports franchise valuation. Forbes develops its estimates from many sources, typically without the assistance of team financials or some of the league information. Also, while Forbes utilizes a multiple of revenues methodology, professional appraisers use other methods.
Many teams own regional sports networks (RSNs), but the asset is treated separately for valuation purposes. The rights fees are included in the valuation but not a team’s equity stake in the RSN because that is how the teams account for the asset. Also, potential buyers may not want the RSN asset.
In terms of trends, media rights have been exploding, both on a local and national level. This is true even though ratings may be down in some cases. For example, ratings for the World Series are down, but ad prices are up. Why? Viewer demographics are changing, and the mix is more valuable. Plus, rights fees are increasing due to distribution to other devices, such as handhelds. “Media has been driving a tremendous increase in team value—and there’s no stopping it,” says Ozanian.