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Friday, March 19, 2021

Has the Great Recession put some truth to big-league sports owners’ perpetual claims of red ink? Recent and pending franchise sales among the Big Four team sports point to lower valuations:

For decades, sports teams weathered recessions remarkably well. Ticket and advertising sales sometimes dipped, but teams continued to sell at a profit despite the headwinds buffeting the broader economy, according to research by Moag & Company, which brokers sales of teams.

But John Moag, the company’s chairman, said this recession had been drastically different. “The impact of the stock and real estate devaluation on franchise ownership is indirectly, but very certainly, impacting the stability of a number of professional sports franchises,” he said.

Real estate is the main factor here. The simplest equation for assessing the value of an NFL, NHL, MLB, or NBA team is the property that comes with it — and that doesn’t refer to the players or equipment. For operational purposes, major-league sports franchises are intertwined with the stadium/arena facilities in which the teams plays. If the barn’s value takes a hit — and commercial real estate has, indeed, been buffeted during this economic crisis — then it follows that the entire business entity, including the franchise, will also get downgraded. And in keeping with this level of integration, any team sale will include the arena (even if it’s a nominal “lease” which effectively gives the team owner control of and revenue from the facility). Add it all up, and team valuations that were approaching $1 billion a couple of yeas ago are now falling back (a bit).

While this impacts highly-leveraged owners, who suddenly have to come up with more hard cash, it doesn’t mean a sudden flood of red ink is flowing out of the big leagues. Team valuations are still healthy, with premier franchises like the Chicago Cubs and Montreal Canadiens commanding anywhere from half- to three-quarters of a billion dollars. And despite the ravages of the current market, the key to sports-team ownership remain enticing: Gaining access to prime, often scarce commercial property that generates tons of money. The revenue levels involved are still sky-high enough to make the usual cries of ownership poverty as hollow as they ever were (especially as they start to roll in during the NFL’s and NBA’s forthcoming labor negotiations).

by Costa Tsiokos, Fri 03/19/2010 11:16am
Category: Business, Sports, SportsBiz
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