Is there a bubble in sports franchise prices?
Some comments from Arnold Kling on whether sports franchises make money.
In the post, Kling is asked whether sports franchises constitute a speculative bubble. After all, many owners lose money from operations and only profit from increases in the value of the franchise.
Kling responds that there is no bubble, with an argument that (boiled down) says that teams actually make money in terms of EBITDA (before interest on any debt). I agree with him that there's no bubble, but for different reasons.
For one thing, even if teams are profitable, there could still be a bubble – some of the tech stocks that crashed in 2000 were indeed slightly profitable. You don't need absolute losses for an asset to be overinflated.
But stocks are different than sports teams. Stocks have no consumption value, and are valued only for their ability to produce an income stream. Sports teams, on the other hand, are fun to own. My feeling is that it's that the consumption value of being a happy owner that keeps the prices high ... and I think the prices are reasonable, as I argued here.