Forbes NFL team values and the Picasso theory
Forbes has just released its annual listing of NFL team values, revenues, and earnings. The Dallas Cowboys “are now the single most valuable sports franchise on the planet,” at $1.5 billion. The average NFL team is worth over $950 million.
Just as for the NHL, the value of football teams is highly inflated given the amount of earnings. The mean team operating income in the NFL is $17.8 million, which is only a 1.85% return on the $950 million average market value. Put another way, the “enterprise
value ratio” of the average team is over 50 (950 divided by 17.8). Typically, publicly traded businesses are around 10.
I argue that teams are inflated because they are toys for the rich. If that’s the case, we can figure out how much those toys are worth. If the team owner invested his $950 million in an investment earning, say, 8%, he would have made about $76 million. Instead, he made only $17.8 million. So rich old football fans are willing to spend $56 million a year to own a team.
In hockey and baseball, though, the figures are much lower. NHL teams earn 2.3%, and so the cost of ownership is 5.7% of their $180MM value. That’s only $10 million. In baseball, the average team (I eyeballed the chart) seems like it’s worth about $400 million, and earns $16.5 million. That means the cost of ownership is $15.5 million a year.
My theory, that sports teams are like Picassos – owned for the pleasure of ownership – suggests that the cost of NFL and MLB teams should be closer than they are. You can own an MLB or NHL team for less than a third the annual cost of owning an NFL team. Why should that be so? Are NFL teams so much more fun to own? Is there really so much more demand that prices should be three times as high?
Another theory, from David Gassko (see comments), is that owners know they will eventually be able to sell teams at a hefty profit, and so don’t care so much about operating earnings. But that still doesn’t explain why NFL teams should be worth so much more, does it?