The current global pandemic has changed not only how people conduct business, but also how they spend their leisure time. Closures of public venues and social distancing restrictions severely limit access to many popular activities. Virtually every franchise and sporting event has been impacted — from the NFL to Preakness. Players and fans have certainly been affected, but how about franchise valuations?
Traditionally, sports franchise operations depended on various different streams of revenue to maintain profitability. They can prove to be great investments because there are multiple opportunities to secure income. These options provide stability and act as both passive income as well as an ongoing marketing strategy.
Buyers must consider not only the current state of the economy, but also the overall profitability of the franchise itself. Most sports franchise valuations consider the profitability of these contingencies:
- Human Capital
Fans, coaches, and the public in general take a serious interest in the lives and habits of professional athletes. The processes of scouting, recruiting, and drafting players are a lucrative undertaking in the world of sports. As much of the world remains on lockdown due to COVID-19, most live sporting events have been cancelled or postponed. Arenas, stadiums, and even fields that host games are either temporarily closed or are operating at a fraction of their normal capacity.
- Branded Merchandise
Brand recognition is a huge part of every vital industry, and sports franchises are among the most profitable in this area. Branded apparel, promotional items, and team memberships account for millions in annual sales numbers. Sports franchise valuations encompass all forms of active, passive, and residual income. Contracts involving franchise merchandise and other marketing efforts have remained largely unaffected by the pandemic.
- Media Outlets
Televised sporting events offer income opportunities for franchises and advertisers. Partnerships between sports franchises and sponsors create residual income benefits for both parties. Live television and radio broadcasts attract robust audiences who welcome ways to engage in the franchise. Online streaming events and replay parties are increasing in popularity and the rise in social media marketing has provided rich returns for sports franchises.
Recent transactions, like the sale of the North Carolina Panthers in 2018, have some investors wondering about the validity of sports franchise valuations. How will economic slowdown impact these purchases? If history is any indication, NFL and MLB ownership will outpace economic downturns and inflation. The Miami Dolphins franchise was scooped up by Stephen Ross in 2008, at the peak of a monumental recession. Fans prove to be loyal to the franchise as well as their respective teams.
Despite historical data and the stability of sports franchise operations, leaders in the sports industry should procure expert advice when it comes to valuations. Based on decades of experience, our valuation experts at Appraisal can help with fairness opinions, purchase price allocations, and so much more.