We recently sat down with Jeff Phillips, Managing Director in the Valuation Advisory group and expert within the area of professional sports, to discuss the factors that go into valuing a Major League Baseball team and how a World Series Championship impacted the value of the Chicago Cubs.
1. How many professional sports teams have you worked with in your career?
I have addressed valuation and stadium-related questions on more than 100 different occasions, involving more than 75 professional teams and sports-related businesses, including a number of Major League Baseball teams.
2. What are some factors that you look at when you value an MLB team?
Valuation of sports teams are driven by a number of factors. Supply and demand is one of the primary drivers. There are very few sports teams available for sale at any point in time. The buyers of these assets are generally ultra-high net worth individuals and thus, the buyer pool is often driven by the overall health of the economy and the available wealth to pursue these types of investments. When the economy and stock markets are strong, the value of sports assets will generally appreciate accordingly. That being said, there are a number of other factors that drive the value of a specific franchise. These include league specific factors such as the health of the league; the status of collective bargaining agreements with players, the size of league-wide broadcast agreements and the level of revenue sharing within a league. Other factors may impact the value of a specific team within a league. These factors include local broadcast agreements, the level of stadium amenities (luxury suites and other premium seating) and other market-specific revenue streams (sponsorships, naming rights, etc.). MLB has a level of revenue sharing among its franchises that helps smaller market teams be competitive, but at the same time encourages franchises to maximize their revenue streams. This results in a fairly wide range of franchise values within MLB.
3. Does social media have an impact on MLB team value?
Content delivery in the digital world is continuing to evolve. Whether it consumed through such media as Twitter or through an online “skinny bundle”, sports content and other programming is in a very dynamic place. MLB is one of the leaders in this area through its investments in MLB Advanced Media and BAMTech, leading to these assets representing a material portion of the value of an MLB franchise. As teams and leagues continue to understand the changing platforms and begin to monetize these assets (content), they can become an even bigger driver of value in the future.
4. How does a World Series win impact the value of a baseball team?
A World Series win can have a wide range of impact on a franchise’s value. A successful team can impact various revenue streams for an MLB team. Success on the field can lead to greater demand for tickets and other revenue streams within a stadium and also increase the value of broadcast rights and sponsorships. If a team does not have a long history of success or fan enthusiasm, the World Series win can be quite impactful. The team will generally sell more tickets and have greater demand for sponsorships in the near term. Teams that have expiring broadcast agreements may be able to leverage this timing into more favorable terms. So essentially it comes down to timing. Teams with a long history of high attendance and strong demand may see only a marginal impact on franchise value, but teams that are building success and leveraging this success into increased demand for their product can see a significant impact on franchise value. Teams in larger markets may be able magnify this even more as higher levels of corporate support and disposable income can help to turn this increased demand to even higher levels of revenue.
5. According to Forbes, the value of the Chicago Cubs is nearly $2.7 billion. How did the Cubs’ 2016 World Series championship impact the franchise’s value?
The Cubs have a long history of successful seasons in terms of attendance and fan loyalty. This has occurred despite the absence of a recent World Series Championship. Obviously that all changed in 2016 with the Cubs winning the World Series. This victory, with the help of some very young talent to hopefully continue its strong performance into the near future, provides the foundation for a significant increase in its franchise value. While one might think that the Cubs have only a moderate ability to materially increase its revenue streams given its historically strong attendance, Wrigley Field is in the midst of a long-term renovation plan that will generate new and greater revenue streams (especially if the team continues to win). With winning comes greater opportunities to leverage more lucrative sponsorship opportunities. The Cubs will also be in a position to package their broadcast rights after the 2019 season. The World Series Champion will certainly have a strong appeal when they begin to market these rights. The timing of the Championship has been beneficial for the Cubs and should allow them to leverage it into an increased franchise value.