Despite politics, COVID, and a nearly 10% decline in revenue, NBA teams are still worth billions.
In the last decade, valuations for NBA teams have skyrocketed. From 2015-16, the value of the league's 30 teams shot up 74%. Today, they’re worth a combined $71 billion, with the New York Knicks at the top of the bill with a $5.42 billion valuation. But what exactly goes into calculating the value of a major basketball team? According to Peter Schwartz, senior sports valuations reporter at Sportico, there are several factors to consider. An NBA team is a business, after all, but unlike a typical company, a team is a little more financially complex.
“The way to value a sports team is less tethered to more traditional norms,” Schwartz said. “Looking at cash flow and operating profit and market comp certainly is important, but it's mostly about multiples of revenue, which you don't get in many other industries.”
When finding valuation, Schwartz looks at four key numbers: team value, national and local revenue, and the team’s performance from its last season. The fourth, team-related businesses and real estate holdings, involves valuing the entities owned by the team itself or the team owner.
The Golden State Warriors, for example, are valued at $5.2 billion (only the Knicks are worth more), but a whopping $1.5 billion of that price tag comes from real estate, like the new Chase Center, and other affiliated business deals. The Chase Center was called a “cash cow” by Forbes, thanks to features like its 32 courtside luxury suites that cost $1.3 million to $2.25 million per year.
“That's a separate valuation process than valuing the team itself,” Schwartz said. “That could be stakes in regional sports cable, television networks. That could be real estate. It could be options on additional property. It could be venture capital startups that are on the team's books. So there's all sorts of different things.”
Other factors, like politics and famous owners, are less important when it comes to valuing a team, often because they don’t have a direct impact on dollar figures. While outside events do play a role in NBA valuations, Schwartz says, the influence is a lot smaller than most people think. The political stances of players, for example, haven’t affected team valuations or television ratings.
“It was blown incredibly out of proportion,” Schwartz said. “The reason why the NBA had comparatively poor television ratings for its finals compared to past years is because nobody was used to a finals in October in a bubble, competing with playoff baseball, competing with a new slate of television. So every sport went down significantly in terms of television ratings. There was a lot of ink spilled at the time about this kind of correlation between the two.”
Still, Schwartz added that any large scale event is bound to affect the sports world. The coronavirus pandemic took a toll on sports globally, but the NBA has been hailed for its response to the crisis. And although the NBA’s overall revenue sank nearly 10%, the average decrease in team valuations was only 2%. According to Schwartz, the league is likely to bounce back after the pandemic.
“This is going to be a blip on the radar in terms of the actual valuation,” Schwartz said. “For owners who have to sell or want to sell or need to sell, I would anticipate next year would decline more than the 2%, which is not that significant given what happened in the world for this past year.”
That’s good news for investors and owners, who have seen remarkable growth in their initial investments over the years. However, many investors are more concerned with enjoying the game rather than making money.
“Over the last two decades, perhaps no sector has appreciated in value as much as sports teams,” Schwartz said. “But really what motivates a lot of those investors is to feel involved in the team to have the luxury suite and be an owner of a team. In many cases, they're expensive season ticket holders because they don’t have say over the control of the business.”