How do you truly value a sports team? It’s a question that’s become even more pertinent when you consider the stratospheric heights that valuations have reached over the past few years. Look at the Manchester United saga; the Glazers have courted plenty of suitors to part with $6bn of their hard earned cash in return for one of the mos§t recognisable sports brands in the world, ranging from Britain’s richest man, to sovereign wealth funds from the Middle East. The numbers border on incredulous, particularly when you consider that the value of the club has soared by more than 30 percent in the last year. Is it undervalued? Is it overvalued? Or just misvalued?
Here is the issue: sports teams, let’s call them assets, are still being audited using traditional valuation methodologies which focus on revenue, market size and brand value. This is too simplistic and doesn’t analyse the other factors that contribute to the success – and value – of sports assets. Let’s take a look at what the real drivers of value are in the sports industry.
Evolving Ownership And Skyrocketing Values
In the past three years, we’ve seen a shift in the typical profile of a sports owner; it’s no longer the single ultra-high-net-worth families or entities – instead we’ve seen more diverse, minority ownership structures. This, in part, has been driven by skyrocketing valuations, making it incredibly difficult for these assets to change hands to another single entity. Chelsea Football Club’s $3.2 billion sale is a good illustration of this trend.
The pandemic also showed just how resilient sports can be; while the rest of the world stopped, the majority of sports went on. Sure, ticket sales took a hit but fans, often at home under lockdown rules, still had an insatiable appetite for sports content. Balance sheets shifted, with technological advancements like connected TV creating new revenue streams for sports assets off the field. In came new, alternative, investors who saw an opportunity to ride the coattails of the content juggernaut. The net result? Valuations went through the roof.
The Shortcomings Of Traditional Valuation Methods
Sports assets are traditionally valued based on the sum of values from revenue generated by the team, the franchise’s market size and location, the value of the…
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