How Are Sports Teams Valued? 

As the saying goes, the quickest way for sports team owners to make a million is by investing two.

This comes as part of the long-standing view that owning a club or franchise isn’t a viable investment opportunity. However, this position is changing.

As the increase of private equity in football has shown, sports teams are increasingly seen as worthwhile assets, and are now being bought and sold for billions.

But how do investors decide how much a team is actually worth? This article will outline what goes into the valuation of sports teams, and what makes them different to any other industry.

How Sports Teams Make Money

While sports franchises have unique characteristics, revenue streams remain a significant factor when it comes to valuing the asset.

An important source of income is broadcast rights, which make up a large portion of each club’s cashflow. These deals are attractive to investors, with one example being the Premier League’s 2023 agreement with Sky Sports that reached £6.7 billion.

These deals, if part of long-term agreements, provide predictable and reliable income over multiple years, and as the demand for watching sport increases, so too do the media rights and team values as a result.

Other important deals that impact the valuation of sports teams are commercial partnerships. Spanning shirt sponsors to stadium naming rights, the value of these deals further impact how much value investors see in a team. 

A third revenue stream that influences billion-dollar valuations is ticket sales. While the actual income from this is important, it is equally valuable as an intangible sign of fan loyalty, and the supporter base plays a large part in how much a team is worth.

What Makes Sports Teams Different Assets

This fan loyalty is precisely what separates sports from traditional businesses. Adding to the company’s brand value, sports fans tend to be loyal to their teams regardless of performance, which is not the case in other industries where the average consumer will be happy to switch companies should they not be happy. 

Not only does this loyalty make long-term revenue, such as ticket sales, more consistent and reliable, it is also important for the team’s value away from the account book. Clubs with loyal fans around the world can generate traction and attention, and therefore later income through sponsorships, particularly in the age of social media, which is also true for the value of athletes themselves.

This is why sports teams that are also globally-recognised brands can be sold at a premium, even when performances on the pitch aren’t as strong.

The Valuable Assets of a Sports Team

Other important contributors to a team’s value are the assets they possess. Stadiums are a primary example, which, as well as the typical fixtures, can host concerts and other sports. Tottenham Hotspur do just this, with estimates putting their income at around £2 million per concert, while their current deal to host NFL games adds to this.

Though new owners tend to try putting their own stamp on the roster, the inherited playing squad still plays a role, and superstar names who can be traded or sold for high value are a natural part of the team’s valuation, as well as the contracts they’re on.

How are the Valuations Actually Calculated?

There are several methods that can be used to value a sports team, including EBITDA and revenue multiples.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) is a metric that measures the operating costs and profitability of the business. This is a useful figure because it highlights the team’s financial performance without including factors such as interest or amortisation, which can cloud the actual figures simply due to the accounting choices of the previous owner. An example in football would be the contract length of a player changing how long their fee is amortised over, which is not relevant when wanting to find out operating cost.

Revenue multiples are another method. This is effectively the number of years of a team’s revenue that would justify its selling price. Often calculated by looking at the sale of similar teams, if a sports team generates £400m in yearly revenue, and similar teams are sold for £2 billion, the revenue multiple would be 5x. This provides a rough estimate based on what other teams in the same price range are selling for.

However, for both methods, teams that are making a loss can still be presented as financially stable, which is why they provide rough starting estimates as opposed to strict guidelines.

For students aspiring to work in the global sports industry, understanding how teams are valued provides insight into many areas of the sector from sponsorship to club operations.

If you’re interested in deepening your understanding of the business side of sport, explore our tailor-made course offerings.

Article by Zakaria Anani