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So why exactly does Forbes value NFL teams at such high multiples relative to other leagues? There are some real, fundamental factors, but the best answer is either 1) the NFL is simply considered a much better long term bet than its competitors, or 2) Forbes is wrong.

Darren Rovell is supporting the latter, and he might be right. The magazine’s valuations of the Rams and Steelers seem high at the moment, although that could easily change. And we know for sure that their $642 million price tag for the Cubs is an enormous miss, considering Mark Cuban is supposedly bidding $1.3 billion.

But it’s still worth looking at some other fundamental figures, based on Forbes’ estimates. Here’s a spreadsheet comparing all four of the major sports leagues:

Forbes 2007-2008

Obviously, the P/E numbers seem a bit out of whack. MLB is noticeably lagging behind, and the NHL is way out in front. Is the NHL growing that much faster than the other leagues? Of course not.

So what’s going on here? Well, Forbes bases their valuations based on revenues, not earnings. They also use past franchise sales as benchmarks for their multiplier estimates.

So when we think of it that way, things start making at least a little more sense. The NFL has the highest P/R ratio at 4.69, followed by the NBA (3.13), MLB (2.58), and the NHL (2.46).

Now, I do believe that MLB teams are being systematically undervalued, and NFL teams a bit overvalued (albeit less so). The Cubs are a perfect real-world example of this, although there are other obvious hypotheticals here: are the Mets and Dodgers really worth less than the Arizona Cardinals? Doubtful.

There’s also another key piece that Forbes seems to leave out: MLB Advanced Media. That’s why the magazine’s total revenue estimate for MLB ($5.5 billion) falls short of the $6 billion estimate that MLB reported itself. This has a pretty substantive effect on franchise values; the thirty teams each own an equal piece of the company, which has been independently valued in the billions.

That said, an NFL team probably is, in general, a better long term bet than an MLB team; baseball tickets are far more elastic than football tickets, and NFL teams are more reliant on guaranteed income streams like television contracts.

But the difference is not exponential, as Forbes would have you believe. Baseball is still in the midst of a tremendous era of parity, which is boosting previously sagging brands all across the sport. And as I’ve written before, sports leagues are uniquely positioned as inventory providers in this advertising downturn, since their events are time sensitive. In other words, the volatility that was once priced into MLB franchise values is likely gone, at least for the foreseeable future.

The Cubs sale is a pretty good example of this. Cuban is just one of several bidders offering over $1 billion, and they’ve actually seen the club’s financials (whereas we only have the Forbes estimates).

Look for Forbes to drastically raise their MLB franchise values next April, and hopefully include the teams’ stakes in MLBAM. That should allow them to offer a much more precise set of data, because this year’s seems very shaky.

Feedback? Write a comment, or e-mail the author at shawn(AT)squawkingbaseball.com

2 Existing Comments

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  1. on September 12th at 06:56 pm
    Tom Stanley said:

    I was on Yahoo and found your blog. Read a few of your other posts. Good work. I am looking forward to reading more from you in the future.

    Tom Stanley

  2. on September 15th at 10:37 am
    Rodney Fort said:

    Seems clear to me that Forbes has dramatically altered its approach. In the past, they did use a simply multiple of earnings approach, adjusted by special stadium considerations. And their estimates were typically far too small since teams also generate values for owners that are not captured on the team’s own books.

    I find these latest NFL estimates to be much closer to what the market suggests. But this implies that Forbes may have adjusted its usual approach by trying to guess what these other values might also be. I’ve estimated these other values to be as much as 30% of sale value (averaging more like 18%). If Forbes now includes these, that would explain the one-year quite discontinuous jump in value estimates.

    The one-year jump clearly is a discontinuity in their own estimates means we can’t compare their past estimates for other leagues. Those other league estimates haven’t been “jumped” with similar technique. Now, Forbes may still be wrong (your option 2) but judgment of some change in the long term relative value of NFL teams v. others isn’t justified by the estimates.

    We need to wait and see how this possible new approach by Forbes plays out in the next valuation study of, say, MLB. [Since revenues are converging in the NFL and MLB, the estimates by Forbes should also converge; if not, the estimates must be questioned.]