Sharing the Wealth
What if you could own a piece of your favorite sports franchise?
With professional sports around the world reaching the height of their popularity, franchise valuations have exploded. In July 2016, Forbes published an article listing the most valuable sports franchises in the world, led by the Dallas Cowboys football team at $4 billion. Yes, you read that correctly, $4 Billion. With a B. That’s $1.37B more than your friendly-neighborhood GameStop (NYSE:GME) (but screw GameStop honestly, they put me on hold for an hour and a half and took 3 months to respond to an email). So what is it about sports teams that makes them so valuable? Let’s examine one specific NBA team, the New York Knicks, for example. The Knicks make money from their portion of the television deals the league has with Turner Sports and ESPN ($240M), their huge market ($1.456B), the money generated by MSG (ticket sales, non-basketball events, premium attractions, etc.) ($907M) and their specific brand ($447 M). All of those add up to a team valuation of ~$3 Billion. Reading that Forbes article got me thinking: why don’t sports teams offer shares on the public markets?
As we just saw, buying a sports franchise is an expensive endeavor, one usually reserved for billionaires and the ultra-connected, but need that be the case? Why can’t franchise-owners, like CEOs that IPO their companies, look to the public markets to raise funds for a new stadium or to go after a highly-coveted free agent? What sports fan wouldn’t be interested in becoming a part-owner of their favorite team, even if they only owned a fraction of a percent? If they are worried about inexperienced outsiders ruining their team, the ownership group could set up the public shares in such a way that they do not allow the holders to vote on team matters, similar to how Snap, Inc. (NYSE:SNAP) offered theirs.
While there have been instances in the past when teams have offered shares and underperformed the market, I believe that an equitable arrangement that allows investors to share in the financial gains and appreciation of the teams will solve this problem. In 2012, Business Insider published a piece titled “The Fastest Growing Sports Franchises Since 2000.” In it, they detailed teams that grew by over 200% over the 12-year period, a period in which the S&P 500 dropped ~29 points (data calculated using 1/3/00 and 12/31/12 as reference points on Google Finance). A team’s valuation would undoubtedly be highly cyclical based on its recent performance (which would undoubtedly impact all aspects of its revenue stream), but in the same way that value investors find neglected stocks destined to soar, the smart money would see past the struggles of today and buy into the bright future (does this “process” sound at all familiar?).
While there are, without a doubt, still many issues that need to be resolved before this idea is even acknowledged by those with actual authority on the matter, I believe that such an offering, if structured correctly, could prove highly attractive to both fans seeking to join in their team’s success and investors seeking above-market returns. Think about it.
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