ISSUES IN PROFESSIONAL SPORTS VALUATION · •Virtual reality •Digital streaming •Facebook, Amazon, Apple, Netflix, Google (FAANG) •Sports betting 9. Issues in Professional

Issues in Professional Sports Valuation | Bryce Erickson, Mercer Capital | Kevin Kane, Empire Valuation Consultants

ISSUES IN PROFESSIONAL SPORTS VALUATION

Bryce P. Erickson, ASA, MRICS Kevin G. Kane, CFA, ASA

Mercer Capital Empire Valuation Consultants

[email protected] [email protected]

214.468.8400 415.659.1860


What is Sports?

Sports is a Business

2


Current Events

3


Current Events

• Political statements

• Players as investors

• Sports gambling

• Fan experience• Attendance figures

• Cost of attending

• Fantasy teams

• Labor peace

• Media rights

• New Stadiums & Arenas

• Relocation

4


Impact of Legalized Sports Gambling

• Professional and Amateur Sports Protection Act of 1992

• May 2018, Supreme Court ruled it unconstitutional

• Eight states have legal sports betting

• Seven others have legislation pending

• A couple with partial

5



NFL MLB NBA NHL

$2.326B

$1.106B

$585M

$216M

2018 Nielsen Co. StudyCommissioned by The American Gaming Association

TV advertising, sponsorship, data/product revenue, media rights,

merchandise, and ticket sales

6



• Increased fan engagement

• New revenue streams

• New category of advertisers and sponsors

• Increased monitoring costs

• Will it impact the integrity of the game?

7


Fan Experience

• In-venue vs. at-home

• Multiple devices

• Fantasy teams

• Statistics

• Technology changing concessions, merchandise, and ticket purchases

8


What Will Sports Engagement Look Like in the Future?

• Virtual reality

• Digital streaming

• Facebook, Amazon, Apple, Netflix, Google (FAANG)

• Sports betting

9


Current EventsTransactions

Arizona Coyotes 2019 $300 million

Brooklyn Nets 2018 $2.3 billion

Carolina Panthers 2018 $2.275 billion

Carolina Hurricanes 2018 $420 million

Houston Rockets 2017 $2.2 billion

Miami Marlins 2017 $1.2 billion

10


Forbes Valuations

11


Forbes Value Comparison (NFL)

12

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500

$8,000

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$2,200

$2,400

$2,600

$2,800

$3,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

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2015

2016

2017

2018

TV

Co

ntr

act

Valu

e (

$ M

illio

ns)

Avera

ge F

orb

es

Valu

e (

$ M

illi

on

s)

NFL Average Forbes Value National TV Contract Annual Value

CBA Modified New CBA


Forbes Value Comparison (MLB)

13

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

TV

Co

ntr

act

An

nu

al

Va

lue

($

Millio

ns)

Ave

rag

e F

orb

es V

alu

e (

$ M

illio

ns)

MLB Average Forbes Value New CBA National TV Contract Annual Value


Forbes Value Comparison (NBA)

14

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$2,200

$2,400

$2,600

$2,800

$3,000

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

$1,700

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

TV

Co

ntr

act

An

nu

al V

alu

e (

$ M

illi

on

s)

Av

era

ge F

orb

es

Va

lue (

$M

illio

ns)

NBA Average Forbes Value New CBA National TV Contract Annual Value


Forbes Value Comparison (NHL)

15

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

TV

Co

ntr

act

An

nu

al V

alu

e (

$M

illio

ns

)

Ave

rag

e F

orb

es V

alu

e (

$M

illio

ns

)

NHL Average Forbes Value New CBA Lockout National TV Contract Annual Value


Forbes 50 Most Valuable Teams

16

0

10

20

30

40

50

2012 2013 2014 2015 2016 2017 2018 2019

Number of teams

worth more than

$2 billion

1

5 6

15

24

39

4850+Ballmer

transaction


-

5

10

15

20

25

30


17

NFL MLB NBA Internat’l Soccer

29

8

67



18

Range of Values

From a low of

$674M - $2.2B in 2012

to a high of

$2.08B - $5.0B in 2019

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2012 2013 2014 2015 2016 2017 2018 2019

Ran

ge o

f V

alu

es (

Mill

ion

s)

Ballmer

transaction


Sports Teams’ Economics

19


Sports Teams’ EconomicsNational Sources of Revenue

Television &

Radio

(Domestic &

International)

Sponsor-

ships

(Official providers,

uniforms, gambling)

Other

Media

Revenue

Sharing

20


North America media rights (Source: PwC Sports Outlook)

Nearly $21 billion in 2019

Projected at $24 billion by 2022

CAGR of 4.5%

Contracts locked up for several years

NFL : Through 2022 season (ESPN Monday Night 2021)

NBA : Through 2025 season

NHL : Through 2021 season

MLB : Through 2021 & 2028 seasons

Media Rights Deals

21


Media Rights Deals

• Will there be an increase in next contract?

• Who will be the bidders?

• Traditional broadcasters

• New distribution partners

22


Sports Teams’ EconomicsLocal Sources of Revenue

• Tickets

• Naming Rights

• Concessions

• Parking

• Advertising & Sponsorships

• Local Radio

• Suites

• Personal Seat Licenses

• Programs & Merchandise

• Non-Sports Events if Control

the Stadium/Arena

23


Recent or Proposed NFL Stadiums

LA Rams/Chargers 2020 $2.7 billion (Est.)

Las Vegas Raiders 2020 $1.8 billion (Est.)

Atlanta Falcons Mercedes-Benz Stadium 2017 $1.6 billion

Minnesota Vikings US Bank Stadium 2016 $1.1 billion

San Francisco 49ers Levi’s Stadium 2014 $1.3 billion

New York Giants/Jets MetLife Stadium 2010 $1.7 billion

24


Recent or Proposed MLB Ballparks

Tampa Bay 2023 $900 million (Est.)

Oakland Athletics 2023 >$1 billion (Est.)

Texas Rangers Globe Life Field 2020 $1.1 billion

Atlanta Braves Sun Trust Park 2017 $622 million

Miami Marlins Marlins Park 2012 $515 million

Minnesota Twins Target Field 2010 $555 million

25


Recent or Proposed NBA Arenas

Golden State Warriors Chase Center 2019 $1.4 billion

Milwaukee Bucks Fiserv Forum 2018 $524 million

Detroit Pistons Little Caesars Arena 2017 $863 million

Sacramento Kings Golden 1 Center 2016 $558 million

Brooklyn Nets Barclays Center 2012 $1 billion

Orlando Magic Amway Center 2010 $480 million

26


Recent or Proposed NHL Arenas

New York Islanders Belmont Park 2021 $1.2 billion (Est.)

Seattle Expansion Key Arena 2021 $900 million (Est.)

Detroit Red Wings Little Caesars Arena 2017 $863 million

Las Vegas Golden Knights T-Mobile Arena 2016 $375 million

Edmonton Oilers Rogers Place 2016 $480 million

New York Islanders Barclays Center 2012 $1 billion

Pittsburgh Penguins PPG Paints Arena 2010 $321 million

27


How Do You Pay for a New Facility

• Public or Private

• Tax Dollars

• Hotel Tax

• Food & Beverage Tax

• Automobile Excise Tax

• Sell Municipal Bonds

• Bank Loans

• Owners with Deep Pockets

• Personal Seat Licenses

• Naming Rights

• Increased Ticket Prices

• Surcharges

• Tiered Seating

28


Top Naming Rights Deals

Scotiabank Arena - $639 million for 21 years ($30/yr)

MetLife Stadium - $625 million for 26 years ($24/yr)

AT&T Stadium – Reported to be $17-$19 per year

Citi Field - $400 million for 22 years ($18/yr)

Chase Center - $300-400 million for 24 years ($12.5-17/yr)

Mercedes-Benz Stadium - $324 million for 28 years ($11.5/yr)

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• Players’ Compensation

• Salary Cap

• Luxury Tax

• Collective Bargaining

Agreement

• Non-player Compensation

Sports Teams’ EconomicsExpenses

• Stadium Expenses/Rent

• Sales & Marketing, Ticketing,

Publicity

• League Assessments

30


CBA Comparison Between the Leagues

31

Collective Bargaining Agreements: A Comparison

League NFL NBA NHL MLB

End of Current CBA Term [1] 2020 2024 (2023?) 2022 (2020?) 2021

Salary Cap? Yes Yes Yes No

Type of Cap Hard Soft Hard None [2]

Top of Cap - 2019 (Millions) $177.20 $123.73 $79.50 NMF

Floor of Cap - 2019 (Millions) $157.71 $91.68 $58.83 NMF

Floor as a % of Cap 89% 90% 74% NMF

Cap Rule Exceptions & Variations [3] Limited Complicated - Luxury Tax Limited NMF

Revenue Sharing with Players Yes Yes Yes No [2]

Revenue Categories Subject to Sharing [4] NFL Total Revenue Basketball Related Income Hockey Related Revenue NMF

Revenue Sharing % 47%-48.5% 49%-51% 50% NMF

Revenue Sharing among Teams Yes Yes Yes Yes

Revenue Categories Subject to SharingNational TV Revenue / Home

vs. Away Tickets

Various - Excluded from

Basketball Related IncomeHockey Related Revenue

Net Local Revenue / Competive

Balance Tax

Revenue Sharing % Pro-Rata / 60-40

Formula: effect is buoying

small market teams to at least

70% of league average

revenue

6.055%31% to MLB Central Fund /

Formula

[1] NBA and NHL owners & player assocations have prior opt out clauses which could end them earlier than their term.

[2] MLB has a "tax" system on payrolls called the "competitive balance tax". It economically functions sort of as a soft salary cap. It's proceeds fund player benefits and retirement plans.[3] There is varying amounts of complexity and the terms "limited" and "complicated" are relative. All teams employ "capologists" to manage these issues.[4] These are defined terms. Not technically total revenue, but amasses most operating categories in these leagues.


Valuation

32


• Purpose

• M&A – Controlling Interest

• Gift & Estate

• Purchase Price Allocation• Stadium lease agreements

• Player rights

• Season ticket holder contracts

• Suite contracts

• Sponsorship contracts

• Media contracts

• Franchise value

• Other

• Litigation

• Control vs. Minority

Valuation of Sports Teams

• Define Engagement

• What are you valuing?

• Team

• Facility – Stadium, Arena, Ballpark

• Local Real Estate

• RSN

• What is the purchase price?

• Cash

• Assumption of debt

• Phased purchase

33


• Market Approach

• Guideline Transaction

• Guideline Company

Valuation of Sports TeamsValuation Methods

• Income Approach

• Discounted Cash Flow

• Capitalization of Cash Flow

34


• Illiquid Asset

• Limited Pool of Buyers

• Losing Money?

• Largest source of family wealth

• Only achievable upon sale

• Holding period

Valuation of Sports TeamsReality

• Why teams are sold:

• Financial Difficulties (Coyotes, MLB Rangers, Hornets)

• Next generation has different interest (Rams)

• Pay estate taxes (Bills)

• Forced sale (Clippers, Panthers)

35


About the SpeakersBryce P. Erickson, ASA, [email protected]

214.468.8400

Bryce, along with Don Erickson, ASA, leads Mercer Capital’s Professionals

Sports Industry team. Bryce has experience in sports franchise consulting and

has been involved with a number sports valuation engagements over the past

several years, including for franchises in the NFL, MLB, NBA, NHL.

Bryce has participated and/or helped manage professional sports team

transactions and valuations from several standpoints including merger &

acquisition, financing, estate & gift taxes, and litigation. Consulting engagements

have included valuation of franchises – both on an enterprise and a minority

level, financial analysis of sports teams, and intangible asset appraisals.

In addition, he has been involved or managed hundreds of valuation

engagements since his entry into the valuation profession in 1998. These

engagements have been conducted for the purposes of mergers and

acquisitions, buyouts, buy-sell agreements, financial reporting, estate and gift

taxes, allocation of purchase price, litigation support, financing, and business

planning.

Kevin G. Kane, CFA, [email protected]

415.659.1860

Kevin specializes in valuing professional sports franchises including those in the

National Football League, National Hockey League, National Basketball

Association and Triple-A and Major League Baseball. These valuations and

fairness opinions are generally prepared for teams in relation to estate planning,

recapitalizations and other corporate planning purposes.

Kevin has valued many businesses, ranging from large multi-national companies

to small local businesses, including household name product manufacturers,

large real estate holding conglomerates, private REITs, real estate development

companies, apparel manufacturers, restaurant franchises, movie theaters,

nightclubs and many others.

His intangible asset valuation assignments have included patents, literary works,

movie and music rights, guaranty fees, split dollar arrangements and insurance

products. Additionally, he has prepared valuations of in-process research and

development, technology and other intangible assets for financial reporting

purposes.

36


Questions?

37

Documents

ISSUES IN PROFESSIONAL SPORTS VALUATION · •Virtual reality •Digital streaming •Facebook, Amazon, Apple, Netflix, Google (FAANG) •Sports betting 9. Issues in Professional