One of my very first Sport$Biz posts on February 25, 2015 was entitled, “The Value of NBA Franchises Have Skyrocketed.” I attributed six reasons as to why National Basketball Association (NBA) team values are skyrocketing, including:
- World’s Most Exclusive Club;
- A New TV Deal;
- Local Media/TV Deals Growing;
- New Collective Bargaining Agreement;
- Internationalization and Globalization of the Game; and
- Tax Shelter.
At or about the same time the Sport$Biz post was released, the January 2015 Forbes Valuation of NBA teams was published. The Forbes Valuation report indicates that the average NBA team was worth an estimated $1.1 Billion, which constituted a 72% jump from 2014, and was the biggest one year jump in value since 1998, when Forbes started estimating values for NBA teams.[1] Pursuant to the 2015 Forbes Valuation, the two most valuable teams in the NBA were the Los Angeles Lakers ($2.6 billion) and the New York Knicks ($2.5 billion).[2] The 2015 Forbes Valuation concluded that three teams were worth at least $2 billion and eight more teams were worth more than $1 billion.[3] The values for the 2015 Forbes Valuation were bolstered by Steve Ballmer’s (“Ballmer”) NBA league record $2 billion purchase of the Los Angeles Clippers, and the announcement of a new television contract with ESPN and Turner worth $2.6 billion per year, or a 186% increase from its current TV rights deal which averages $930 million per year. It is interesting to note that although Steve Ballmer reportedly paid $2 billion for the Clippers, the 2015 Forbes Valuation placed the Clipper value at only $1.6 billion.[4] The ten most valued teams according to the 2015 Forbes Valuation were: Los Angeles Lakers ($2.6 billion), New York Knicks ($2.5 billion), Chicago Bulls ($2.0 billion), Boston Celtics ($1.7 billion), Los Angeles Clippers ($1.6 billion), Brooklyn Nets ($1.5 billion), Golden State Warriors ($1.3 billion), Houston Rockets ($1.25 billion), Miami Heat ($1.175 billion), and Dallas Mavericks ($1.15 billion).[5]
In January of 2016, Forbes released its 2016 NBA Valuation, its 18th annual NBA Team valuation. The latest valuation gives credence to my Sport$Biz post in that the average NBA franchise is now, according to Forbes, worth $1.25 billion and up 13% from 2015.[6] One team is worth $3 billion (New York Knicks), four teams are worth an estimated at $2 billion or more (Los Angeles Lakers ($2.7 billion), Chicago Bulls ($2.3 billion), Boston Celtics ($2.1 billion), and Los Angeles Clippers ($2.0 billion)), and eight teams are worth an estimated $1 billion or more (Golden State Warriors ($1.9 billion), Brooklyn Nets ($1.7 billion), Houston Rockets ($1.5 billion), Dallas Mavericks ($1.4 billion), Miami Heat ($1.3 billion), San Antonio Spurs ($1.15 billion), Cleveland Cavaliers ($1.1 billion), and Phoenix Suns ($1.0 billion).[7] The largest jump in value was for the NBA Championship Golden State Warriors, which had a 40% increase in value. Winning or losing may not be a determinative of the value of an NBA franchise, however. Teams that struggle on the court have seen their value rise significantly. Josh Harris and partners paid $280 million for the Philadelphia 76ers less than 4 years ago. Under his ownership, through the 2014-2015 season, the team had gain 96 wins, 170 losses, or a percentage rate of .354, but Forbes says the team is worth $420 million more than Harris paid for it.[8]
NBA teams generated $5.2 billion in revenues during the 2014-2015 season, also a record high for the league.[9]
Forbes ascribes the increase in value to a number of new sponsorship agreements that are from twice to even four times the previous amounts with companies clamoring to be associated with the NBA with its global prospects.[10] PepsiCo replaced Coca-Cola as the NBA’s official beverage partner after 28 years.[11] In 2015, PepsiCo announced that it will become the NBA’s exclusive food and beverage partner in North America upending a relationship the league had with Coca-Cola since 1986.[12] Under the multi-year partnership, PepsiCo will have the right to promote its Mountain Dew, Aquafina, Brisk, Doritos, and Ruffles brands during NBA games and events.[13] Pepsi already has a relationship with the NBA through its ownership of Gatorade, the league’s longest standing partner.[14] Anheuser-Busch InBev extended its relationship with the league for another four years in December of 2015.[15] In October of 2015, Tissot became the league’s first ever official timekeeper for a contract approximated at $200 million over six years.[16] Tissot, a Swiss company, will develop a new timing system and rebrand the shot clocks above the backs in all 29 of the league’s arenas.[17] Verizon replaced Sprint in November of 2015 in a deal reportedly worth more than $400 million over three years.[18] Verizon will add the NBA programming to its new mobile-first internet TV Service, Go90 and also became the title sponsor of the NBA’s Slam Dunk Contest at All-Star Weekend.[19] In June of 2015, Nike took over the rights from Adidas to outfit NBA teams starting with the 2017-18 season, which is reportedly worth more than $1 billion annually, up from the $400 million that Adidas was reportedly paying.[20] It was also announced in January of 2016 that U.S. insurer, State Farm, has signed an extension to its sponsorship deal with the NBA to a new six year term.[21] The NBA had also extended its partnership with KIA Motors, which has been the Official Automotive Partner of the NBA since 2008.[22] And finally, Commissioner Adam Silver said in March of 2014 that he believes sponsored jerseys will be on the backs of NBA players at some point in the near future, saying it is no longer a question of “if,” but “when.”[23]
NBA values have also increased by virtue by local television and cable deals. The New York Knicks and the Atlanta Hawks commenced new contracts in 2015.[24] In the fall of 2015, the Dallas Mavericks extended their contract with Fox Sports Southwest, which is reportedly worth more than $50 million a year.[25] Both the Orlando Magic and Cleveland Cavaliers will start new local TV deals beginning with the 2016-2017 season.[26] “As many as 10 teams are expected to sign new deals or reset their existing TV contracts by the end of the 2017-18 season at big increases.”[27] The 2011 Los Angeles Lakers local television rights deal with Time Warner Cable for a 20-year term is the largest local TV rights deal in the NBA, followed by the Houston Rockets deal with Comcast for a new RSN that launched on October 1, 2012.[28]
New arenas are forthcoming for NBA teams in Sacramento (16% increase in value), Milwaukee (12% increase in value), and Golden State (46% increase in value), which are the reason why the values of those teams, except Milwaukee, rose faster than the league average. For instance, the Bucks were purchased for $550 million in 2014 and are now valued by Forbes at $675 million.[29] Sixty-five percent (65%) of the Sacramento Kings was purchased for $348 million in 2014, giving the team a value at the time of $535 million, and the team is now valued by Forbes at $925 million.[30]
The values of sports teams continue to grow because sports programming can’t easily be DVR’d. People want to see sports events live, and therefore are forced to view the commercials. More commercials means more revenue to the TV and cable networks, which in turn means more money to the owners and players.[31] One of the biggest factors in driving the value of NBA franchises upward is that unlike the National Football League (NFL) where television revenue is shared equally among the NFL teams, NBA franchises may sell their own local television rights. In essence, the NBA teams have become more like small media empires.[32]
Forbes prognosticates that many of the future growth opportunities are overseas. There were 100 players from 37 countries on the opening day of the 2015-2016 season with all 30 teams rostering an international player.[33] NBA programming is available in 215 countries and territories and the NBA is always seeking ways to monetize its property outside the U.S.[34] The NBA started a deal with Chinese internet company Tencent in July of 2015 to provide live games and other programming.[35] The contract, worth $500 million guaranteed over five years, also has a revenue sharing component worth up to $200 million. China has more than 300 million participants in basketball, according to the NBA.[36]
“Forbes Magazine has cornered the market in the inexact science of economics in the valuation of professional sports teams and leagues.”[37] Most sports enterprises are exactly that, private enterprises that have no obligation to release their financial examinations or statements. Only the Green Bay Packers of the NFL release financial statements because of the unique structure in which they were incorporated. So, therefore, any estimation of value is not based on firsthand knowledge, but, at best, guesswork.
Maury Brown has indicated that Forbes is great at trending measurements, but they have fallen short in terms of real accuracy.[38] In his article “Why the Forbes MLB Valuations are Far from Perfect,” Brown indicates that there are shortcomings in the criteria on how valuations are arrived at including:
- Revenue and operating income are for the season prior.
- The value of the club is based on current stadium deal (unless new stadium is pending) without deduction for debt (other than stadium debt).
- Forbes claims that current club value is compared with latest transaction price.
- The valuations include stadium debt when factoring in debt/value.
- On their revenue projections, they’re using net of stadium revenues used for debt payments.
- On operating income projections which are a form of profit, they are using minus earnings before interest, taxes, depreciation, and amortization or EBITA.
- Forbes counts gate revenue, which seems nearly impossible to track these days and includes club seats.[39]
“While there is legitimate discussion regarding the accuracy of Forbes numbers, they serve as a reference point and generally reflect reality.”[40] The Forbes article doesn’t specify sources, so therefore we don’t know if the author reviewed the books and records of the teams, which is highly unlikely or if the league cooperated in providing information or the information was obtained through secondary sources. Without access to financial reports Forbes is merely estimating. The data is educated guesswork. The numbers in these reports, therefore, have to be read with those caveats in mind. “While one can quibble with how the numbers are derived [at] or their totally accuracy in what the market value will bear, in the end they are the best barometer of what is out there.”[41]
Thank you to Lori Shaw for assisting in the footnoting of this article. Lori Shaw is currently a 3L at Marquette University Law School where she is focusing on Intellectual Property and Sports Law. Shaw is the Managing Editor for the Marquette Intellectual Property Law Review, a member of the Marquette Sports Law Review, and a Sports Law Certificate candidate for May 2016. Shaw is also a member of the Employment Law Society and Sports Law Society. Prior to coming to Marquette Law, Shaw double-majored in History and Political Science, with a Psychology minor, at Indiana University in Bloomington, Indiana.
[1] Darren Rovell, Forbes: Team Values Rose 72 Percent, ESPN (Jan. 21, 2015), http://espn.go.com/nba/story/_/id/12204869/forbes-reports-11-nba-teams-now-worth-1b.
[2] Forbes Releases 17th Annual NBA Team Valuations, Forbes (Jan. 21, 2015), http://www.forbes.com/sites/forbespr/2015/01/21/forbes-releases-17th-annual-nba-team-valuations/#7572430758e5.
[3] Id.
[4] Id.
[5] Id.
[6] Forbes Releases 18th Annual NBA Team Valuations, Forbes (Jan. 20, 2016), http://www.forbes.com/sites/forbespr/2016/01/20/forbes-releases-18th-annual-nba-team-valuations/#1b4681306e3e.
[7] The Business of Basketball, The List, Forbes, http://www.forbes.com/nba-valuations/list/ (last visited Feb. 14, 2016).
[8] Id.
[9] Forbes Releases 18th Annual NBA Team Valuations, Forbes (Jan. 20, 2016), http://www.forbes.com/sites/forbespr/2016/01/20/forbes-releases-18th-annual-nba-team-valuations/#1b4681306e3e.
[10] Id.
[11] Beth Kowitt, PepsiCo Nabs NBA Sponsorship Rights from Coca-Cola, Fortune (Apr. 13, 2015), http://fortune.com/2015/04/13/pepsico-nba-sponsorship/.
[12] Id.
[13] Id.
[14] Id.; Christina Alesci & Ben Rooney, Pepsi to Replace Coke as NBA Sponsor, CNN (Apr. 13, 2015), http://money.cnn.com/2015/04/13/news/nba-pepsi-coke/index.html.
[15] Jon Lombardo, Anheuser-Busch Adds to Content with NBA Renewal, SportsDaily Business Journal (Nov. 30, 2015), http://www.sportsbusinessdaily.com/Journal/Issues/2015/11/30/Marketing-and-Sponsorship/AB-NBA.aspx.
[16] Michael Long, NBA and Tissot Agree Blockbuster Timing Deal, SportsPro (Oct. 5, 2015), http://www.sportspromedia.com/news/nba_and_tissot_agree_blockbuster_timing_deal.
[17] Id.
[18] Edward C. Baig, NBA Teams Up with Verizon on $400M Marketing Deal, USA Today (Nov. 4, 2015), http://www.usatoday.com/story/sports/nba/2015/11/04/lebron-james-nba-teams-up-verizon-400-million-marketing-deal/75102728/.
[19] E.J. Schultz, Verizon’s Go90 Adds NBA Programming in New Sponsorship, AdAge (Nov. 4, 2015), http://adage.com/article/digital/verizon-s-go90-adds-nba-programming-sponsorship/301213/.
[20] Kurt Badenhausen, New York Knicks Head the NBA’s Most Valuable Teams at $3 Billion, Forbes (Jan. 20, 2016), http://www.forbes.com/sites/kurtbadenhausen/2016/01/20/new-york-knicks-head-the-nbas-most-valuable-teams-at-3-billion/#2e5a4c332d3a.
[21] James Emmett, State Farm Extends NBA Sponsorship, SportsPro (Jan. 5, 2016), http://www.sportspromedia.com/news/state_farm_extends_nba_sponsorship.
[22] Alicia Jessop, In the New Sports Sponsorship Marketplace, Teams and Leagues Must Create Digital and Social Media Opportunities for Sponsors, Forbes (Oct. 28, 2014), http://www.forbes.com/sites/aliciajessop/2014/10/28/in-the-new-sports-sponsorship-marketplace-teams-and-leagues-must-create-digital-and-social-media-opportunities-for-sponsors/#6e6fd42467a3.
[23] Joe Flynn, Adam Silver Says NBA Jerseys Will ‘Most Likely’ Have Sponsor Ads Within 5 Years, Bleacher Report (Mar. 19, 2014), http://bleacherreport.com/articles/1999142-adam-silver-says-nba-jerseys-will-most-likely-have-sponsor-ads-within-5-years.
[24] Badenhausen, supra note 20.
[25] Id.
[26] Id.
[27] Id.
[28] Christina Settimi, The NBA’s Richest Local Television Deals, Forbes (Jan. 22, 2014), http://www.forbes.com/sites/christinasettimi/2014/01/22/the-nbas-richest-local-television-deals/#30152027a46c.
[29] The Business of Basketball, The List, Forbes, http://www.forbes.com/nba-valuations/list/ (last visited Feb. 14, 2016).
[30] Id.
[31] Shaun Powell, Forbes: 11 NBA Teams Worth $1B or More, NBA (Jan. 21, 2015), http://hangtime.blogs.nba.com/2015/01/21/forbes-11-nba-teams-worth-1b-or-more/.
[32] Cork Gaines, Why NBA Franchise Values are Skyrocketing, Business Insider (Jun. 10, 2014), http://www.businessinsider.com/why-nba-franchise-values-are-skyorcketing-2014-6.
[33] Badenhausen, supra note 20.
[34] Id.
[35] Id.
[36] Id.
[37] Andy Dolich, Trend: Sports Franchise Valuations Skyrocketing, Comcast Sports Net (Mar. 30, 2015), http://www.csnbayarea.com/giants/trend-sports-franchise-valuations-skyrocketing.
[38] Maury Brown, Why the Forbes MLB Valuations Are Far from Perfect, Baseball Prospectus (Mar. 26, 2012), http://www.baseballprospectus.com/article.php?articleid=16297.
[39] Id.
[40] Scott Lindholm, The Business of Baseball, SB Nation (Mar. 30, 2015), http://www.beyondtheboxscore.com/2015/3/30/8305347/forbes-business-of-baseball.
[41] Brown, supra note 38.