SBJ/October 19 - 25, 1998/No Topic Name
Media firms driving up price of teams
Published October 19, 1998
In 1920, George Halas, a man who apparently threw nickels around like manhole covers, paid $100 to buy the Chicago Bears. Last month, millionaire banker Al Lerner agreed to pay $530 million for the Cleveland Browns, and the Washington Redskins may sell for even more.
Talk about your franchise price escalation.
The value of NFL franchises is booming, thanks to a fat new television contract and labor peace, but the league is not alone. Rupert Murdoch paid a Major League Baseball record $311 million for the Los Angeles Dodgers earlier this year and more recently offered $1 billion for England's Manchester United soccer club, and the New York Yankees could bring $1 billion if George Steinbrenner ever sells.
Even prices for NHL clubs, which have the lowest overall franchise values among the Big Four, are escalating. According to Financial World magazine, the average value of an NHL franchise in 1996 was $74 million. Last year, NHL clubs were worth $90 million.
In 1995, NFL teams were estimated to be worth an average of $160 million, yet in the same year the Tampa Bay Buccaneers were sold for $197 million. NBA teams were estimated to be worth $113 million in '95. Today, the New York Knicks are worth at least $250 million, according to Financial World.
So what's driving the price?
As cable networks proliferate, media companies look to sports as one of the most profitable ways to fill programming needs. Own the Chicago Cubs or Atlanta Braves, then you've got hundreds and hundreds of hours for programming and cross-promotional purposes. In effect, franchises have become high-priced, but very effective, marketing tools.
"There is a need for sports programming across the board, whether the ratings are there or not," said Marc Ganis, president of Sportscorp Ltd., a Chicago-based sports consultant. "There are a tremendous amount of broadcast outlets and the only kind of programming that proves to bring in an audience is live sports. So there is a great need and great value and all ships rise in a rising tide."
Dean Bonham, president of The Bonham Group Inc., a Denver-based sports consultant company, predicts teams will appreciate in value anywhere between 10 percent and 15 percent a year.
"We don't see any end in sight," he said. "Conglomerates like Turner and Murdoch use franchises as promotional vehicles to further larger corporate objectives, and as long as that continues franchise values will go up."
Well-funded media companies that bid up the franchise price to serve their own programming purposes also have an advantage over other owners: access to capital to leverage financing for new facilities and to buy free agents. To compete, teams like the Green Bay Packers and the Cleveland Indians are selling stock to keep pace with the need for cash. That, in turn, increases the values of teams.
But there are risks in the rise of franchise values.
High ticket prices and a backlash against pay-per-view sports could affect what a team is worth. But the biggest threat is a strike or lockout.
"Murdoch said that he intends to use sports as a battering ram to further his pay-television objectives, but what can really kill the golden goose is labor strife, and it's a huge problem," Bonham said. "If fans perceive that owners are discounting or ignoring them, then it could cause a reversal in a franchise value."