Owning an NBA Franchise no longer a license to print money.
here was a time when owning and NBA franchise (or really most professional sports franchise) was seen as a can’t-miss proposition.
For a couple decades starting in 1980, the expansion of ways to make money on sports (fueled by the rise of cable television, new stadiums with luxury boxes and a society more accepting of advertising at every turn) meant that even if your team just broke even year to year on the balance books, the overall valuation of the franchise was skyrocketing. You just needed to hold on for a few years and when you sold you were paid handsomely, much more than you paid to own the team in the first place.
But with the value of NBA franchises so high now -- there are varying reports depending on debt taken on, but the official value of the Bobcats purchase was $275 million -- things are different now.
Henry Abbott has a fantastic post at TrueHoop, talking with George Postolos (who was in the running to buy the Bobcats and owns a consulting business to help people buy teams), and the upshot is that with the prices of franchises so high you get a different kind of buyer.
No question, but today in 2010, buyers are not looking for that as much. There’s a narrower set of considerations. But generally speaking, they’re looking for a good business with an opportunity to make money, in addition to those other considerations. That may not have been the case in a frothier environment, or when teams were less expensive. I mean, a lot of these families, the Millers in particular, when they acquired their teams the franchises didn’t trade for hundreds and hundreds of millions of dollars.
As the numbers have gotten bigger, a smaller set of investors are able to meet those requirements, particularly after what our economy has gone through over the last few years. Those people can be more discriminating, and they’ve become more discriminating, and they’re looking for a legitimate business with a legitimate chance of a return on their equity.
There’s still an upside case for sports franchises, but it depends on the particular situation, and it depends on skilled ownership and management. They’re more important than they’ve ever been.
Read the entire article, it’s a fascinating insight into team ownership today. It’s still a money making venture, but now you have to be smart. You can’t just coast to profits.