There is little debate that the National Football League is the “richest” of the big four leagues. The average club is worth more than $3 billion. Sportico Senior Sports Valuations authority Peter J. Schwartz says if an investor can afford to buy an NFL franchise, there is no better investment in American pro sports—specifically those clubs in the bottom quartile of Sportico’s valuation rankings (Jacksonville, Cleveland, Tampa Bay, Tennessee, Arizona, Buffalo, Detroit and Cincinnati). Given the rate at which the league’s ‘least desirable’ clubs have been appreciating, the profitability certainty offered by the NFL and the anticipated dearth of investors with the necessary capital to acquire the league’s most valuable franchises (particularly as they continue to appreciate), the NFL’s least valuable organizations are more attractive options than teams within any other cross-section of any other league.
Our Take: The NFL has long been the 800-pound gorilla amongst pro sports leagues. So, while valuations across the league are growing, those in the bottom quartile are seemingly appreciating at an even faster rate than the teams at the top (though, it’s hard to make such a definitive statement since there hasn’t been a marquee franchise sold since Stephen Ross bought the Dolphins in 2008). Look no further than the Buffalo Bills. The franchise’s valuation has increased by more than 50% since the Pegulas bought the team in 2014 (predominantly due to climbing national revenues). It does need to be noted that NBA valuations have also skyrocketed over the last decade.
Unlike the NBA, NHL and MLB, where a considerable number of teams are either break-even or losing money on an annual basis, all 32 NFL franchises are cash flow positive (which certainly makes NFL teams the safest investment among the four leagues). Schwartz explained, “All of the uncertainty surrounding profitability is taken off of the table immediately within the NFL due to revenue from the league’s national deals and the presence of a salary cap.” National revenues make up 60% of overall club revenues in the NFL. By contrast, MLB and NHL teams generate greater local revenues, while the NBA is closer to an even split. So, the rising tide of the NFL lifts all boats (or in this case, franchise revenues) more than it does within the other big four sports. Schwartz used Cincinnati as an example: “The Reds are not the least valuable MLB franchise, but look at all they have to do in order to make that business viable” (think: sell local media rights, tickets to 81 home games). The Bengals, on the other hand, can simply rely on the strength of the league to operate in the black; 73% of their team revenues come from national sources.
There was time (early 2010s) when MLB was closing the revenue gap with the NFL, thanks to some lucrative national deals and a series of team investments in regional sports networks. But the NFL’s current media rights deals went into effect in 2014, and since then the divide has steadily increased. As Schwartz said, “Every time the NFL gets a new national [media rights] deal, it really just brings the league into a new stratosphere.” Expect the NFL to cash in again and put further distance between itself and the other three leagues come 2022. For what it’s worth, the average NFL team currently generates $495 million in annual revenue.
Buying a bottom-quartile NFL franchise is akin to purchasing the cheapest house on the nicest street—typically a wise purchase. One could certainly argue, as Steve Horowitz (partner, Inner Circle Sports) did, that buying a team in a more attractive market would be preferable, as revenues would be greater (profitability would depend on the stadium/purchasing debt) and there would be more levers to pull to boost the franchise’s valuation. But it’s important to point out that the NFL’s debt limits and equity requirements make the most desirable club (Dallas) virtually ‘too big to sell’ and teams like the Patriots, Giants, Jets and 49ers will soon reach that threshold. Unless the league alters its bylaws (certainly a possibility), exiting from a top-quartile franchise could be a challenging endeavor a decade or two down the line. It’s a different conversation if we are talking about purchasing a limited partnership stake.
NBA owners will argue that their international growth prospects make investments in the league a better option than the NFL. They’ll also cite CTE as a long-term threat to the NFL. Schwartz isn’t disagreeing with those points, but he said that to date there’s been no indication that interest is cooling in National Football League franchises. “There are a lot of interested buyers—far more than there is supply. [International growth and head injuries] are not a concern of prospective owners right now,” Schwartz said. Horowitz agreed, saying ownership interest in the NFL “remains robust.” Of course, ownership interest in the NBA is also hearty, and the league’s popularity overseas opens them up to a far wider prospective investor base.
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