According to Sportico’s NFL valuations (Note: our exclusive virtual event with several team owners and high-profile executives is today at 1 p.m. EST. You can register here), the Dallas Cowboys are the league’s most valuable franchise ($6.43 billion)—despite having failed to advance past the Divisional Round of the playoffs in 25 years (1995). Sportico’s 5th (New York Jets, no playoff appearances since ’10), 7th (Washington, one playoff win this century), 8th (Chicago, one playoff win since ’06) and 10th (HOU, never advanced past the Divisional Round) highest valued franchises have all struggled on the field lately too. On the surface, it seems odd that businesses reliant on the sale of media rights, licensed products, tickets, luxury suites and sponsorships haven’t been negatively impacted by the lack of winning. But as Ilhan K. Geckil (Managing Director, Econ One Research) said, sizable national revenues, a short home slate and the NFL’s policy to split game day revenues between the home and away teams explains why performance on Sunday has minimal impact on team revenues—and by proxy—their valuations.
Our Take: Unlike MLB teams which generate more in local revenues than national revenues (NBA clubs are closer to even), all but three NFL clubs (the Cowboys, Patriots and Giants) rake in more annually from the league’s national sources. Because that income is guaranteed regardless of team performance and it makes up such a large portion of team revenues (60% of all club revenues come from the league’s national media rights and sponsorship agreements), winning has far less of an impact on the top line for NFL franchises than it does for teams in other sports.
While advancing to the NBA Finals or the World Series would help an NBA and MLB team sell out their expansive home slate the following season (which in turn boosts ticket sales), NFL teams do not see comparable local revenue increases in the wake of a deep playoff run. Remember, football teams host just eight home games per season, and the vast majority of clubs sell out those dates regardless of their place in the standings. NFL teams also split gameday revenues between the home and away teams, so underperforming teams benefit financially (at least proportionately) when they go on the road.
Former Eagles President and Browns CEO Joe Banner said another reason on-field performance is not a driver of NFL team valuations is that the fiscal rewards for advancing in the postseason are limited. “In some sports, teams can make a lot more money making a long run in the playoffs (every home NHL playoff game is worth +/- $1 million) and that helps differentiate teams that are doing well on the field and why their profitability may be greater than the value of their price,” he explained. That’s not the case in the NFL, where the league also controls all of the postseason games (the teams do get a portion of that money).
The one place where wins and losses can affect an NFL franchise’s valuation is if the team is seeking public financing for new stadium construction and/or renovations. As Sportico Senior Sports Valuations authority Peter J. Schwartz said, “In order to make the use of government funding palatable (to lawmakers), performance matters.” Of course, that’s not unique to the NFL. The San Diego Padres managed to get Petco Park built following the team’s 1998 playoff run. The city’s stadium referendum took place less than one month after the club’s World Series appearance. New stadium construction and/or renovation positively affects team revenues and valuations across every U.S. pro sports league for a period of at least three years (see: the honeymoon effect).
While winning may not affect NFL team finances, Geckil says, “There is a strong correlation between performance and both revenue and valuations for MLB and NBA teams.” It would be logical to assume that MLB organizations would see the greatest financial windfall as a result of on-field success due to the pure volume of home games played (think: opportunities to drive revenue). But, Geckil said, “The NBA shows the strongest ties between gate receipts, total revenue, valuations and the team’s performance the previous year.” That’s because according to his economic model the ‘fan cost’ (or cost of tickets) is significantly higher for NBA games than it is for MLB games—at least in part due to league’s star power.
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