The game between the Denver Nuggets and Dallas Mavericks reached the middle of the third quarter when an alert flashed on the phone handed to Mavericks’ owner Mark Cuban. As of later that night, it read, the National Basketball Association season would be suspended indefinitely. It was March 11, 2020, and a national television audience witnessed Cuban’s reaction, equal parts shock and acceptance, unfold in real time on ESPN. “I trust Adam,” Cuban said moments later, referring to NBA Commissioner Adam Silver. “This is much bigger than the NBA.”
Ten months later, amid a still-worsening pandemic, the initial results are in—and the NBA has thus far weathered the storm better than just about anyone inside that arena could have envisioned.
The average NBA franchise is worth nearly $2.4 billion, according to data compiled by Sportico. That is down 2% as a direct result of the pandemic, based on our modeling. Collectively, the fair-market value of the NBA’s 30 teams, including ownership’s stakes in real estate, regional sports networks and additional team-related holdings, is more than $71 billion. Three franchises—the New York Knicks, Golden State Warriors and Los Angeles Lakers—are each worth more than $5 billion. (For context, each of those teams has a greater fair-market value than any National Football League team except for the Dallas Cowboys, based on Sportico‘s assessment of football team valuations last August.)
To be sure, the cumulative revenue for the NBA’s 30 teams, $8.3 billion, was down from the previous, non-COVID-impacted season by nearly 10%. However, a closer look reveals that national revenues (accrued predominantly from the league’s broadcast and sponsorship deals, as well as its licensing program) dipped only 2%. That, in large measure, is because of the NBA’s audacious plan to salvage the season with a playoff bubble at Orlando’s Walt Disney World. In a disrupted COVID environment, such single- and low double-digit declines represent remarkable stability.
Global demand from billionaire fans, innovations in fan engagement and team-leveraged real estate plays are among the reasons, revealed to Sportico by more than three dozen sports bankers, economists and team executives, that make investing in the NBA the best growth opportunity in big league sports. This is true despite the vast appreciation in value that virtually all sports franchises have experienced in recent years.
However, some teams have stood out in this environment better than others.
Crossing the Delaware
As a business, perhaps no basketball team is more distinctive than the Philadelphia 76ers, which rank 11th overall in fair-market value at $2.5 billion. The Sixers finished 10th in revenue over each of the last two seasons, which is significant because it places them just above the league’s line of demarcation for revenue sharing (the top third of teams pay into a pool that is then distributed among the bottom two-thirds).
What most distinguishes the 76ers is the dogged approach of owners Josh Harris and David Blitzer to leverage the team into new, high-growth businesses. The business partners, guided by their backgrounds in the private equity world (Apollo Management for Harris and Blackstone for Blitzer), encourage their c-suite to never let valuation stray too far from mind. The parent company for their U.S. sports holdings, for instance, often begins quarterly meetings with a set of Power Point slides that dissect the growth in valuation of its properties (which also includes the National Hockey League’s New Jersey Devils).
Sensing opportunity after COVID-19 began to roil the economy, Harris and Blitzer pushed aggressively to expand their business. Over the span of one week last September, they formally lost bids on baseball’s New York Mets and on a Philadelphia waterfront redevelopment plan, anchored by a new basketball arena for the Sixers (local authorities called the proposal “too ambitious”). The combined price tag had both bids been successful: more than $6 billion.
The 76ers, meanwhile, have been expanding in their own right. The team’s ingenuity is borne from necessity—the team neither controls its arena nor holds a stake in a regional sports network. What the Sixers do have is a series of medium-risk, high-reward investments that, in effect, are morphing one of the NBA’s oldest franchises into a quasi-private equity shop. (Unlike other owners of teams across multiple sports, all of Harris and Blitzer’s ancillary businesses sit on the books of just one of their franchises—the 76ers.)
These enterprises include The Sixers Innovation Lab, a start-up accelerator for new companies; two additional venture capital funds (the first has about 20 early-stage investments worth $22 million at present, while the second is raising capital toward a $50 million goal); two e-sports teams; and a sports marketing company in partnership with the NFL’s San Francisco 49ers and Live Nation. In terms of real estate, the Sixers own their practice facility in Camden (gifted by New Jersey taxpayers), hold an option on an adjacent 11-acre plot of land (advantageously priced at $4 million), and a small investment in residential housing in Philadelphia. It is not unrealistic to think that by the time the team’s lease at the Wells Fargo Center expires in 2031, the non-basketball side of the business could be its driving force.
After the Delaware River Waterfront Corporation rebuffed the Sixers’ proposal, the team began exploring new options for future construction, including in Camden. Under that plan, the 76ers’ move, somewhat poetically, would amount to the biggest crossing of the Delaware since 1776.
For Sportico’s interactive 2021 NBA Franchise Valuations, click here.
“Winning isn’t everything…”
At the end of 1999, the Associated Press declared Michael Jordan as the second greatest athlete of the century, behind only Babe Ruth. What has made Jordan a successful owner of the Charlotte Hornets, however, is that he has taken the polar opposite approach to that extolled by the Babe (who famously said, “I swing big, with everything I’ve got; I hit big or miss big”). Jordan—of course, also a former professional baseball player—in effect has been hitting non-stop singles in Charlotte for a decade, steadily growing his team’s business despite the Hornets’ undistinguished performance on the court.
In 2010, during a downward swing in the NBA’s business, Jordan led a group that purchased the Charlotte Bobcats; the deal valued the team as a whole at $275 million ($25 million less than the team’s expansion fee seven years earlier) and assumed $150 million in debt, according to media reports at the time. In 2019, the renamed Hornets sold minority interests (that is, absent a control premium) to two investors at a $1.5 billion valuation.
Today, Sportico assesses the fair-market value of the franchise on the whole close to that amount, $1.51 billion, which ranks 27th in the NBA. Looking at the team’s rank in a vacuum, however, obscures its success story as a business. Despite not winning a single playoff series since Jordan took control, the Hornets have grown almost five-fold in value, spurred by nostalgic rebranding and a new local TV deal for the 2018-19 season, as well as by riding the rising tide of the league itself. (The Sacramento Kings have similarly appreciated from a then-record NBA purchase price of $535 million in 2013 to, now, $1.84 billion—albeit, unlike the Hornets, the team partnered with its city to build a new arena along the way.)
Nowhere is financial success less tethered to on-court performance, though, than at the World’s Most Famous Arena. The New York Knicks are the NBA’s most valuable franchise at $5.42 billion, despite posting a losing record over 16 of the last 19 seasons. Even when examining the standalone team—that is, without factoring in team-related investments held by ownership—the Knicks still edge the valuation of the Lakers (the 17-time and defending NBA champions), with each team topping $4.4 billion.
According to a sports banker who actively works with NBA teams, and traded candor for anonymity, the primary reason why is because the Knicks have built a better mousetrap. “They’ve sold naming rights without giving up the name,” he said, referring to a deal where JPMorgan Chase & Co. sponsors specific portions of Madison Square Garden—offered as a representative example of how the arena’s two-year, $1 billion renovation, which ended in 2013, continues to draw on New York’s rich corporate base to maximize revenue. In the last uninterrupted season, the Knicks generated about $150 million in operating income, the banker said. Last season, only the Golden State Warriors, playing in a new arena in San Francisco, generated more revenue ($434 million) than did New York ($428 million), based on Sportico’s reporting.
“…It’s the only thing”
In other cases, though, the correlation between winning and value-appreciation is undeniable. No team in professional sports has grown in value as rapidly over the last decade as the Warriors. Purchased by a group led by Joseph Lacob for $450 million in 2010, the team, including its asset of the new Chase Center, has a fair-market value of $5.21 billion. That ranks second in the NBA. When factoring in the amortization of personal seat licenses, luxury suite leases and a run deep into the playoffs, the Warriors “could be an $800 million revenue business,” another sports financier who works on NBA transactions told Sportico. To be sure, the Warriors are not at that point today, but given their trajectory since 2010, as well as the dynamics of their new venue, it is hardly inconceivable.
The Warriors’ dynasty—five consecutive finals, including three championships—ended in 2019 with a loss to the Toronto Raptors. Today, those Raptors, buoyed by media and property interests, are valued at $2.55 billion, 10th-highest in the NBA. That is a 59% greater valuation than their entire parent company, which also includes the NHL’s Maple Leafs, Scotiabank Arena and a real estate joint venture, was worth in 2012, when its former majority investor, the Ontario Teachers’ Pension Plan, sold its stake. Even more astounding is that this growth has occurred while the Canadian dollar has declined more than 20% relative to the greenback.
Fueling the Raptors’ surge is a national fan base disguised as a local market. When Toronto won the NBA championship two seasons ago, 7.7 million Canadians tuned into the final game. For some perspective, consider that in the United States, with nearly nine times the population, each of the first four games of last October’s Finals between the Lakers and Miami Heat drew fewer than 7.6 million viewers, according to Nielsen.
Factoring in COVID
The estimated 2% decline in the NBA franchise values directly attributable to the pandemic is consistent with evaluations from industry experts, including Ian Charles, managing partner of the private equity firm Arctos Sports Partners. “Fundamentally, sports franchise intrinsic value is a long-term durable asset with significant, long-term revenue and cash flow growth,” Charles said during a SporticoLive event on valuations last September. “The 12- to 24-month increase in operating losses or reduction in positive cash flow should not have a significant impact on the intrinsic value of these franchises. If someone is selling control of these assets in next 12- to 24- months, there likely should be some purchase price adjustment, but it is [negligible]. We are talking 0% to 3% in our estimate.”
The sale of the Utah Jazz for $1.66 billion finalized last month, as well as a sale of a minority stake in the Boston Celtics last summer, which valued the team at approximately $2.8 billion (including a discount for lack of control), reflected no substantial reduction related to the effects of COVID-19. Sportico assesses the Jazz’s fair-market value at $1.71 billion (ranking 21st) and the Celtics at $3.18 billion (ranking fifth).
Meanwhile, Sportico assesses the for-sale Minnesota Timberwolves at a $1.43 billion fair-market franchise valuation (ranking 28th). That might not be Celtics or even Jazz money, but when considering the wider picture—that no fewer than 10 active players were alive 35 years ago when the NBA, then a relative sports afterthought, had some of its playoff games broadcast on tape delay—it is a princely sum.
In other words, it is hard to imagine that news of any of these soaring valuations wouldn’t have been enough to prompt legendary Celtics coach Red Auerbach to light a cigar in celebration.
Sportico is committed to transparency in our valuations. For detailed information and sourcing, please see the “Methodology” section of Sportico’s interactive 2021 NBA Franchise Valuations.