Sports / Leisure > Business of Sports > Valuation of the "Big Four" sports leagues
Putting a Price Tag on the "Big Four" Professional Sports Leagues
Why team values depend on the league and the importance of success for value growth
Posted October 16, 2021
Key Takeaways
- NFL teams are the most valuable teams in the sports business and show strong value development throughout the league. The NHL is home to the least valuable teams with the largest disparity between its most valuable and least valuable teams.
- New and larger broadcasting deals provide reliable revenue sources that drive growth across all four leagues.
- The larger team value differences in the MLB and NHL show that variable revenue sources that depend on the team's success and the size of the local market play an important role.
North America is home to some of the most successful and professionally managed sports leagues in the world. Their teams do not only play and compete on an absolute elite level, but they are generating hundreds of millions in revenue every season. After all, Major League sports is a business where teams are owned by billionaires who expect a return in their investment over the long term. The owners have a direct saying when the league plans to change rules or explores new business opportunities. Thus, ensuring that their interests are put into actions and securing a never ending – and increasing – stream of revenue in the form of massive media deals or business partnerships and advertisement.
This analysis will focus on the business side of sports and takes a closer look at how team values have developed over the last decade and why the valuations vary between the four Major Leagues. The analysis will first look into the development of team values over time and between the leagues. Because teams are valued differently not only within their league but especially between leagues, we then turn to potential reasons for those differences. An evaluation of different revenue sources, led by a closer look at the broadcasting deals for every league, provide a hint at where the different team values might be coming from. Thus, in the end the interested reader should have gained a better understanding of U.S. sports as a business and why teams in different sports are valued at different levels.
The data base for this article is composed of team value rankings from Forbes. Throughout the year, Forbes, under the leadership of journalists Mike Ozanian and Kurt Badenhausen, publishes its list of team values for the four Major Leagues (MLB, NFL, NHL, NBA). This provides us with a reliable data base that allows the comparison of team values over time and across sports. Gathering the data is not an easy task because most teams do not have to publish their financial data as private businesses. Forbes’ methodology has come under scrutiny by other sports journalists,[1] but for this analysis it is sufficient to assume that the data provide conclusive information over time and across the leagues. Throughout the analysis, the years will represent the seasons that the data was gathered for, which can vary from the year that the numbers were published. In the case of the NBA, for example, an update is always released in spring and includes data from the previous season. Thus, the list from February 2021 contains revenue data from the 2019-20 season and will be recorded in our dataset as the season 2020. The same method is used for the NHL because it facilitates an easier comparison across all four leagues.
For all fans of the MLS, Forbes has started to track the value of its teams as well, however, a continuous and updated list of financial data for each team, as it is done for the other four Major Leagues, is not existent yet and the last valuation dates back to 2019[2]. Thus, the MLS will not be included in the main analysis, but we will provide an outlook that accounts for the fast growth and future potential of soccer in North America.
Team valuation
Chart 1 gives a first clear overview of how team values have developed over the last ten years. The average team value in each Major League increased over the covered period. Teams in the NFL are the most valuable in North American sports, valued on average at $5.1 billion after the 2020 season. They are followed by NBA and MLB teams, with Basketball teams experiencing a more dynamic growth over the last five years or so. The average value of a hockey team at $650 million is lower and has increased significantly slower than it has been the case for the other three Major Leagues. Even though all leagues could record growth in their average team values, the growth rate varies from year to year and league to league.
The charts provide more information about changes of team values within the leagues by displaying the split between the Top5 and Bottom5 teams. Additional to the highest average team value, the NFL is across the four Major Leagues the one with the smallest value difference between its Top5 and Bottom5 teams. The value split that has been fluctuating around the factor 2 implies that a
team in the Top5 has on average two times the value than a Bottom5 team. Another indicator for the relatively evenly distribution of team values in the NFL is the equivalent trend of both lines, which demonstrate that Bottom5 teams are increasing their value in a similar rate. For the NBA, the development has been more unevenly, with the split increasing at times when the Bottom5 teams barely did see any growth in their value. The current split of 3 is an indicator that teams like the Knicks and Lakers in the large markets of LA and New York currently outpace smaller teams. A new national media deal that will be evaluated in the next section, however, could narrow this gap again. The value split of MLB teams is currently 3.5 and has been rising for the past three years mostly because the value of the Bottom5 teams stagnated. The NHL graph not only shows that its teams are the least valuable out of the four Major Leagues and that their value did not grow to the same degree than in the other three leagues. The NHL also has the biggest value split of almost four, which points to important factors that drive value differences within the league that will be addressed over the next sections.
Chart 2 shows the average annual growth rates of both team values and team revenue across the Major Leagues and over time. A first quick look at the chart presents large growth rates for the earlier seasons that we have gathered data for. The strong growth then slows down before coming to a halt during the Covid-19 pandemic, where the average NHL franchise actually lost 3 percent of its value. Especially the seasons 2013 and 2014 saw significant increases of team values across the four major leagues. The reason for those remarkable growth rates will be discussed later.
The second finding is that even though trends are alike for all four Major Leagues over time, the growth rates differ quite significantly. As mentioned above, the earlier years of this sample (2012-15) saw large growth rates across sports, but NBA teams outpaced the teams in other leagues with an average value growth rate of 34 percent that was more than 10 percentage points higher than the average team value growth rate in the other leagues. Even though the dynamic significantly decreased for the years 2016-19, the average NBA team still grew by 16 percent per year. Over the full sample period, an NBA franchise did record on average an annual value
growth of 23 percent where teams in the other Major Leagues saw their value grow annually on average by 13 to 15 percent.
The previous charts have pointed out similarities and differences in value growth between the four Major Leagues. Before analyzing where these differences are coming from, Chart 3 shows how they have affected the power structure of Major League sports. Taking the sum of all sports teams’ values, the NFL has the largest share with its teams accounting for about 44 percent of the total valuation of sports teams in North America. However, the NBA has very steadily increased its share by five percentage points over the last nine years and surpassed the MLB in total team values. It’s a similar picture in terms of revenue generated in all four Major Leagues. The similar distribution of revenue and value among the four leagues underscores Forbes’ methodology of calculating team value, which is based on a multiple of team revenue.
The distribution for 2020 is slightly skewed because it compares the reduced MLB schedule with the 2019-20 NHL and NBA season that they were at least were able to finish. A similar effect for the reduced 2020-21 schedule in the NBA and NHL can be expected when the next update is released. The fact that the NFL season 2020 did not result in a significant drop in revenue for NFL teams, even though the majority played in front of
empty seats, shows how much money it generates through other sources, which leads us to the question what factors cause the significant differences of team values and revenues in between the leagues.
Media deals
The previous charts have outlined significant differences in growth rates between the leagues and over time. In order to understand why teams are valued at different prices within their league but even more so between leagues, the following sections will analyze different sources of revenue that are important reason for the significant differences.
The most important revenue source that affects team valuations as much as it drives the differences between the leagues are the broadcasting deals that each league has with the major networks in North America. It is difficult to collect data on all media deals, especially on the local deals that an individual team enters with a local network. Thus, the data presented in Chart 4 certainly does not comprise of all the money in the market. However, it is comprehensive enough to detect the differences between the leagues at first glance. The graphic on the left hand side is a summary from Forbes that shows the average annual value of broadcasting deals in 2019.[3] It is evident that the NFL is the undisputed primus in professional sports in terms TV broadcasting deals. Not only does the NFL receive more than 2.5 times the money from its media partners than the second ranked NBA, but it also splits its media rights into packages that allow all the big TV stations in the U.S. to show at least one game per week. ESPN televises Monday Night Football, NBC shows Sunday Night Football and FOX and CBS show the NFC and AFC games, respectively, on Sundays.[4] For its Thursday night games, which the NFL shows on its own NFL Network, it first collaborated with Twitter in 2016 before closing a deal with Amazon to stream the games on Amazon Prime Video that was since then further extended.[5]
The NBA is expected to catch up at least to some degree when it enters into negotiations for its media rights for the 2025 season and beyond. The MLB and NHL receive a substantially smaller amount from their media partners. The NHL and Rogers are in the midst of a 12-year agreement that pays roughly $345 million a year and is considered one of the largest media rights deals in Canadian history.[6] The absolute values of those media deals and their large differences are an important reason why, for example, teams in the NFL are much more valuable than their peers in other Major Leagues. But the broadcasting data allows for even more insights that help understand team valuations.
The second important dynamic that connects the media data with the team value data is the fact that whenever a new media deal is announced, team values benefit from it in anticipation of increasing revenues. On the right hand side of Chart 4, the average annual values of the different broadcasting deals are shown for 2019 and for 2025, when all leagues will have entered new agreements. With the new media deals that the NFL announced earlier in 2021 and that will come into effect in 2023 (2022 for Amazon), the average annual revenue comes close to an impressive $10 billion. The NHL and MLB will also see new media deals come into effect in 2021 and 2022, respectively. Most notably, NHL games will be televised by ESPN and ABC (both Disney) and TNT (Turner Media) from this year on after NBC ended its cooperation with the NHL after more than 15 years.[7] For the NBA, there is no data available for 2025 as the league is expected to negotiate a new deal before the current agreement with Disney (ESPN) and Turner Media expires in 2025. However, when the NBA announced the current media deal in 2014, the average NBA team values exploded by a record breaking 74 percent and pushed the average NBA team value over the $1 billion mark.[8]
Similar effects can be detected in the other leagues whenever a new media deal is announced. In Chart 2 we have marked important years when a new broadcasting deal affected the average team value in a significant way. It is noteworthy, that the team values tend to increase more significantly with the announcement of a new media rights deal and to a lesser degree in the year where the agreement becomes effective. In the case of the NBA, for example, the new media rights contract was announced in October 2014 and drove the average team value up by a remarkable 73 percent. In the 2015/16 season the average team value growth with 26 percent was not as large and could have been related to other factors as well such as the new pilot project that allowed small corporate logos on the jerseys.[9] Another example is the NHL where the new Rogers deal drove up team values 50 percent in a season that was dominated by a lockdown over negotiations of the new Collective Bargain Agreement (CBA) between the NHL and the NHLPA. When the new media deal became effective in the 2014/15 season, NHL team values increased by only 4 percent. The attentive observer might notice by looking at the chart that a new media deal does not have as a significant effect on the revenue that each team generates per season. This is based on the graduate structure of media agreements. In the first year of a new deal, teams will generally receive only a little more than before and this amount then increases over the term of the deal.[10]
So there seems to be a connection between increasing team values and new broadcasting deals that generate significantly more annual revenue for the leagues than previous agreements. This leads to question why the media deals are getting bigger and bigger in times where streaming services have taken over the most expansive productions and viewers are said to not follow fixed TV schedules any longer. The answer is as simple as the reverse effect of this observation, namely that live sports is a stronghold for “classic” broadcasting stations and that companies are still willing to pay good money for commercials. Here as well, the NFL is dominating television by taking up 76 of the 100 most watched television programs in 2020.[11]
As mentioned before, the presented data refers to national broadcasting deals and does not consider local TV or radio deals, which can have quite an important size as well. With the exception of the NFL, that can fully rely on its massive national media deals, the most valuable teams in the other three Major Leagues are situated in the biggest sports markets on the continent. For the longest time, the New York Knicks and Los Angeles Lakers (before LeBron) did not have a shot at the NBA title or even the playoffs as a matter of fact. Still, they have been among the three most valuable teams for more than a decade. In 2018, Forbes reported that the Lakers were receiving $150 million a year from local TV and radio deals, which is 10 to 15 times the amount that small-market teams can make from their local media deals.[12] A similar picture is evident in the NHL, where the performance of the New York Rangers and Toronto Maple Leafs on the ice have been lagging behind their ranking at the top of the list for the most valuable NHL franchises. Thus, whereas the national broadcasting deals provide a helpful orientation to why there is a discrepancy of team values between the leagues, the market size and local media deals are a good indicator for differences within a league.
Fan experience and arena revenue
The revenue generated through tickets sales and other income generated on game days helps to further understand the differences between the four leagues. The intuitive expectation would be that a team that is performing well, is able to sell out its arena and advances deep into the playoffs should see its value increase the next year.
Chart 5 shows that this logic only applies to three out of the four Major Leagues. The four bars for each league present the stage to which a team made it in a particular season. It distinguishes between teams that did not make into the playoffs and ended their season with the conclusion of the regular season (RS). The second bar presents teams that did make the playoffs (MP) but were not successful beyond the first round. The third bar includes teams that won at least one playoff series (WS) in that season. Finally, the last bar only represents those teams that won the championship (CH).
For teams in the NHL and MLB the logic of a successful season should result in higher revenue and a better team value applies quite remarkably. If an NHL team did not make the playoffs it saw its value on average grow by 10 percent and its revenue by only 3 percent. However, if a team won the Stanley Cup, then it could on average expect a 19 percent value and 14 percent revenue increase. For the MLB the dynamic is quite similar, whereas teams in the NBA can rely more heavily on the overall success of the league to drive up team values independently of their playing performances.
The fact that this relationship between success and team and revenue growth does not apply to the NFL is only another sign of its general strength. This non-existent relationship can be linked to two reasons. First and foremost, NFL teams generate a large share of their total revenue from the large media deals discussed in the previous section. Because this share is so large, other sources of income that fluctuate or depend on the teams’ success are playing a smaller role in the overall growth dynamic. Second, the playoffs in the NFL are rather short and limited to a few games, where the NFL champion could in the end have only played one or two home games during the
playoffs. To be the last one standing, an NHL or NBA team has to go through four best-of-seven series with up to 16 home games over a period of roughly two months that can generate not only excitement but provide many opportunities to generate extra revenue.
Another way to increase ticket sales and arena revenue is simply to build a new arena. In many of the yearly updated rankings, teams that move to a new stadium see an above average increase of their team values. Modern arenas are more than a sports venue, they are an entertainment complex that provide plenty of opportunities to generate new revenue, such as sponsorship, club seat sales or luxury suite rentals.[13]
Other sources of revenue
Aside from the more traditional sources of revenue, all Major Leagues are exploring additional and innovative paths of revenue generation. Evaluating all of the different projects would go beyond the scope of this paper so this section only focuses on two programs that set an example of what revenue sources the leagues are exploring.
As mentioned before, the NBA introduced a pilot-program for the 2017/18 season that brought small patches of corporate logos on the chest of the jerseys. It developed quickly into a success story that exceeded expectations both in terms of winning new sponsors for the teams as well as the total new revenue for the league.[14] After becoming a permanent program in 2019, the Athletic reported in light of the pandemic that the jersey patches have not only been widely accepted by otherwise critical fan bases but that they also have become a critical revenue source to make up for ticket sales and concessions.[15] After the NBA’s success, the NHL has followed by first allowing helmet advertising for the 2020/21 season as an immediate answer to opening up new revenue streams during the pandemic. Furthermore, it has recently announced that it would allow similar but slightly larger jersey ads than on NBA jerseys starting with the 2022/23 season.[16]
Earlier this year the NFL has announced three official sports-betting partnerships with Caesars, DraftKings and Fan-Duel that the league expects to generate an extra revenue of about $270 million for its teams. The NFL chief strategy and growth officer, Christoph Halpin, expressed his expectation that this figure will soon grow into a “$1 billion-plus of league opportunity over this decade.”[17] Especially younger fans seem to be attracted to the possibility to bet on their favorite team or player and teams and networks start to explore opportunities on how to incorporate betting information into their program. The major networks are allowed to sell as many as six sportsbook commercials per NFL game broadcast this season and start to experiment with additional information and content throughout their game coverage.[18]
Will the MLS ever catch up to its four big siblings?
At the start of this article we emphasized that the focus of the analysis would be on the Major Leagues with the exception of the MLS. One reason for this decision was data availability with the risk to overlook the league that is actually showing the most impressive growth dynamic right now. The MLS has seen years of impressive growth that have been driven by expansion and the well established roots of the teams in their local markets. Team owners and industry experts expect this growth to further pick up ahead of the 2026 World Cup that will be co-hosted by the U.S., Canada and Mexico. The anticipation and growth potential related to the tournament that is watched across the world can be seen in the current valuation of teams.[19]
Even based on the 2019 numbers, MLS teams are trading at much higher values than teams in the other North American leagues, as a multiple of annual revenue and their valuations are growing faster than in the other Major Leagues, too (Athletic 2021). Insiders describe this dynamic comparable to start-up character or tech stocks can develop a certain hype among followers. At this point, the increase in valuation is a big bet on the future popularity of the MLS that is not reflected in the revenue or viewership today. Much of the future development of the MLS will depend on the ability to take advantage of the excitement that the 2026 World Cup will most likely create. A big media deal would certainly back this trend and bring the MLS closer to the other Major Leagues.[20]
Outlook
The fact that most teams in the Major Leagues are private businesses that do not have to disclose any financial data is a challenge for the gathering of the data and compilation of the rankings. As Sam Stejskal from The Athletic emphasizes “the Forbes numbers are merely an estimation — ultimately, a club’s value is simply what someone is willing to pay for it.”[21] At the same time, the estimations from Forbes give a good benchmark of how teams are developing and where they are standing compared with their other peers in the league.
Throughout this article, different revenue sources were analyzed to help understand differences of team values within and across the Major Leagues. NFL franchises are the most valuable because a large share of their revenue stems from large media deals that guarantee a stable and significant financial resource. Other factors, such as the size of the local market or the success of the team are more important for the value development in the NHL or MLB.
The value development between the leagues is quite stable, it is difficult to imagine that NHL franchises will ever catch up to valuations seen in the NFL. A future analysis could take a closer look at the team mobility within a league’s rankings.
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Footnotes
[1] Shea, Bill. 2020. “Forbes team valuations: Are
they accurate? Do they matter? What do owners
think?” [electronic resource] https://theathletic.
com/1657620/2020/03/09/forbes-team-
valuations-are-they-accurate-do-they-matter-
what-do-owners-think/ (accessed 08/29/2021).
[2] Smith, Chris. 2019. “Major League Soccer’s Most
Valuable Teams 2019: Atlanta Stays on Top As
Expansion Fees, Sale Prices Surge.” [electronic
resource] https://www.forbes.com/sites
/chrissmith/2019/11/04/major-league-soccers-
most-valuable-teams-2019-atlanta-stays-on-
top-as-expansion-fees-sale-prices-surge/
(accessed 08/04/2021).
[3] Ozanian, Mike. 2019. “NHL’s Most Valuable
Teams 2019: Though Buried In Standings, New
York Rangers Remain On Top.“ [electronic
resource] https://www.forbes.com/sites
/mikeozanian/2019/12/11/the-nhls-most-
valuable-teams-2019-new-york-rangers-on-top-
at-165-billion/?sh=68b7f40b7163
(accessed 08/11/2021).
[4] Berr, Jonathan. 2021. “NFL, TV Networks Sign
$105 Billion Broadcast Rights Deals.” [electronic
resource] NFL, TV Networks Sign $105 Billion
Broadcast Rights Deals (forbes.com)
(accessed 08/11/2021).
[5] Reuters. 2018. “Amazon, NFL reach $130 million
streaming deal for Thursday night games:
source.” [electronic resource] https://www.
reuters.com/article/us-nfl-amazon-com-
idUSKBN1HX3EP (accessed 08/14/2021).
[6] NHL.com. 2013. “NHL, Rogers announce
landmark 12-year deal.” [electronic resource]
https://www.nhl.com/news/nhl-rogers-
announce-landmark-12-year-deal/c-693152
(accessed 08/14/2021).
[7] Shapiro, Sean and Richard Deitsch. 2021.
“Turner Sports reaches $225 million per season
deal with NHL TV package: Sources.” [electronic
resource] https://theathletic.com/news/turner-
sports-reaches-225-million-per-season-deal-
with-nhl-tv-package-sources/pJg8TGMzqHjD
(accessed 08/14/2021).
[8] Badenhausen, Kurt. 2015. “Lakers Top 2015
NBA’s most valuable teams; average franchise is
worth record $1.1 billion.” [electronic resource]
https://www.forbes.com/sites/
kurtbadenhausen/2015/01/21/average-nba-
team-worth-record-1-1-billion-2/ (accessed
08/20/2021).
[9] Badenhausen, Kurt. 2018. “NBA Team Values
2018: Every Club Now Worth At Least $1 Billion.”
[electronic resource] https://www.forbes.com/
sites/kurtbadenhausen/2018/02/07/nba-team-
values-2018-every-club-now-worth-at-least-1-
billion/ (accessed 08/25/2021).
[10] Belson, Ken and Kevin Draper. 2021. “N.F.L.
Signs Media Deals Worth Over $100 Billion.”
[electronic resource] https://www.nytimes.com/
2021/03/18/sports/football/nfl-tv-
contracts.html (accessed 08/20/2021).
[11] Belson, Ken and Kevin Draper. 2021.
[12] Badenhausen, Kurt. 2018.
[13] Ozanian, Mike and Kurt Badenhausen. 2020.
“The NFL’s Most Valuable Teams 2020: How
Much Is Your Favorite Team Worth?” [electronic
resource] https://www.forbes.com/sites/
mikeozanian/2020/09/10/the-nfls-most-
valuable-teams-2020-how-much-is-your-
favorite- team-worth/ (accessed 2021-09-22).
[14] Badenhausen, Kurt. 2018.
[15] Shea, Bill. 2020. “NBA to rely even more on
jersey patch sales to offset pandemic cash
declines.” [electronic resource] https://
theathletic.com/2244758/2020/12/10/nba-
jersey-patch-sales-pandemic-cash-declines/
(accessed 2021-09-22).
[16] Wyshynski, Greg. 2021. “Source: NHL team
jersey fronts can have ads starting in 2022-23
season.” [electronic resource] https://www.
espn. com/nhl/story/_/id/32039451/nhl-team-
jersey-fronts-ads-starting-2022-23-season-
source-says (accessed 2021-09-22).
[17] Washington Post. 2021. “How the NFL went all in
on sports betting: The league once viewed it as
a threat. Then it did a 180.” [electronic resource]
https://www.washingtonpost.com/sports/
2021/08/25/nfl-sports-betting/ (2021-08-25).
[19] Stejskal, Sam. 2021. “’They’re like tech stocks’:
Why MLS team valuations have gotten so high.”
[electronic resource] https://theathletic.com/
2474348/2021/03/24/mls-valuations-growth-
business/?redirected=1 (accessed 08/04/2021).
[20] Stejskal, Sam. 2021.
[21] Stejskal, Sam. 2021.
