Rubes Posted July 31, 2014 Share Posted July 31, 2014 I'm definitely no businessperson, and I didn't stay at a Holiday Inn Express last night, so I'm left pondering this question. After the sale, what happens to the actual "value" of the Buffalo Bills? Right now, Forbes values the Bills at around $870 million, which IIRC is third-lowest in the league. Obviously, the sale will go for much more than that. If the Bills are sold for, say $1.3 billion, does the value of the Bills then become $1.3 billion? In the Buff News article from today, one person had this comment at the bottom, which I think is appropriate: Think of the Forbes estimate as similar to the "book value" of a corporation. When another corporation wants to take it over, they offer a premium over book value to shareholders to get them to agree to a buyout. After the sale, do we continue to talk about the "book value" of the Bills as $870 million? Or does it now shoot up to $1.3 billion? Do the Bills now become one of the more valuable teams in the league (which seems silly), or does the value of all other teams now become higher as a result, keeping the Bills near the bottom of the league in terms of value? How do things like this work? Link to comment Share on other sites More sharing options...
extrahammer Posted July 31, 2014 Share Posted July 31, 2014 (edited) I think once the bank signs off on the buyer price, it's valued at that. "It's only worth what you can sell it for." But values of things like that vary based on different formulas. Forbes isn't 100% accurate because they don't get access to all financials of teams or people on Forbes 400 list. Edited July 31, 2014 by thisiskeith Link to comment Share on other sites More sharing options...
CountryCletus Posted July 31, 2014 Share Posted July 31, 2014 I'm definitely no businessperson, and I didn't stay at a Holiday Inn Express last night, so I'm left pondering this question. After the sale, what happens to the actual "value" of the Buffalo Bills? Right now, Forbes values the Bills at around $870 million, which IIRC is third-lowest in the league. Obviously, the sale will go for much more than that. If the Bills are sold for, say $1.3 billion, does the value of the Bills then become $1.3 billion? In the Buff News article from today, one person had this comment at the bottom, which I think is appropriate: After the sale, do we continue to talk about the "book value" of the Bills as $870 million? Or does it now shoot up to $1.3 billion? Do the Bills now become one of the more valuable teams in the league (which seems silly), or does the value of all other teams now become higher as a result, keeping the Bills near the bottom of the league in terms of value? How do things like this work? I think the $870m figure is their their worth... And paying more wouldn't change their worth... If you buy a $20,000 car for $30,000- it's still a $20,000 car... Unlike a car, however, the worth of this organization will eclipse the purchase price, which is expected by multiple sources to be in excess of $1B Link to comment Share on other sites More sharing options...
BuffaloBill Posted July 31, 2014 Share Posted July 31, 2014 I'm definitely no businessperson, and I didn't stay at a Holiday Inn Express last night, so I'm left pondering this question. After the sale, what happens to the actual "value" of the Buffalo Bills? Right now, Forbes values the Bills at around $870 million, which IIRC is third-lowest in the league. Obviously, the sale will go for much more than that. If the Bills are sold for, say $1.3 billion, does the value of the Bills then become $1.3 billion? In the Buff News article from today, one person had this comment at the bottom, which I think is appropriate: After the sale, do we continue to talk about the "book value" of the Bills as $870 million? Or does it now shoot up to $1.3 billion? Do the Bills now become one of the more valuable teams in the league (which seems silly), or does the value of all other teams now become higher as a result, keeping the Bills near the bottom of the league in terms of value? How do things like this work? Apples to oranges comparison as sports teams values are at the time of sale far more subjective than that of a corporation. Both involve assumptions and understanding of finance but teams are generally more of an emotionally driven buy. A corporation is typically bought because the acquiring company wants its future earnings potential. Typically some multiple of these expected earnings is paid. That multiple is influenced by many factors. Link to comment Share on other sites More sharing options...
PaattMaann Posted July 31, 2014 Share Posted July 31, 2014 exactly - the car analogy does not work because cars depreciate...and an NFL franchise's value SHOULD always do the opposite...unless the NFL starts losing money somehow...and as the saying goes.."theres only three gaurantees in life; death, taxes and the NFL making gobs of money" Link to comment Share on other sites More sharing options...
Kelly the Dog Posted July 31, 2014 Share Posted July 31, 2014 (edited) The other teams' worth become substantially more overnight when the Bills sell for 1.3b after they have been valued at 870m by Forbes. The same thing happened with NFL owners in 1996 when Al Lerner won the bid for the Cleveland Browns. He paid over 500m for them, and the previous sale for an NFL team had been 250m for the Vikings. Instantly, all other franchises were worth a couple hundred million more. Three years later, two teams sold for $700-750m Edited July 31, 2014 by Kelly the Dog Link to comment Share on other sites More sharing options...
extrahammer Posted July 31, 2014 Share Posted July 31, 2014 The other teams' worth become substantially more overnight when the Bills sell for 1.3b after they have been valued at 870m by Forbes. The same thing happened with NFL owners in 1996 when Al Lerner won the bid for the Cleveland Browns. He paid over 500m for them, and the previous sale for an NFL team had been 250m for the Vikings. Instantly, all other franchises were worth a couple hundred million more. This. Link to comment Share on other sites More sharing options...
The Wiz Posted July 31, 2014 Share Posted July 31, 2014 I think the $870m figure is their their worth... And paying more wouldn't change their worth... If you buy a $20,000 car for $30,000- it's still a $20,000 car... Unlike a car, however, the worth of this organization will eclipse the purchase price, which is expected by multiple sources to be in excess of $1B I was thinking the same thing. I can see it 3 different ways since I don't know how the NFL differs from a normal purchase. 1. Like cletus said, if you buy a house that is appraised at 100k for 150k, the house is still appraised at 100k. 2. I do believe you are onto something with the value of other teams. It is likely their value does go up based on the sale price but again (appraised value vs final sale price is a big question). 3. The value stays the same but will likely increase over time due to inflation and other teams have their own appraised value at the time of any sale. It's hard to say whether/how much one impacts the other. Link to comment Share on other sites More sharing options...
BarkLessWagMore Posted July 31, 2014 Share Posted July 31, 2014 The $870mm was definitely their guess at fair market value, not book value. You will see the Bills listed in future years at or near the $1.3B sale price, however you will also see a substantial increase in the values of other teams as a result of this sale. Keep in mind that valuing any business is more of an art than it is a science. The Bills sale will raise the value of every NFL team. Link to comment Share on other sites More sharing options...
Jauronimo Posted July 31, 2014 Share Posted July 31, 2014 Value and price are two different concepts. Since the $1.3 billion will go to the trust rather than the franchise, no matter what the proceeds from the sale are it shouldn't effect the value of the team (i.e, wont appear on the books). The value should reflect the cash flow generating capacity of the team which is unchanged. Link to comment Share on other sites More sharing options...
Kelly the Dog Posted July 31, 2014 Share Posted July 31, 2014 Value and price are two different concepts. Since the $1.3 billion will go to the trust rather than the franchise, no matter what the proceeds from the sale are it shouldn't effect the value of the team (i.e, wont appear on the books). The value should reflect the cash flow generating capacity of the team which is unchanged. In this case, however, the value is what other people are willing to pay for it on the open market. There is no way that the next team up for sale is bought for less than a billion, and it's very likely more than whatever Pegula will end up paying, especially because Buffalo is a smaller market. Link to comment Share on other sites More sharing options...
extrahammer Posted July 31, 2014 Share Posted July 31, 2014 Value and price are two different concepts. Since the $1.3 billion will go to the trust rather than the franchise, no matter what the proceeds from the sale are it shouldn't effect the value of the team (i.e, wont appear on the books). The value should reflect the cash flow generating capacity of the team which is unchanged. You're forgetting assets. Link to comment Share on other sites More sharing options...
Kirby Jackson Posted July 31, 2014 Share Posted July 31, 2014 Value and price are two different concepts. Since the $1.3 billion will go to the trust rather than the franchise, no matter what the proceeds from the sale are it shouldn't effect the value of the team (i.e, wont appear on the books). The value should reflect the cash flow generating capacity of the team which is unchanged. This. Businesses sell for a multiple of cash flow (which is basically all in net earnings). They usually transact anywhere from about 1.7 to 4 times cash flow. There are lots of things that factor into where you are on that scale (longeivity, industry, etc...). Pro sports teams sell well above that because of the limited supply and the future potential (tv deals, globalization, etc...). In addition, there is always a demand for sports teams. When Donald Trump says that he "will be a little stupid" he is probably referring to like a 7-8 x multiple and not the 10x that it will sell for (assuming the cash flow is around $130M which I have no idea). Link to comment Share on other sites More sharing options...
extrahammer Posted July 31, 2014 Share Posted July 31, 2014 This. Businesses sell for a multiple of cash flow (which is basically all in net earnings). They usually transact anywhere from about 1.7 to 4 times cash flow. There are lots of things that factor into where you are on that scale (longeivity, industry, etc...). Pro sports teams sell well above that because of the limited supply and the future potential (tv deals, globalization, etc...). In addition, there is always a demand for sports teams. When Donald Trump says that he "will be a little stupid" he is probably referring to like a 7-8 x multiple and not the 10x that it will sell for (assuming the cash flow is around $130M which I have no idea). If this were true, considering the Bills generally cash flow between $20m-$40m, at most their value would be $400m. Not the $870m Forbes estimates. Businesses aren't just valued by cash flow. Link to comment Share on other sites More sharing options...
Rubes Posted July 31, 2014 Author Share Posted July 31, 2014 1. Like cletus said, if you buy a house that is appraised at 100k for 150k, the house is still appraised at 100k. Is it really, though? Isn't appraisal at least in part based on the price that other houses (and yours) have sold for? If I bought my house for $100K 10 years ago, and I could sell it now for $300K, isn't the house worth $300K? The other teams' worth become substantially more overnight when the Bills sell for 1.3b after they have been valued at 870m by Forbes. The same thing happened with NFL owners in 1996 when Al Lerner won the bid for the Cleveland Browns. He paid over 500m for them, and the previous sale for an NFL team had been 250m for the Vikings. Instantly, all other franchises were worth a couple hundred million more. So would it be fair to say that, even if the Bills sold for $1.3 billion, their value would still be considered in the bottom 3 of the league? Link to comment Share on other sites More sharing options...
Kirby Jackson Posted July 31, 2014 Share Posted July 31, 2014 If this were true, considering the Bills generally cash flow between $20m-$40m, at most their value would be $400m. Not the $870m Forbes estimates. Businesses aren't just valued by cash flow. Their net profits may be that (although that feels way low). When you factor in all of the add backs it is significantly higher. Link to comment Share on other sites More sharing options...
PromoTheRobot Posted July 31, 2014 Share Posted July 31, 2014 (edited) The value of anything, from an NFL team to a house to a couch, is what someone is willing to pay you. Valuations, like the ones from Forbes, are essentially meaningless. The tail doesn't wag the dog. The Bills are worth $1.3B (or more) because that's what they sold for. Period. Edited July 31, 2014 by PromoTheRobot Link to comment Share on other sites More sharing options...
Rubes Posted July 31, 2014 Author Share Posted July 31, 2014 (edited) The value of anything, from an NFL team to a house to a couch, is what someone is willing to pay you. Valuations, like the ones from Forbes, are essentially meaningless. The tail doesn't wag the dog. The Bills are worth $1.3B (or more) because that's what they sold for. Period. That's what I figured, but then the question is: does the value of all 31 other teams instantly shoot up, leaving the Bills still as the third-least valuable team? Edited July 31, 2014 by Rubes Link to comment Share on other sites More sharing options...
extrahammer Posted July 31, 2014 Share Posted July 31, 2014 (edited) Their net profits may be that (although that feels way low). When you factor in all of the add backs it is significantly higher. I've never heard of an "add back". But it's not just cash flows. It's assets and future earnings. Whoever buys the team will also invest some (i.e. new stadium, etc.), you have to consider the value of projected earnings as well. But if the bank signs off on the buyer price. It's officially valued at that price. People can debate it all they want. Look at Forbes and the Dolphins now, now they value them right at $1.1b. Edited July 31, 2014 by thisiskeith Link to comment Share on other sites More sharing options...
Jauronimo Posted July 31, 2014 Share Posted July 31, 2014 You're forgetting assets. Which assets am I forgetting? Link to comment Share on other sites More sharing options...
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