extrahammer Posted July 31, 2014 Share Posted July 31, 2014 Which assets am I forgetting? Brand, facilities they own, stores, apparel, etc. Link to comment Share on other sites More sharing options...
GG Posted July 31, 2014 Share Posted July 31, 2014 (edited) 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. To split the baby, the value J is referring to is the intrinsic value of the franchise derived by the cash generating capacity of the assets. The price paid by the new owner will incorporate that, plus whatever premium he wants to ascribe to it to make sure he is part of an exclusive club. The main reason selling prices have been going up is because the perceived value of belonging to the club has been rising. Not because the economic returns have gotten so much better. If for whatever reason NFL isn't the belle of the ball anymore, then prices paid for the franchises will plummet, even though the underlying economics won't change. Edited July 31, 2014 by GG Link to comment Share on other sites More sharing options...
Jauronimo Posted July 31, 2014 Share Posted July 31, 2014 Brand, facilities they own, stores, apparel, etc. And the value of those "assets" is captured in the cash flows. "Add backs" are what get you from net income to cash flow. Link to comment Share on other sites More sharing options...
Kirby Jackson Posted July 31, 2014 Share Posted July 31, 2014 (edited) 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. Things like depreciation, amortization, etc... Any expenses that run through the business for tax purposes are added back to create cash flow (functionally EBITDA). Assets are factored in already. In terms of future earnings that will impact the price that someone is willing to pay but not the value of the franchise. No lending institution in the world is going to lend on the speculation of what is to come. The value will rise once the new tv deal and contracts are in place (not now). The reason that people pay the extra high multiple for teams is because of the intrinsic value created by the brand. Edited July 31, 2014 by Kirby Jackson Link to comment Share on other sites More sharing options...
Kelly the Dog Posted July 31, 2014 Share Posted July 31, 2014 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? 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? I think it probably takes some time to wash out. It's certainly not always true that teams are automatically sold for more than the previous teams because of stuff like leases and stadiums. In general, in the early 90s, teams were worth about 200m. Then Lerner paid twice what the last team was bought for. Millstein actually offered 500m and lost out. Then the next several sales were in the 500-750m range. The Dolphins sold for 1.1b a few years ago but that included the stadium I think. The last sale before the Bills was 770m I think, the Jags, but now the new standard has been set and I doubt any team will be less than a billion from now on. I'm not sure how the valuations for teams from, say, Forbes, will change. Link to comment Share on other sites More sharing options...
PromoTheRobot Posted July 31, 2014 Share Posted July 31, 2014 (edited) That's what I figured, but then the question is: does the value of all 31 other teams instantly shoot up, leaving this Bills still as the third-least valuable team? It does, sort of. Someone doing an appraisal on another NFL franchise will use the Bills sale as a benchmark, much like Cletus' $150K house sale impacts the neighborhood. But in the end it's all what someone is willing to pay. Taken as a whole, $1.3B is what the Bills are worth when you look at future development and increased revenue opportunities, like say a hotel/convention complex built with a stadium, etc. etc. I have to assume Terry is a savvy businessman. Those people don't pay attention to the conventional wisdom of a Forbes article saying the Bills are worth $875MM. They figure the value themselves and act accordingly. He certainly snookered Jon-Blow-Me's group who must have believed they were going to waltz in with their billion dollar bid and everyone would bow to them. Edited July 31, 2014 by PromoTheRobot Link to comment Share on other sites More sharing options...
Jauronimo Posted July 31, 2014 Share Posted July 31, 2014 To split the baby, the value J is referring to is the intrinsic value of the franchise derived by the cash generating capacity of the assets. The price paid by the new owner will incorporate that, plus whatever premium he wants to ascribe to it to make sure he is part of an exclusive club. The main reason selling prices have been going up is because the perceived value of belonging to the club has been rising. Not because the economic returns have gotten so much better. If for whatever reason NFL isn't the belle of the ball anymore, then prices paid for the franchises will plummet, even though the underlying economics won't change. I think another factor that drives that gap between the theoretical intrinsic value and the purchase price is the exit value. You know when its time to sell the franchise that you're likely to sell for more than what you purchased based on the transaction history and the circumstances you described above. Link to comment Share on other sites More sharing options...
papazoid Posted July 31, 2014 Share Posted July 31, 2014 after the next TV contract, every NFL team will be worth at least $2 Billion. Link to comment Share on other sites More sharing options...
PromoTheRobot Posted July 31, 2014 Share Posted July 31, 2014 after the next TV contract, every NFL team will be worth at least $2 Billion. Bingo. Link to comment Share on other sites More sharing options...
BuffaloRebound Posted July 31, 2014 Share Posted July 31, 2014 Sports franchises are generally valued using revenue multiples, not cash flow or EBITDA multiples. Guys like Trump who are focused on the numbers usually never win bids for teams. Sports franchises are toys for the uber-wealthy, that unlike cars or yachts rarely depreciate in value. Valuations are usually just a point of reference. Pegula's bidding for a $1.3b shiny new toy that will pay him 3-4% annually and not depreciate in value. Link to comment Share on other sites More sharing options...
bigK14094 Posted July 31, 2014 Share Posted July 31, 2014 (edited) Under the accounting notion of "mark to market", the value of the Bills franchise will be the transaction price on the day they are sold. Whatever the Bills books shows today for the value (net book value) will then have a new entry called "good will" That good will item will be the difference between the price and the prior net book. And, the new owner will be able to depreciate that, I think. (I am not an accountant, but took a Cliff notes MBA about 25 years ago)) Any accountants on this board? At least, I think that will be the "tax accounting" value of the team......the new management may use another method of accounting...at their discretion btw. Edited July 31, 2014 by bigK14094 Link to comment Share on other sites More sharing options...
Kirby Jackson Posted July 31, 2014 Share Posted July 31, 2014 Sports franchises are generally valued using revenue multiples, not cash flow or EBITDA multiples. Guys like Trump who are focused on the numbers usually never win bids for teams. Sports franchises are toys for the uber-wealthy, that unlike cars or yachts rarely depreciate in value. Valuations are usually just a point of reference. Pegula's bidding for a $1.3b shiny new toy that will pay him 3-4% annually and not depreciate in value. True but they are virtually the same thing. EBITDA is going to come from your gross revenue. They pay a much higher multiple but 5 times gross revenue or 12 times EBITDA will get you to the same number. Valuations have VERY little to do with the ultimate sales price of a pro sports team to your point. They are worth what someone is willing to pay. Someone just paid $2B for the Clippers and $550M for the lowest "valued" team in the NBA (the Bucks). Link to comment Share on other sites More sharing options...
Jauronimo Posted July 31, 2014 Share Posted July 31, 2014 Under the accounting notion of "mark to market", the value of the Bills franchise will be the transaction price on the day they are sold. Whatever the Bills books shows today for the value (net book value) will then have a new entry called "good will" That good will item will be the difference between the price and the prior net book. And, the new owner will be able to depreciate that, I think. (I am not an accountant, but took a Cliff notes MBA about 25 years ago)) Any accountants on this board? At least, I think that will be the "tax accounting" value of the team......the new management may use another method of accounting...at their discretion btw. Can't amortize goodwill to the best of my knowledge. You write that down via impairment. Link to comment Share on other sites More sharing options...
Kelly the Dog Posted July 31, 2014 Share Posted July 31, 2014 True but they are virtually the same thing. EBITDA is going to come from your gross revenue. They pay a much higher multiple but 5 times gross revenue or 12 times EBITDA will get you to the same number. Valuations have VERY little to do with the ultimate sales price of a pro sports team to your point. They are worth what someone is willing to pay. Someone just paid $2B for the Clippers and $550M for the lowest "valued" team in the NBA (the Bucks). It also depends on the league you're talking about, and the time of the sale. You know this as well as anyone, but markets vary much more differently in other leagues than it does the NFL because of local TV rights. Plus, the NBA is exploding overseas and teams will be worth much more soon because of the China deal and some worldwide TV rights. The LA market is way different than the Milwaukee market for the NBA. The difference between cities is much, much less in the NFL. Link to comment Share on other sites More sharing options...
extrahammer Posted July 31, 2014 Share Posted July 31, 2014 And the value of those "assets" is captured in the cash flows. "Add backs" are what get you from net income to cash flow. Right, but there are many different formulas to value a business. Cash flows is one of a handful and it doesn't include the different valuation formulas. It's a buyers and sellers market, so the team's value will be what it is sold for. Link to comment Share on other sites More sharing options...
Hplarrm Posted July 31, 2014 Share Posted July 31, 2014 Value and worth are two different things. Who do you value more Donald Trump or Mother Theresa? Who is worth more Donald Trump or Mother Theresa? Different answers to these questions shows that we are talking semantically about different things. Back in the day when the George Bush led economy was caving in in 2008, in conversation folks would ask me to explain what I thought happened. I finally came to answer that the truth was found on the back of the dollar bill where it says, "In God We Trust". Money is a funny thing. Thinking about it though its hard to imagine, folks are quite willing to give me real stuff like a meal at a restaurant or drugs which eliminate an infection which makes it difficult for me to breathe in exchange for me giving green colored pieces of paper (or simply transfer some numbers from my banks accounting to their banks accounting. Its crazy. In the end, what the financial system is all about is that as people we have decided because in God We Trust or for some other reasons we live in a world where most of us agree to trade real stuff for columns of numbers that we call dollars, yens or pounds (or bitcoin in some iterations). In the end it all falls apart when we stop trusting in God. Link to comment Share on other sites More sharing options...
Augie Posted July 31, 2014 Share Posted July 31, 2014 (edited) Valuations have VERY little to do with the ultimate sales price of a pro sports team to your point. They are worth what someone is willing to pay. Someone just paid $2B for the Clippers and $550M for the lowest "valued" team in the NBA (the Bucks). There you go! All the formulas and multiples of cash flow and book value are nice tools. Ultimately, people do things for their own reasons. That's why banks want appraisals for houses. The Clippers deal might not go through if the uber rich didn't play with cash and their own set of rules. It's a shiny new toy for a guy who can afford it. Edited July 31, 2014 by Augie Link to comment Share on other sites More sharing options...
Kirby Jackson Posted July 31, 2014 Share Posted July 31, 2014 It also depends on the league you're talking about, and the time of the sale. You know this as well as anyone, but markets vary much more differently in other leagues than it does the NFL because of local TV rights. Plus, the NBA is exploding overseas and teams will be worth much more soon because of the China deal and some worldwide TV rights. The LA market is way different than the Milwaukee market for the NBA. The difference between cities is much, much less in the NFL. Totally agree!! The point that I was shooting for is that a bunch of teams sold in the last 5 years for $280M - $380M or whatever. Now the team that is valued as the least valued team sold for $550M less than 2 years later. Some of the guys (Philly & New Orleans) paid $200M less for a team valued lower than theirs just two years later!! What a win for them. The NFL variance will always be much smaller as long as the TV deal remains a national thing. This Bills sale will do wonders for the other owners in the league. Link to comment Share on other sites More sharing options...
Rubes Posted July 31, 2014 Author Share Posted July 31, 2014 Me before posting this topic: Me after reading this topic: Me right now after thinking about it some more: Link to comment Share on other sites More sharing options...
Big Turk Posted July 31, 2014 Share Posted July 31, 2014 The value of anything is always the same. It's whatever someone is willing to pay for it. Link to comment Share on other sites More sharing options...
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