Bills Sale Book's Most Important Number

[extrahammer]

So the team probably had a net profit of around $20 million last year. Good points.

 

http://www.forbes.com/sites/mikeozanian/2014/08/05/buffalo-bills-sale-books-most-important-number/

[Captain Caveman]

So if the new owner spends a billion dollars, it's a 2% return. It will likely be more than a billion dollars (especially any owner's contribution to a new stadium are included), but presumably the income should also rise with the next TV contract, and the team itself is also likely to continue rising in value.

[hondo in seattle]

Thanks for the link.

 

As mentioned in the article, many business people use factors of EBITDA (earnings before interest, taxes, depreciation and amortization) to determine the value of a business. For example, smaller restaurants may sell for 2x EBITDA while higher volume restaurants belonging to thriving chains might sell for 6x EBITDA.

The Bills EBITDA last years was $38 million. Even if we value it at 10x EBITDA, the value of the Bills would still only be $380 million. Strictly business wise, that ought to be (roughly speaking) the sale price.

 

Obviously, the true value of any commercial venture is the price the market will bear. But it's kind of amazing that business people will pay so much for an enterprise that nets so little. It would take Pegula a 34 years or so to make a $1.3 billion investment back. Buying a Taco Bell franchise has an immensely better ROI.

[Fingon]

Thanks for the link.

 

As mentioned in the article, many business people use factors of EBITDA (earnings before interest, taxes, depreciation and amortization) to determine the value of a business. For example, smaller restaurants may sell for 2x EBITDA while higher volume restaurants belonging to thriving chains might sell for 6x EBITDA.

The Bills EBITDA last years was $38 million. Even if we value it at 10x EBITDA, the value of the Bills would still only be $380 million. Strictly business wise, that ought to be (roughly speaking) the sale price.

 

Obviously, the true value of any commercial venture is the price the market will bear. But it's kind of amazing that business people will pay so much for an enterprise that nets so little. It would take Pegula a 34 years or so to make a $1.3 billion investment back. Buying a Taco Bell franchise has an immensely better ROI.

An NFL team seems to be more of a collectors item than actual business investment these days.

[KDIGGZ]

An NFL team seems to be more of a collectors item than actual business investment these days.

Yep! Nobody is buying an NFL team to get rich. They are already rich. They are just looking for bragging rights at this point

[A Dog Named Kelso]

Thanks for the link.

 

As mentioned in the article, many business people use factors of EBITDA (earnings before interest, taxes, depreciation and amortization) to determine the value of a business. For example, smaller restaurants may sell for 2x EBITDA while higher volume restaurants belonging to thriving chains might sell for 6x EBITDA.

The Bills EBITDA last years was $38 million. Even if we value it at 10x EBITDA, the value of the Bills would still only be $380 million. Strictly business wise, that ought to be (roughly speaking) the sale price.

 

Obviously, the true value of any commercial venture is the price the market will bear. But it's kind of amazing that business people will pay so much for an enterprise that nets so little. It would take Pegula a 34 years or so to make a $1.3 billion investment back. Buying a Taco Bell franchise has an immensely better ROI.

 

The initial investment of a professional sport team is somewhat irrelevant. The belief is that since it will appreciate exponentially it is better than having the money in other investments. So, a income stream of 20 million dollars a year is not bad. Who wouldn't like to get 50k back a year from your home while knowing (almost without fail) that your home is going up in value buy 100x when you decide to sell.

 

What you have to know is if the owner builds their own stadium that is where asset will lose money and not be recouped, This is one of the reasons the NFL has the public pay for them.

[Tyrod's Tailor]

The initial investment of a professional sport team is somewhat irrelevant. The belief is that since it will appreciate exponentially it is better than having the money in other investments. So, a income stream of 20 million dollars a year is not bad. Who wouldn't like to get 50k back a year from your home while knowing (almost without fail) that your home is going up in value buy 100x when you decide to sell.

 

What you have to know is if the owner builds their own stadium that is where asset will lose money and not be recouped, This is one of the reasons the NFL has the public pay for them.

 

I seem to remember hearing that "house prices don't go down" all throughout the 2000s. How did that turn out?

[BringBackFergy]

Who violated the NDA and gave this guy the info for this article??? Damn BonJovi!!!

[Captain Caveman]

It's hard for me to fathom that franchises will continue to rise in value as they have done in the last 20 years, but it's also an area of the economy that is extremely hard to predict. As the richest people continue to get richer, there will be people who will spend billions on a team, with very little (relative) return. At the same time, I think there is going to be a point where people (overall) decide to spend less on professional sports as entertainment.

 

In general, huge investments (e.g. 1.3 billion dollars) would be much less likely to increase exponentially than smaller investments. There's only so much room to grow.

 

The 100x increase you mentioned would bring the Buffalo Bills worth to 130 Billion dollars. That's Dr. Evil money.

[keepthefaith]

It's hard for me to fathom that franchises will continue to rise in value as they have done in the last 20 years, but it's also an area of the economy that is extremely hard to predict. As the richest people continue to get richer, there will be people who will spend billions on a team, with very little (relative) return. At the same time, I think there is going to be a point where people (overall) decide to spend less on professional sports as entertainment.

 

 

 

Very possible as most have to spend more these days on energy, food and health insurance. Leaves less for entertainment.

Edited August 5, 2014 by keepthefaith

[May Day 10]

the team has also been pretty irrelevant for 15-20 years. Turn that around and people will go nuts for them. break into primetime with a good team and they may see a wider fanbase who arent necessarily connected to WNY. People dig small markets who are good (GB Packers).

 

People here will go insane and buy anything and everything when the team is good again. The Sabres of 2006-07 proved that ground. Buffalo News Sabres Medallions anyone?

[Kelly the Dog]

Thanks for the link.

 

As mentioned in the article, many business people use factors of EBITDA (earnings before interest, taxes, depreciation and amortization) to determine the value of a business. For example, smaller restaurants may sell for 2x EBITDA while higher volume restaurants belonging to thriving chains might sell for 6x EBITDA.

The Bills EBITDA last years was $38 million. Even if we value it at 10x EBITDA, the value of the Bills would still only be $380 million. Strictly business wise, that ought to be (roughly speaking) the sale price.

 

Obviously, the true value of any commercial venture is the price the market will bear. But it's kind of amazing that business people will pay so much for an enterprise that nets so little. It would take Pegula a 34 years or so to make a $1.3 billion investment back. Buying a Taco Bell franchise has an immensely better ROI.

In 34 years your Taco Bell franchises will be likely worth the same it is now outside of inflation. In the last 34 years the value of an NFL franchise went up from maybe 30-40 million to 1.3 billion.

[Guffalo]

Interesting article linked from original post, http://www.forbes.com/sites/mikeozanian/2014/08/01/buffalo-bills-sale-has-turned-into-a-circus/

[CodeMonkey]

In 34 years your Taco Bell franchises will be likely worth the same it is now outside of inflation. In the last 34 years the value of an NFL franchise went up from maybe 30-40 million to 1.3 billion.

It would seem it went up for no economic reason. The bubble tends to burst on assets with a large overvaluation at some point as we have seen in recent history.

Was it Mark Cuban that was predicting a NFL crash not that long ago? While a crash would seem eminent based solely on the economics of the situation, as long as billionaires like to have swordfights with each other a NFL team should remain a safe investment.

[Kelly the Dog]

 

It would seem it went up for no economic reason. The bubble tends to burst on assets with a large overvaluation at some point as we have seen in recent history.

Was it Mark Cuban that was predicting a NFL crash not that long ago? While a crash would seem eminent based solely on the economics of the situation, as long as billionaires like to have swordfights with each other a NFL team should remain a safe investment.

They have consistently gone up though over the last 60 years. They made substantial jumps when certain TV deals were made and when certain owners paid a couple hundred million more than last sale. But it's been a steady rise and little reason to believe it won't continue.

[CodeMonkey]

Interesting article linked from original post, http://www.forbes.com/sites/mikeozanian/2014/08/01/buffalo-bills-sale-has-turned-into-a-circus/

That is an interesting take. If the trust has handcuffed potential new ownership as many believe, that certainly would keep the number of bids as well as the amount of the bids themselves down and would explain the desire to get Golisano and potentially others into the mix.

 

The trust may well have F'd themselves and Pegula could end up getting a pretty good deal out of it.

Edited August 5, 2014 by CodeMonkey

[8-8 Forever?]

Thanks for the link.

 

As mentioned in the article, many business people use factors of EBITDA (earnings before interest, taxes, depreciation and amortization) to determine the value of a business. For example, smaller restaurants may sell for 2x EBITDA while higher volume restaurants belonging to thriving chains might sell for 6x EBITDA.

The Bills EBITDA last years was $38 million. Even if we value it at 10x EBITDA, the value of the Bills would still only be $380 million. Strictly business wise, that ought to be (roughly speaking) the sale price.

 

Obviously, the true value of any commercial venture is the price the market will bear. But it's kind of amazing that business people will pay so much for an enterprise that nets so little. It would take Pegula a 34 years or so to make a $1.3 billion investment back. Buying a Taco Bell franchise has an immensely better ROI.

 

ummm... not quite. Lets mimic what Morgan Stanley and the bidders are doing:

 

(A) say the buyer holds the team 15 years and the EBITDA increases only 5% per year (because ticket prices go up and the gov builds him a stadium and that causes more revenue). Also, lets say the money our prospective owner is putting out to buy the franchise would was only going to get him maybe a 10% annual return otherwise (the markets being what they are now) : so , our owner will take the $38m of today's EBITDA cash flow and discount it at (10%- 5% ) = 5% (to account for the time value of money - just like your mortgage) for 15 years of cash flows. That result is $400M. that is what you would pay for 15 years of Buffalo Bills franchise cash flows.

 

(B) But this is only one part of the valuation. At the end of 15 years the team is sold again, presumably for at least todays EBITDA multiple, which appears to be something like $1.2B / 38M = 31x EBITDA, an amazingly high EBITDA multiple, but hey the NFL is a monopoly and their are only 32 franchises in the greatest sports league in the world. So, assuming the 38m today has grown 5% per year for 15 years, that means EBITDA 15 years from now is say, $80m in what would be the year 2029. $80m times 31 multiple = $2.5B value of the franchise 15 years from now. Seems reasonable if the league continues conservatively along its present pace. Now the value in today's dollars of $2.5B received 15 years from now is around $600M at our 10% discount rate (also known as the opportunity cost of capital -- the return your could have gotten by investing in things other than the Bills).

 

So, you add the $380m from valuation part (A) to the $600m from valuation part (B) and you get roughly $1B . So when you do the math the way investors do it, $1B for an NFL team is justified, not just a plaything. the investment actually pays off.

 

I am assuming the new owner either does not have to participate in the cost of a new stadium (simply leases it for his teams' use) or if he does, he makes a return on all stadium revenues sufficient to provide a attractive return on his investment in the stadium

[HopefulFuture]

Thanks for the link.

 

As mentioned in the article, many business people use factors of EBITDA (earnings before interest, taxes, depreciation and amortization) to determine the value of a business. For example, smaller restaurants may sell for 2x EBITDA while higher volume restaurants belonging to thriving chains might sell for 6x EBITDA.

The Bills EBITDA last years was $38 million. Even if we value it at 10x EBITDA, the value of the Bills would still only be $380 million. Strictly business wise, that ought to be (roughly speaking) the sale price.

 

Obviously, the true value of any commercial venture is the price the market will bear. But it's kind of amazing that business people will pay so much for an enterprise that nets so little. It would take Pegula a 34 years or so to make a $1.3 billion investment back. Buying a Taco Bell franchise has an immensely better ROI.

 

When it comes to a business such as an NFL franchise, you cannot look at the net return in dollars as the only value of the product. There are secondary values that aren't actually secondary. What they don't make back in monetary means across the span of the owners lifetime they make up for in other areas, such as leveraging ability on an asset that is sure to continue to rise in value, the ability to move in the political arena as a player at the larger the table for various issues and the over all prestige of owning such a product offers a great deal muscle flexing in some regional power plays as well.

[Ronin]

So if the new owner spends a billion dollars, it's a 2% return. It will likely be more than a billion dollars (especially any owner's contribution to a new stadium are included), but presumably the income should also rise with the next TV contract, and the team itself is also likely to continue rising in value.

 

Buffalo has the smallest TV market in the entire league.

 

This has been my point all along, it would take a new owner, assuming that he makes that much, 2%, every year, and it hasn't nearly been the case in past season as in 2012 I think it was only $12.7M or around there, which is much less, but it would take 50 years to recoup that investment.

 

So as investments go, this is why few bidders were interested. It's going to take a guy like Trump who cares more about being in the limelight, or Pegula, who has sentimental interests, to bid and bid high.

 

Also, until the news comes out that the trust has the option of not necessarily selling to the highest bidder, I'm going to be somewhat cautious with any optimism about the team selling to an owner that would definitely keep the team here, which seems to be only Pegula.

[A Dog Named Kelso]

I seem to remember hearing that "house prices don't go down" all throughout the 2000s. How did that turn out?

Thus why I added the "Almost without fail", nothing is a certainty. The point is, barring a catastrophe, the value of the franchise will rise or at the minimum stay the same.

Edited August 5, 2014 by A Dog Named Kelso