Sunday, March 02, 2008
The Rate of Return on Sports Franchises
Over on Newmark's Door, economist Craig Newmark discusses a recent New York Times article by Joe Nocera about why bad team owners want to own professional sports teams. Both the Nocera article and Newmark's comments make for interesting reading. The argument comes down to this: Nocera claims that even bad owners of lousy teams make big money from capital gains when they sell the team; Newmark points out that the rate of return in Nocera's example (prototypical bad owner Donald T. Sterling bought the LA Clippers for $13.5 million in 1981 and the franchise is now worth about $300 million according to the most recent Forbes estimates) are not that great in the context of the stock market.
I want to add a couple of points to this debate:
I want to add a couple of points to this debate:
- They both mention operating losses claimed by pro sports teams. These must be taken with a grain of salt, if not treated as complete fabrications. It has been more than ten years since Paul Beeston's famous quote: "Anyone who quotes profits of a baseball club is missing the point. Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss and I could get every national accounting firm to agree with me." Both of them should know better than to pay any attention to claims of operating losses, until hard evidence proves otherwise.
- They both argue about the Forbes franchise value estimates that come out every year. These estimates are consistently lower than the actual sales prices of franchises.
Labels: finance, franchise values
Friday, February 29, 2008
Watch Out, NHL!
An article in today's New York Times claims that the top professional hockey league in Russia, the Superliga, plans to challenge the supremacy of the NHL as the world's top professional hockey league. How? The article is short on financial details (but does manage to work in some tidbits about supermodel Carol Alt, wife of current Superliga and former NHL star Alexei Yashin) but it seems to involve some economic alchemy that involves Russian energy giant Gazprom and $100+ a barrel crude oil.
According to the CIA World Factbook, PPP adjusted GDP per capita in Russia was $14,600 in 2007. I have trouble believing that a country with income per capita that low can generate sufficient revenues from fans to support NHL-level salaries, no matter how expensive crude oil gets.
(HT to Brian Soebbing)
According to the CIA World Factbook, PPP adjusted GDP per capita in Russia was $14,600 in 2007. I have trouble believing that a country with income per capita that low can generate sufficient revenues from fans to support NHL-level salaries, no matter how expensive crude oil gets.
(HT to Brian Soebbing)
Tuesday, May 22, 2007
Not a great investment
I'm speaking of Wolverhampton Wanderers, a football club that was in the old first division when I first set foot in England in 1973. I've kept track of them off and on ever since. A good friend - a former Clemson soccer player and Econ alumnus - comes from Wolverhampton, which makes their recent lack of success somehow more rueful for me. But back to the point - the investment. Here's the condensed story of Sir Jack Hayward, former owner of Wolverhampton Wanderers.
Hayward, 83, who used to crawl under the turnstiles at Molineux to watch the team as a boy, bought the club 17 years ago for £2.1 m from Gallagher Estates, and spent around £50m in the first 10 years in unsuccessful attempts to take Wolves back to the old First Division, and latterly the Premiership.I haven't seen the books of Wolves, but an English soccer club, particularly when operated by a benefactor such as Sir Jack, is a break even business at best. And so, after (at least) £52m of investment since 1984, Sir Jack is turning the club over to a fellow named Morgan, from Liverpool. For £10. Football can be a cruel game.
Four years ago he retired as chairman, handing over to elder son Rick, and taking the title of life president, which he will retain. He promised he would stand aside if the right person came along, and a number of potential suitors showed interest, including Milan Mandaric, before he took over at Leicester, and a consortium led by Graeme Souness. All were rejected until yesterday's news from Wolves that Hayward had taken the "unprecedented step of 'gifting' the shares" to Carden Leisure Ltd, who are controlled by Morgan.
Labels: english football, finance
