NFL Team Valuations vs Stocks

Football season is just around the corner, so I thought it would be interesting to see how the league’s teams compare valuation-wise with the stock market.

Forbes wrote last summer (2014 was the latest for which I could find data) that the average team was then valued at around $1.43 billion, a 23% increase from 2013.  According to the same Forbes article, revenue per team averaged $299M, while operating income averaged $53M.  So, using traditional stock market metrics like the price-to-sales (P/S) and price-to-earnings  (P/E) ratios, we can calculate the the average NFL team in 2014 sported a P/S ratio of 4.78, and a P/E ratio of 26.98.  By comparison, at the end of 2014, the technology sector, – home to such high fliers as Apple, Amazon, and Google, – had a P/S ratio of 3.37, and a P/E of 20.01.

Another interesting comparison is the biotech sector.  At the end of 2014, biotech had a P/S ratio of 3.63, and a P/E of 28.92.  In other words, the NFL, – which provides little more than entertainment value, – is valued at a premium to technology companies that deliver life-changing products to consumers, and is valued on par with biotech companies who produce potentially life-saving treatments.

Why, then, are NFL teams valued at such a premium?

For one, revenue has exploded for the NFL.  In a 2009 paper “The Economics of NFL Team Ownership,” Professors Kevin Murphy and Robert Topel noted that the NFL had benefited enormously from “new media”such as the internet and video games.  Additionally, the authors noted, the major source of NFL revenue, television rights, are controlled by long-term contracts, which makes them strong and stable sources of cash to the league and its members, even during times of economic turmoil.  With seemingly insatiable demand for the league’s product, – including events such as the annual draft and preseason games, – team values are likely to keep increasing as the sport is becoming more of a global product:

There are other less tangible factors involved in premium valuations for sports teams.  Ben Carlson tipped me off to an interesting article by Bill Simmons who argued that there is ego involved in owning a sports team.  This makes sense:  there are around 500 billionaires in the US, but only 32 NFL teams, so owning one gives you admission to a very exclusive club.  That perk, along with the tremendous growth with which the NFL has rewarded it members over the years seems to explain the rich valuations.