Sept. 6 (Bloomberg) -- The record $2.3 billion sale of the Los Angeles Dodgers, buoyed by a projected windfall from the sale of its broadcast rights, doesn’t necessarily mean the value of professional sports franchises will continue to rise, according to Leo Hindery Jr., who helped establish the Yankees Entertainment & Sports Network.
The belief that professional sports franchise values will continue to increase because of expanding media opportunities is a “fallacy,” Hindery, managing partner at InterMedia Partners LP, said at the Bloomberg Sports Business Summit hosted by Bloomberg Link in New York.
Hindery said that valuation of new media opportunities is difficult to project because there’s little historical data for comparison, and television can’t sustain the current growth.
“It’s that assumption of perpetual ups in traditional media that’s a fallacy,” Hindery said. “It can’t be proven to be true.”
Hindery was part of a group bidding on Major League Baseball’s Dodgers, who were sold in March in a bankruptcy auction to a group including basketball Hall of Fame player Magic Johnson and Guggenheim Partners executive Mark Walter. The team’s existing broadcast contract with News Corp.’s Fox expires after next season, with many sports economists, including Smith College’s Andrew Zimbalist, predicting a heated bidding war between multiple companies.
The previous record price for an MLB team was the $845 million that Joe Ricketts, founder of TD Ameritrade Holding Corp., paid for the Chicago Cubs three years ago.
The record Dodgers sale sparked speculation that the value of other franchises will increase. The value of the 27-time World Series-champion New York Yankees rose to an MLB-high $2.85 billion after the Dodgers sale, according to March estimates by Tony Wible, a Philadelphia-based analyst who covers media companies for Janney Montgomery Scott LLC.
Hindery said that when analyzing the Dodgers’ value as part of Colony Capital Chairman Tom Barrack’s bid group, he was constantly thinking about how long the “gravy train” would last.
“Because if it doesn’t last, if there is some regulatory, economic, or technological intervention in the traditional models, you better be quick on your feet,” Hindery said.
The basis of franchise valuation begins with analysis of the team’s media contract, the status of its facilities and whether it will require a pricey management overhaul, according to Rob Tilliss, chief executive and managing partner of Inner Circle Sports LLC. Inner Circle Sports is a New York firm that represents buyers and sellers of pro teams.
An owner who purchases a franchise in a 32-team league, such as the NFL, is effectively buying a 3.3 percent stake in the league,, according to Joseph Ravitch, the co-founder and partner of the Raine Group LLC.
“The NFL pays its teams $100 million a year,” he said at the Sports Business Summit. “If you spun that out for a very long time and simply did a dividend discount model, you might argue that the present value of that dividend steam is worth more than the reported value of some NFL teams.”
The NBA pays teams $25 million a year, Ravitch said, the excess cash flow from its international licensing, marketing and media deals. If the league were to go public with NBA China, which it formed in 2008 by bringing in outside equity investors, it would create a large windfall for owners.
“If you look at the potential for a lot of these leagues, whether it’s hockey, whether it’s basketball, baseball, to go global and to create new businesses on a global basis, I think there’s room for substantial value creation,” he said.
To contact the reporter on this story: Eben Novy-Williams in New York at email@example.com
To contact the editor responsible for this story: Michael Sillup at firstname.lastname@example.org