From Everton to the Hundred: How to put a price on a sports team or franchise

How do you put a price on a sports team? It is the question that the Hundred is now asking prospective investors by circulating a document to potential buyers to entice them into offers. In football, the Friedkin Group has just found an answer, buying Everton for £500 million.

Until this century, evaluating British sports teams did not particularly matter. They tended to not be worth much, and were best viewed as a way to lose money. As chairman of Tottenham Hotspur in 1997, Sir Alan Sugar likened money earned by football clubs to prune juice: “It comes in and goes out straight away.”

American sports teams had always had a different approach. In 1958, after 68 seasons in New York, Brooklyn Dodgers moved to Los Angeles. “My heart was broken,” musician Neil Diamond said. Millions more fans would feel the same way when other US sports teams moved. It is a function of the cold logic of US sport: any team can be moved, if the price is right. Where British sports teams evolved as community clubs, US sports teams were always unashamedly run for profit.

British sport moved decisively towards the American model in 2005, when Malcolm Glazer bought Manchester United. The Glazers had no prior emotional attachment to the club. Instead, they bought it because it was good for business – the same rationale that had earlier led them to buy the NFL team Tampa Bay Buccaneers.

The bet paid off. As majority owners, the family took more than £1.1 billion from United, across interest payments on the money they borrowed to fund the purchase, debt repayments and in excess of £170 million in either management and consultancy fees or annual dividends. After selling a 27.7 per cent stake to Sir Jim Ratcliffe, the Glazers locked in a further £439 million profit even while retaining 49 per cent shares, calculates Andy Green from the Manchester United Supporters Trust.

The Glazers were the first US owners of any Premier League club. With the Friedkin Group’s purchase of Everton, half of all sides in the top flight are now owned by Americans.

The Americanisation of the Premier League is almost complete. These owners did not grow up as devout childhood fans of the clubs they call their own. Instead it was economics, not emotion, that led them to make their purchases.

‘It’s more art than science’

No valuation of any business can ever be entirely precise. Putting a price on a sports team is “as much an art as it is a science”, says Rob Wilson, a professor at the University Campus of Football Business.

Prospective owners tend to begin by looking at other comparable clubs who have sold recently as a gauge. Together with their annual revenue, garnered from fans in stadiums and media rights, clubs have two main forms of tangible assets: their physical infrastructure – their stadium and training ground – and the value of the playing squad.

How long it will take to get their money back is a fundamental question for any investor. For teams that are underperforming or need substantial investment in their infrastructure, Wilson explains, investors might have to wait five years before making an annual profit. Private equity investors would typically expect to move a team into making solid annual profits before then selling off the club, perhaps a decade after their purchase. At this point, they would recoup their original investment and lock in an overall profit. For interested parties in the Hundred, one of the main concerns is that – based on the figures being touted to buy sides – it could take decades for them to make back their original stake.

Digital engagement numbers are increasingly an important consideration for potential investors because they are a proxy for how many followers a club might have. A club with more followers will be in a better place to grow their audiences – and ultimately monetise more fans.

The Premier League is the lone major sports league in the world to generate more income abroad than at home. In other cases, the hopes of monetising, say, the American or Indian markets are largely delusional; the Hundred’s promise of a 16-fold increase in the value of its overseas broadcasting rights by 2030 is widely seen as optimistic. If a prospective investor cannot make the sums viable from their home market alone, then it is probably not a good deal.

Hostages to geography

For prospective owners, geography matters. Football clubs in the capital have long had a ‘London tax’: an extra premium to reflect how the city is the most desirable for owners to travel into, or to entertain potential clients in.

So it is now with the Hundred. The franchises based at Lord’s and the Oval are expected to be sold for the highest amounts, perhaps attracting three times as much as Cardiff-based Welsh Fire, who are the least-coveted team.

Wherever a team is, investors will pay more if their stake comes with control. Ratcliffe’s initial stake in Manchester United was rendered more valuable because it came with full power over the football team. Conversely, Indian Premier League owners assessing whether to invest in the Hundred regard a stake as significantly less attractive if it does not come with a say in the sporting operation. One source said that if, hypothetically, a 51 per cent stake in a side, including full control over the cricket operation, was worth £51 million, then a 49 per cent stake in a team, without any sporting control, would be worth only £25 million.

But, when it comes to attracting investment, Hundred franchises have one major advantage over Premier League sides. Like US sports leagues, the Hundred is a closed competition, without any promotion and relegation.

Open leagues, like the football league pyramid, are the enemies of certainty. Where some see the prospect of romance, with teams riding up the ladder, owners see only risk: how relegation could cost them hundreds of millions. This has been the experience of Venky’s, which bought Blackburn Rovers in 2010, when they had just finished 10th in the Premier League. Blackburn were relegated two years later; more than £180 million of investment from the family later, they have not returned to the top tier.

Not coincidentally, the moves to split the biggest clubs away from the rest of the pyramid – whether through Project Big Picture or the proposed European Super League – were largely led by US owners. For owners, the beauty of closed leagues is that, with much revenue divided up centrally and salary caps to curb player wages, you do not even need to win to make money.

The result is that “revenues and costs are much easier to predict”, Victor Matheson, Professor of Economics at the College of the Holy Cross, says. “For any level of current revenue or profit, along with similar expectations for future league revenue growth, you should expect a US team to sell for more than a Premier League team because the US team is likely to have less risk associated with it.”

The financial appeal of closed leagues is embodied by the Dallas Cowboys, who have not won a Super Bowl for 28 years – yet recently became the first sports team in the world to be valued at $10 billion.

Shrewd investors, of course, will not just consider how the market is today. They will also consider how it is likely to evolve. Historically, football clubs in the Championship offered the prospect of buying for relatively cheap, winning promotion and then seeing the side’s value soar. Not coincidentally, the two best embodiments of this approach are traders: Tony Bloom, with Brighton, and Matthew Benham, with Brentford – although both men were also boyhood fans of the clubs. As more owners have tried to do the same, the possibilities for a bargain have become scarcer.

Exploring new markets

Now there is a growing sense that the best value might lie in women’s sport. These teams can still be bought for meagre amounts compared to men’s sides. Surging interest in the Women’s NBA, spurred by Caitlin Clark, illustrates how there is much more potential for growth in women’s sports. These offer the promise of what every investor craves: an explosion of media rights. On this basis, teams might be sold for more than their current profit levels would suggest.

Yet for all these calculations, sports teams remain different to other investments. There are benefits that cannot be measured financially to owning a sports team: associating with superstars, free publicity and at least the potential to win public goodwill. George W Bush was co-owner of Texas Rangers before his successful campaigns for governor and then president.

And for all that owners increasingly conceive of teams as a normal business, professional sport remains a uniquely fickle investment climate: a world in which the vicissitudes of an injury or a bad refereeing decision can knock off tens of millions in value. Yet as prospective owners weigh up buying some of Britain’s most coveted sports teams, they will be motivated less by glory than the bottom line.