Factors Affecting The Value Of A Professional Sports Team

Sporting events are popular destinations for the general public. Many people enjoy watching their favorite team compete. The popularity of professional sports has led to an increase in the value of sporting franchises.

Assigning value to a sports team can be challenging, since the revenue and expenses of these organizations differ from those of a traditional company. Become familiar with the factors that can affect the valuation of a sports team to better understand how much your favorite team is worth.

Revenue Sources

The first factor that financial professionals look at when determining the value of a sports team is the various revenue sources funding the sports team. The two primary revenue sources for most sports teams are ticket sales and media revenue. These sources can fluctuate from one year to the next.

Revenue is also generated through sponsors and merchandise sales. All viable revenue sources must be carefully evaluated and future revenue projected in order to determine how much a team is worth.

Operating Expenses

Professional sports teams are structured in a manner similar to other private companies. There are operating expenses that must be paid each year to ensure the players can continue to deliver the entertaining performances fans look forward to.

Major operating expenses that all sports teams must cover include marketing, advertising, arena rental, and salaries. The most significant operating expense, player salary, can vary greatly from one year to the next.

Player salary can have a direct impact on the profitability of a sports team, since the caliber of players on the team can influence the amount of ticket sale revenue earned each year. Because of the relationship between expenses and revenue, these expenses must be factored in when determining the value of any professional sports team.

Revenue Sharing

All major sporting leagues have a revenue sharing program that allows league-wide profits to be shared among all owners of teams within the league. The exact percentage dispersal of these revenue sharing programs is not known to the public, but must be disclosed when a team is being valued prior to a sale.

The revenue that is received through profit shares can play a determining role in deciding how much a professional sports team is worth.

Setting the value of a sports team is a challenging process that must take many unique factors into consideration. Financial experts that specialize in sports team valuation can factor in all variables to determine a realistic value for any sporting franchise. Companies like Sports Value Consulting, LLC can help.