No, I don't think they generally do. They want to avoid that publicity. But it's a premium asset and he made 20% profit on it in a year and flipped it. So then I began thinking about, well, why would you buy a team and how would you set the valuation? One thing that you should think about in the US at least is that there's a tax benefit to owning a sports franchise. It's under section IRC 197. This was changed a few years ago to allow for this tax treatment on teams, and it allows you to basically amortize the value of the team over 15 years for tax purposes by classifying that purchase price as an intangible asset. So here's how the math would work and why this might make sense, especially if you live in a high tax state like California or maybe New York or New Jersey. Let's say you buy a team for $3 billion. You immediately take that entire amount as goodwill and you start amortizing that at one-fifteenth per year over the next 15 years. So let's say within five years you can amortize a couple hundred million a year against your taxes and reduce your cost basis in the team down to $2 billion. You take a full tax deduction for all of that write-off. So the billion dollars in deductions that you deducted from your taxes could be worth 37 cents on the dollar for federal purposes. On top of that, you get maybe some benefit on state and local taxes, especially if you're in California. That stuff really adds up. And now the team is carrying at $2 billion on your books. If the team is profitable, and most of them are, you can make some income on that. So maybe that income generates some taxable income, but you can offset the taxable income with this amortization. Well, let's say you sell the team down the line for $6 billion. The first thing is the $2 billion cost basis gets recovered. There's another billion dollars in recapture under a different part of the tax code, IRC 1245. And then the profit is capital gains, which in most states and at the federal level is taxed at preferential rates. So by buying a team at $3 billion, taking that full amortization to offset any profits you can make, and then selling for a profit at a favorable tax rate, there's actually a really good tax reason to want to own the team. If you look at the valuation of all the different teams now, with the LA Lakers sitting up there, let's see where the teams stack in the US. On the far left, the only team right now that's north of 15 billion valuation is probably the Dallas Cowboys. There's another grouping in the valuation range of 12 to 13 billion. The Lakers are now in that. The Golden State Warriors, I think, are in that. Probably the Giants, probably the Rams, and that's probably the premium franchises in sports. Around the 10 billion mark, you've got a lot more teams. I think the Patriots are maybe high into that range. You got some teams like the Jets and Eagles, probably San Francisco 49ers, and a few other NFL franchises. And the next group over, 8 to 9 billion, you've got the Yankees, the Dodgers, which are the two most valuable baseball franchises, as well as probably the remaining NFL teams. Kind of a long tail of NFL teams. And most other franchises are between five and six billion dollars. So the long tail of the NBA, you probably have a couple of hockey teams in here. The Toronto Maple Leafs are almost certainly 5 billion US or would be close to it. The Edmonton Oilers might be in that category as well. I'm actually missing one franchise which actually should be on this list. It's the New York Knicks, the defending NBA champions. They're probably around 10 billion. I don't understand how you can be worth 10 billion if you win one championship every 30 years, but that does seem to be where they trade. So, you know, so good for them. They're now, I think, in the elite group. You might ask, how does the team go about getting valued? So let's break down those three big franchises in Major League Baseball. They all trade around 10, 9, 10, 11, 12 times revenue. So they're at a multiple on revenues, and the revenues come from the following sources. There's stadium revenue, so seats and concessions. In the case of these three franchises, you can see the Yankees make 320 million revenue. That's probably the biggest stadium with the most premium seats. Dodgers are right behind. Red Sox, much smaller stadium, don't quite make as much revenue. Then there's another big chunk from media rights. In the case of the Yankees, it's about 220 million a year. Red Sox are about that as well. The Dodgers have a much, much bigger number for media rights. We'll talk about why in a second. And then you got sponsorships and merchandising, which is the other big chunk of revenue. The overall revenue for each of these companies, Yankees probably a little over 700 million in revenue. Red Sox a little bit behind. Dodgers clipped over 800 million in revenue last year. A lot of that from those media rights. The reason why is that they signed a great deal with the regional rights at the time when the regional sports network bubble was happening in 2013. They locked in a 25-year deal. It was $8 billion at the time from Time Warner Cable, and they built out SportsNet LA. So that's a very valuable part of their franchise, which no other team in the business has. A couple of notes on how these different leagues manage revenue. So in the NFL, the team keeps 66% of its gates and concessions, and then all the local stadium revenues, sponsorships, and luxury suites, you get to keep 100%. In the NBA, the team only keeps 50% of that gate revenue and 50% of the local revenue. So if you're an NFL team, there's a big incentive to invest in things like the luxury seats and luxury suites. And that's a big incentive then for teams like the Cowboys to make that experience just much richer for the fans. Major League Baseball, the teams keep about half, similar to the NBA, they keep half and contribute half to a shared pool. The NHL, I guess, a lot of Canadian teams in there, a little bit of a, you know, take from the rich and give to the poor mentality. The top 10 teams contribute and the other 22 teams get to keep the 100%. So it's a way of maybe leveling the playing field a little bit. Broadcast rights. The NFL has a very lucrative contract which is shared equally among all the teams, which makes all those teams competitive and very valuable. The NBA also does a shared equally model for national media, as does the MLB and the NHL. On the merchandising side, there's only one team in the NFL that gets to keep the lion's share of its apparel and licensing revenue. The rest of them and the rest of the leagues typically share that merchandising. The one team in the NFL that does it different is the Dallas Cowboys. Jerry Jones signed a special deal to keep most of his revenues, and that actually makes his team a lot more valuable, and it makes it the most valuable franchise in sports. So if you look now at the revenue multiples, you can see on the MLB side, the three outliers we talked about, the Red Sox, the Dodgers, and the Yankees, they're all like 10 to 12 times sales, they're at the very top of the list. And then there's kind of a big dispersion between the teams at the very top of the MLB and then teams at the very bottom that don't sell out all their games. The Miami Marlins, for instance, their ticket revenues are more choppy. They don't take these deep playoff runs like the Yankees and the Dodgers do. And so the multiple that they're getting from their investors, I guess, is not quite the same. In the NFL, there's a lot more compression between the top team with the Cowboys, but their sales multiple looks like a lot of the other multiples, and there's a lot more compression because they've got this really big media deal which all the companies, all the teams benefit from. So it stabilizes their revenue. It produces more stable multiples and more of a competitive field. If you look at how the companies generate revenue, this is interesting. There's really two outliers in this whole chart. This is a list of all the teams in the NFL and how much revenue they make, and then all the NBA teams and how much revenue they make. You can see there are two outliers in the far right side of the chart. One is the Cowboys because of the Jerry Jones licensing agreement where he gets to keep the lion's share of what they generate, and they're also keeping 100% of all the luxury suites, and AT&T Stadium has got the best luxury suites in the game. So those are big revenue drivers that make the Cowboys the highest revenue, most profitable team around. And then the Golden State Warriors who have privately funded the Chase Center, and so they drive year-round revenue and also have premium pricing and suites and very high rates globally driven by Steph Curry. So those two teams are doing the best job of running the business. Let's do a deep dive now with the Cowboys just to see how they've done such a great job building the most valuable team in the game. Of their revenues, about 1.2 billion revenue a year. About a third of it is from the gate receipts. A lot of these luxury suite revenues, a lot of non-NFL events, and so they're able to retain all that per the contract and their deal with the NFL. Another 400 million comes from their national TV contract, which is one-thirtieth of all the revenues generated by that great big TV media contract that they were able to sign. And then they have a lot of category-exclusive partnerships and licensing and merch and use of the stadium. So they're able to generate real estate and hospitality revenues that other teams just can't do. It's an interesting business. I think the Lakers ultimately are trading at about, you know, 9 to 10 times revenues. That's kind of what the sales multiple would suggest. And they've done a great job with their licensing and being able to fill their stadium and being able to generate those media rights. And so I guess that justifies the multiple. I don't know if I'd pay, you know, 10 to 12 times sales for a sports franchise. I guess that works out to maybe 25 to 30 times profits, but there's also a lot of marquee value and celebrity value in owning a sports team. So that has to factor in somewhere as well.
