Sports Franchise Valuation
The sports industry has undergone many changes over the recent decades. Some changes include the emergence of corporate team ownership, the booming of stadia construction, and the introduction of stadium naming rights, among others. These changes have led to the sports industry becoming a significant economic sector, attracting interest from economic players. Accordingly, this paper delves into the analysis of economic determinants of a sports franchise’s value and the evaluation of the franchise valuation of the Los Angeles Rams, which competes in the National Football League.
Economic Determinants of a Sports Franchise Valuation
Team Performance
One of the major determinants of the value of a sports franchise is its performance the previous season. The performance is determined by the team’s ranking in the previous season’s table standings. The higher a team finishes, the higher the value it attracts (Flora, 2020). Performance is crucial when determining a team’s performance, firstly because it affects its reputation. If a team continually underperforms, its fanbase will likely withdraw season ticket subscriptions. The revenue prospects of an underperforming sports franchise are low, thus the low market value.
Regional Identity
Another critical determinant of a team’s value is its regional identity. Regional identity is vital in determining a team’s value because it is associated with the team’s geographic fanbase (Flora, 2020). The more the team is associated with its geographic base, the more value it will attract. For instance, having the name, Tennessee Titans instead of Nashville Titans will make the team more profitable if it is based in Tennessee. Team owners always try to establish regional identity to gain market value. For instance, Manchester United Football Club and its city rival, Manchester City, have battled for Manchester’s regional identity. Manchester United seems to have edged out its rival thus far.
Opening New Stadiums
The construction of new facilities also affects the value of a sports franchise. Firstly, new facilities come with extra sophisticated suites that can be used to generate extra income (Alexander & Kern, 2004). Besides, teams playing in new facilities attract a higher fan turnout, collecting more revenue (Flora, 2020). Such a tendency of fans to turn out in their numbers is a traditional behavioral pattern among sports fans. The impact of playing in new facilities is particularly felt in the NBA, NHL, and MLB, but not the NFL.
City Population
The population of the city where a sports franchise is located is also a significant economic determinant of a team’s value. This is the most widely used determinant of a team’s value. For instance, in North America, teams whose host cities have a high population have a correspondingly high market value (Alexander & Kern, 2004). The population of a city closely relates to regional identity, such that the residents of the city are presumed to support the team. Therefore, a higher population translates to a higher local market.
New Team
A sports franchise’s novelty also impacts its value. Firstly, the introduction of a new team draws curiosity from fans who are excited by the novelty. Such interest may not last forever, but at least it lasts for the first few years of a team’s existence. While fans are still interested in a team, its value will remain high. For instance, the arrival of a new team in the MLB has consistently enhanced the new team’s valuation (Flora, 2020).
Sports Franchise Valuation
The National Football League (NFL): Los Angeles Rams
The overall value is $4.8 billion, and the operating income is $372 million.
One of the NFL’s most significant revenue sources is media rights. The NFL’s new national media rights are worth $118.8 billion (Ozanian, 2021). The revenue collected from the media sector is to be shared by all 32 teams participating in the league, Los Angeles Rams included. Most of the league’s investment boom has also been buoyed by the entry of betting companies. For instance, the revenue for NFL increased when Genius Sports became the official sports betting source for the NFL.
Championships
The club is the only NFL franchise to win championships while representing three cities. In 1955, the club won a championship while representing Cleveland. In addition, it won for Los Angeles city in 1951 and 2021. Finally, the club won a championship for St. Louis in 1999.
Gate Receipts
Los Angeles Rams have collected significant revenue from ticket sales over the past decade. A survey conducted between 2010-2020 shows that ticket sales shot in 2016 from $43 million the previous year to $78 million in 2016. The revenue from ticket sales has since remained high, with the club collecting as high as $71 million in 2020.
Support Base/City Population
Los Angeles Rams enjoy a support base of 5.6 out of 10 in the city of Los Angeles. In 2021, the club drew a total of 1.16 million fans. Out of these, the average attendance was approximately 67,844 fans.
Conclusion
In summary, the recent changes in the sports sector have occasioned the ongoing commercialization of the sector. This means sports franchises are valued to determine their market value. Some of the economic determinants of a sports franchise’s valuation include team novelty, new stadium/facility, team performance, the population of the host city, and the team’s regional identity, among others. These economic factors affect the revenue prospects of a sports franchise.
References
Alexander, D. L., & Kern, W. (2004). The Economic Determinants of Professional Sports Franchise Values. Journal of Sports Economics, 5(1), 51–66. https://doi.org/10.1177/1527002503251715
Flora, R. (2020). The Economic Determinants of American Professional Sports Franchise Valuations. https://digitalcommons.wku.edu/cgi/viewcontent.cgi?article=1878&context=stu_hon_theses
Ozanian, M. (2021). The NFL’s Most Valuable Teams 2021: Average Team Value Soars To $3.5 Billion As League Shrugs Off Pandemic Year. Forbes. https://www.forbes.com/sites/mikeozanian/2021/08/05/the-nfls-most-valuable-teams-2021-average-team-value-soars-to-35-billion-as-league-shrugs-off-pandemic-year/?sh=613436dd654e
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Question 
Each year, Forbes publishes lists with the valuations for sports franchises and reviews of the businesses of the main professional sports leagues in North America. For this assignment, complete a review of the determinants of franchise valuation. Use the most current Forbes (Links to an external site.) (http://www.forbes.com/lists/) in addition to the course readings to complete your assignment.
Sports Franchise Valuation
In a narrative format, write a paper that includes:
Analysis of the economic determinants of professional sports franchise value.
Evaluation of the franchise valuation of one sports franchise of your choice. In the valuation include factors such as, championships, price paid, revenue, operating income, debt/value, player expenses, gate receipts, wins-to-player cost ratio, revenue per fan, and metro area population.
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