We sometimes forget that the professional sports teams we watch on Television every week are virtually no different than the McDonalds or H&R Block franchises down the street. The owners tend to be billionaires and there is obvious exclusivity associated with professional sports franchises, but in the end, it is the same concept, same system and same franchise platform that makes the business model so effective. In recent years, the valuations for basketball franchises have lead the way in the news with amazing increases in valuations, football is not far behind and most other professional franchises seem to also have amazing values associated with the franchise businesses. They are growing each year in their value and there are many different contributing factors that are driving this trait. As a pretty regular person like myself, the idea of owning a professional sports franchise seems like a pipe dream, but the factors that are driving growth in these segments can be valuable to understand when considering investing in other franchises and in positioning your own brand for franchising.
What are the statistics for professional sports franchise growth?
1. The Values of NBA Teams are increasing exponentially fast, up 74% from 2015 to 2016: http://www.forbes.com/nba-valuations/
2. The average NFL team valueis $2 billion, up 38% from 2014 (Top team is Dallas Cowboys at $4 billion – incredible considering Jerry Jones purchased the entire franchise for $140 million)
3. In 2015, Major League Baseball teams eclipsed the record, $1.2 Billion Average Valuation with the Yankees leading the way at a $3.2 billion value (http://www.forbes.com/sites/mikeozanian/2015/03/25/mlb-worth-36-billion-as-team-values-hit-record-1-2-billion-average/#806774b741e5)
What Makes Them Valuable and such an appreciating asset?
There are a few key elements that make these sports franchises so valuable to investors. First off is the structure that is used and the consistent business model in place in each league. It is in place to carefully protect the integrity of the brand itself and the overall association with the teams, such as the NFL, MLB and NBA. The teams have a structured, rule driven platform they must operate within to stay compliant with league rules and structure. The business model is based on a diverse revenue stream combining Advertising Dollars, Sponsorship revenue, Royalties, Ticket Sales and Endorsements. The leagues generally share this revenue generously with the teams and the teams support the leagues initiatives to grow the fan base.
As in any franchise system, the value comes down to a number of key elements:
• Structured brands carefully protects the integrity of the overall association with NFL, Major League Baseball, NBA, etc.
• Training and processes which provide high levels of performance and also consistent customer experience.
• Strong value add from a strategic standpoint, all leagues provide TV, branding and revenue sharing opportunities and royalty sharing from ongoing market growth.
• A never ending focus on the end consumer – making sure that the customer interest in the product is increasing and maintained in order to keep the franchisee’s business increasing and strong demand for the product.
• Supply and Demand – each of the professional sports franchises have a limited amount of opportunities for people to join the franchise brand, this drives up market value.
The training involved is also held to a higher standard. They provide upper levels of experience with the end consumer and make sure that all processes are of value to those who participate in the franchises end result. They strive to provide a consistent experience for the end consumer when it comes to watching the games or visiting the fields.
When it comes to branding, these leagues excel in virtually every category, they truly are marketing and branding experts and support the franchisee’s business and customer growth. You’ll find TV marketing, revenue sharing, and even royalty sharing from the ongoing advertising and marketing plans.
Each league is dedicated and consistent in providing Goodwill and charity work – providing value to the community and always communicating to the public why and how the franchise is involved in the market. (http://www.nflcharities.org/faqs/#q30)
Franchisees benefit by showing they are willing to give back to those who support their team so it’s important that goodwill is part of the franchise process.
A few other factors that make the value grow even more is that the supply of the professional sports franchises is extremely limited and exclusive. Each franchisee must be approved as to who will be permitted to join the franchise network and must pass careful scrutiny as to whether they will be approved for franchise ownership. With the growth in demand for the services and the product, the demand for the franchise model is growing quickly and the valuation of the franchise increases. It is the ironic scenario where when a franchise brand increases the demand from the consumer, the franchise value increases as well. It is a case of a franchisor dedicating their efforts to driving the consumer business and in turn creating demand for the franchise investor.
If you’re considering a franchise of your own or franchising your business, be sure to call our office today to see how we can help you choose the right one for your future. Although you may not be considering a billion dollar investment in a professional sports franchise, the concept, key elements of the franchise relationship and strategy should be the same for any franchise investment. By looking for key criteria in a franchise model before you make an investment into the system, you will significantly increase your odds of a positive and successful franchise endeavor.
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