Every franchise in the National Football League, National Basketball Association, and Major League Baseball is worth over $1 billion—a price tag out of reach for most sports fans. But there is a way to own a tiny sliver of a few teams, for a more accessible price.
Investors can buy shares in the Atlanta Braves or Manchester United. Soon they will be able to do the same with the New York Knicks and New York Rangers, after
Madison Square Garden
(ticker: MSG) splits off its entertainment businesses from its sports operations, which it may do sometime this year. Liberty Braves Group (BATRK) is a holding of John Malone’s Liberty Media, which owns the Braves and their ballpark.
(MANU) chief subsidiary is Manchester United, a mainstay of English soccer and among the most popular sports brands in the world.
Liberty Braves and MSG have outperformed the market, up 39% and 75%, respectively, over the past three years, versus a 30% return, including dividends, for the Russell 2000 index. United’s stock, at a recent $19, is up just 23% over the same period.
While each is a real business, with revenues and profits, their stocks are driven more by private transaction valuations than they are by fundamentals. More billionaires seek trophy assets, but the number of franchises in the major leagues rarely increases.
Back in the day, you owned a plane, then you owned a jet—now, you want to own a team.
“I think the valuations are generally less of a multiple on earnings or revenue but about looking at the deal price, if there’s going to be a deal,” says G.research analyst John Tinker. “Back in the day, you owned a plane, then you owned a jet—now, you want to own a team.”
Private-equity firm Silver Lake Partners bought a roughly 10% stake in the Abu Dhabi–controlled parent of Manchester United’s crosstown rival, Manchester City, at a $4.8 billion valuation last November. That is about 6.8 times City’s 2018-19 season revenue of 535 million pounds sterling, or $702 million. Crudely applying the same multiple to United’s fiscal-2019 revenue of $782 million and subtracting its net debt would value the company at about $4.8 billion, or roughly $29 per share.
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Sales multiples like that are usually associated with buzzy tech growth companies, not essentially entertainment businesses founded a century or more ago.
Manchester United stock jumped 11% the day Silver Lake’s investment was announced. Liberty Braves shares likewise rose 8% the week after reports emerged last month that hedge fund manager Steve Cohen was in talks to acquire a controlling stake in the New York Mets that would value the franchise at $2.6 billion.
In the U.S., the cartel-like structure of major league sports means that fundamentals are marginally affected by a team’s performance. The bulk of a franchise’s earnings comes from its share of multiyear sponsorship deals and league-negotiated TV deals. So don’t confuse a losing team with a cheaper price tag: The Knicks’ record may be dreadful, but the team could still be worth up to $4 billion.
For publicly traded soccer teams in Europe (others include
[BVB.Germany]), performance on the field matters more. A bottom-three finish means relegation to a lower division—and less TV money. For the top teams, greater broadcast and sponsorship revenues come with participation in the pan-European UEFA Champions League.
Broadcast rights are only getting more lucrative with each renewal period. The next leg up could come if the big internet platforms get interested in showing more live games, Tinker of G.research says.
While the teams are unusual investments, at least they are investments. Shares of the Green Bay Packers, publicly owned since 1923, are not tradable. As a 2011 offering document cautioned, “It is virtually impossible for anyone to realize a profit on a purchase of common stock.”
Write to Nicholas Jasinski at email@example.com