eli5 why are some NFL/NHL/NBA/MLB teams worth more than others?
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A sports franchise is a business, and the product is the entertainment sold to individuals interested in sports.
This “entertainment” that’s being sold takes several different forms: tickets to games, merchandise (jerseys, beer cozies, memorabilia), TV broadcast rights, etc. All of those sales form the gross revenue of a sports franchise.
On the flip side is everything that costs money to run the franchise: player/management/admin salaries, arena costs, cost of materials to make merchandise, etc. These expenses form the gross costs to run this sports franchise.
In every single sports franchise, there’s different volumes and complexities of transactions that are done for each of these things I mentioned. Some teams don’t offer as much merchandise so they make less money off merch, and subsequently less merch costs less to make so they save money. Some teams don’t have expensive players, so they save money there.
As well, every franchise has a “catchment area” which is a way of referring to the number of customers the franchise can get their entertainment product to. A world cup soccer team will typically have the catchment area of at least its entire home nation (the Dutch football team can likely count on all 18MM Dutch people being fans of it) while a minor league team may only have a regional catchment area and therefore won’t earn as much money as the Dutch national football team. (the Hamilton Tiger Cats being one, a CFL team based in Hamilton, ON, CAN). Some extreme examples of this might be Texas A&M, who despite being a college football team are a household name in American sports. Their catchment area extends well beyond a normal college football team’s, and therefore they are a more valuable team. They can reach more customers.
The valuation of a sports franchise is based on the work of teams of Analysts that review each of those sources of revenue and each of those sources of expenses, and then compare that against the amount of money they expect the franchise to make in the future from its catchment area.
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