The professional sports industry is booming and acquirers are taking note. According to A.T. Kearney, total global revenue from sporting event tickets, media rights and sponsorships alone is approximately $80 billion USD, has been increasing annually, and is expected to continue increasing over the upcoming years. Forbes notes that the average NBA team is currently valued at $1.1 billion, a spike of 74% over last year, while the Los Angeles Lakers currently holds the record of highest value at $2.6 billion.
With this promising outlook, it is not surprising that acquirers are recognizing the potential value to be unlocked in the professional sports industry.
Drivers of value
Media rights is one of the biggest sources of sports organizations’ revenue and is taking on an expanding role in the industry. A.T. Kearney reports that the NFL earns $5 billion per year in media rights, roughly 12 times the annual revenue of the mid-1980s. While other revenue segments such as gate revenues and merchandising are showing signs of maturity, PwC projects that media rights will continue growing at the highest rate.
Media rights revenues are largely driven by the nature of the industry, as live sports are meant to be viewed live. While television programs are often downloaded, watched on demand or recorded on a “PVR”, live sports are relatively immune to these trends. As a result, viewers are less likely to skip commercials – much to the delight of advertisers, broadcasters and owners of sports organizations. Live sports programming also provides attractive and potentially lucrative subscription based streaming content for the “over the top” content delivery model.
Media rights revenues are also driven by rising viewership. For example, Forbes reveals that the viewership for NBA regular season games has increased by 26% since the 2002-03 season – a stark contrast to the general decline in viewership across other types of television programming.
Drivers of deal activity
With media rights stepping up to the forefront in the professional sports industry, synergies may be found when deals involve companies in the media or broadcasting business – as was the case with Bell and Rogers’ acquisition of MLSE. This relationship allows media companies to better integrate their sports content with their technology, such as by offering streaming content through smartphones, tablets and television. Also, in acquiring professional sports franchises, media companies can potentially save on expensive broadcasting fees while reaping the benefits of high advertising revenues generated by “PVR” proof content.
However, M&A in the world of professional sports may be driven by more than simply financial and operational considerations. As many sports franchises are followed by a loyal and significant fan base, both locally and globally, the social dimension may play a much larger role in such transactions when compared to transactions in other industries.
When former Los Angeles Clippers owner Donald Sterling sparked controversy with racist remarks caught on audio recordings, former Microsoft CEO Steve Ballmer offered $2 billion to buy the franchise. Forbes, labelling this move by Ballmer as “madness“, quotes Ballmer’s wife’s lawyer who explained that Ballmer did not even look at the Clipper’s financials before making his bid. This bid was 15 times the Clippers’ revenue. By way of comparison, based on the multiple of revenue basis, the sale of the Washington Wizards previously held the record at 5.1 times their revenue.
Regardless of the drivers behind M&A in professional sports, it is clear from the upward trend in deal value that there will continue to be no shortage of winners in years to come. Just don’t expect winning at the boardroom table to correlate with winning in the arena.
The author would like to thank Matthew Lau, articling student, for his assistance preparing this legal update.