Sports team valuations, according to Arctos, do not exhibit a bubble-like phenomenon.
In a recent white paper titled How Sports Franchise Valuations Actually Work, Zach Baran, managing director at Arctos, delves into the intricacies of sports team valuations. The paper aims to dispel common myths and misunderstandings surrounding the price of sports teams.
Baran, who leads the Insights platform at Arctos, suggests that institutional ownership rules changes have come online in response to the growth in fundamentals that created the demand for team ownership in the first place. Arctos, which owns stakes in over 20 sports franchises, downplays its role and that of private equity (PE) in franchise gains, as team values in the Big 5 North American sports leagues have increased $270 billion since 2019.
The paper reveals that sports team valuations have compounded 13% annually since 1961, with half of the returns coming from top-line growth and the other half from multiple expansions boosted by better profits. Cash flow and brand value, according to Arctos, are the pillars of a valuation for sports teams. The volatility and leverage were 'meaningfully lower' compared to the stock market, the paper states.
The paper also highlights that the peak-to-trough decline was 9.8% in the mid-1990s, and it took 15 months for values to recover, primarily due to MLB teams after a strike canceled the 1994 World Series. Over a longer lens, RASFI (an index created by Arctos and Michigan Ross) outperformed stocks at 10 years (15.3% vs. 13.6%) and 20 years (12.8% vs. 10.7%).
Baran and Modi refer to the shift from structurally negative EBITDA margins (-1%) in the early and mid-1990s to solidly positive (+10%) as the 'negative cost of carry reversal.' Six periods of franchise valuation declines have occurred since 1961, only two of which were in the last 45 years.
The first half of 2022 saw a 5.6% decline in team values, lasting six months. However, the theme throughout the paper is that valuations are driven by identifiable metrics, and not just scarcity value.
The paper was also used in a regular franchise valuations project by Sportico, most recently for the NFL. As of the first quarter of 2025, available institutional capital was less than $11 billion. The search results do not provide information about institutions acquiring significant shares in sports franchises or the total amount invested in recent years.
The S&P 500 compounded 14.4% annually during the same period, while the RASFI was up 13.8%. Despite the slight lag behind the stock market from 2019 through the first quarter of 2025, the paper underscores the long-term growth potential of sports team investments.
Read also:
- Trade Disputes Escalate: Trump Imposes Tariffs, India Retaliates; threatened boycott ranges from McDonald's, Coca-Cola to iPhones
- Li Auto faces scrutiny after crash test involving i8 model and a truck manufacturer sparks controversy
- Celebrated Title: Cheesemakers Blessed Upon
- Construction and renovation projects in Cham county granted €24.8 million focus on energy efficiency
