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I found a list of most valuable sports teams, and I was amazed at the valuations. Why are there owners willing to drive the value of these teams so high?
For example, Real Madrid is listed with a value of USD 3.65 Billion.
We know that they are getting revenue through sponsorships, television broadcast rights fees, Internet broadcasting, and match ticket sales. Do those together justify such high valuations?
From Application of Income Approach for Valuation of Football Club by Ilia Solntsev mention teams are getting revenues through number of causes namely:
Matchday, Broadcasting Revenues, Sponsorship, Merchandising, Stadium Revenues, Additional Sources of Income(pen branded restaurants, clubs, fitness centers etc.), Fans
but that can not justify those high valuations. Because clubs are valuated by different technique, above valuation is of Forbes Valuation Technique and different values will use different data to valuate clubs.
Look at this example used by Markham:
Anomalies in football club valuation – Tottenham Hotspur 2012:
Market Capitalisation Value : £83.6m
Revenue Multiples Value : £245.2m
Forbes Value : £351.1m
Which clearly shows different method yields different club value.
From "What is the optimal method to value a football club?" by Tom Markham.
Traditional corporate valuation techniques are Market capitalisation, Discounted Cash flow (DCF) models, Bankruptcy valuation. And methodologies used within the football sector to ascertain a club’s worth are Revenue multiples approach, Forbes valuation, Broker valuation and Multivariate model for EPL club valuation.
At last, valuations are done with different set of data and owner may not pay the same amount as valuation.
Forbes valuation hasn't been accurate to predict the sales of team i.e; Real Madrid valuation of USD 3.65 Billion doesn't mean that cost of buying Real is 3.65 Billion.
Results show that on average the transaction cost of the North American sports franchises was 27% higher than Forbes had estimated for 2004. Forbes estimates were between 59.2% lower (Manchester City in 2008) and 69.1% higher (Liverpool in 2010) than actual transaction prices.
