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March 17, 2010
Sports bubble watch: Team values crashing?
The New York Times has a front-page story today on the woes of sports team owners, who are finding that in the post-recession economy their investments may not have the guaranteed appreciation value that they'd grown used to during the bubble years. "It used to be you got bailed out when you sold your team even if you lost money year after year," sports business consultant Marc Ganis tells the Times. "Now, you're no longer assured of cashing out to cover your capital costs and losses."
The evidence presented, though, is a bit sketchy: Aside from last month's sale of the Tampa Bay Lightning at a huge loss from the $206 million its previous owners paid for the franchise in 2008, and the potential sale of the Charlotte Bobcats to Michael Jordan for less than they garnered in 2002, it's mostly a list of team owners who ran into financial trouble, via such issues as divorce proceedings and bad real-estate deals, neither of which really has much to do with the value of sports franchises. It could well be that the sports-team bubble has popped, but we'll need to see a few more cut-rate sales before we'll know for sure.
The most interesting item in the Times piece: Congress is considering a major hike in the capital gains tax rate, which would certainly change the economics of franchise sales. It would also make the Veeck depreciation loophole much less lucrative, since owners would have to pay more in capital gains when selling a fully depreciated team.
If the typical NBA franchise is worth $275M, and the NBA is losing $400M/year, isn't spending $4B to ensure the Kings stay in Sacramento a lot like spending $200,000 to repair a car that's only worth $10,000?
Posted by MikeM on March 17, 2010 01:22 PM
By my calculations, it's like spending $145,000 to repair a car that's worth $10,000 ($4b/$275mX$10k) and is going to cost $7,500 in repairs every year ($400m of future losses/30 teams/275mX10k).
Posted by Brian on March 17, 2010 06:12 PM
Hockey franchises losing value and even some basketball franchises losing value: Big deal
Football and baseball franchises losing value, long term: Now we are talking!
The look on the faces of Goodell and Selig when they find out that they can no longer cover owners' losses through the usual tactics: Priceless!
May the dog-eat-dog era enter the world of the sports franchise elites. Maybe I can, someday, attend a football Giants game on the day of the game by walking up to the ticket booth. Yeah, I would be waiting a long time.
Posted by Transic on March 18, 2010 07:02 PM
According to the New York Times story, the NHL "bought" the Coyotes for $140 million and expects to sell the franchise to $150 million. To whom?
Are the other NHL owners comfortable with Bettamn pissing away their money?
And would someone explain how Bettman's folly made more sense than selling the franchise to Balsillie?
Posted by bevo on March 18, 2010 11:47 PM