AN ECONOMIC ANALYSIS OF THE RISE IN FRANCHISE VALUES IN THE FOUR MAJOR NORTH AMERICAN SPORTS LEAGUES FROM 2008-2016

This paper aims to prove how market demographics and financial data can be determinants of the rise in North American professional sports franchise values over the last 10 years. It is hypothesized that revenue will be the largest factor underlying this rise. Financial and other team-specific data was acquired from Forbes, while metropolitan area statistics were mostly gathered from the Bureau of Economic Analysis and the U.S. Census. The results of this study showed that revenue, metropolitan area population and GDP, multiple teams in the same metro area and the same league, and year that a venue opened (or was renovated) have a significant effect on team value. Additionally, a large “bubble” in team prices for 2016 was evident throughout, helping explain the drastic rise in prices since 2014. Revenue, metroGDP, and year=2016 were all positively correlated with franchise value. A $1 million rise in revenue coincides with a $6 million increase in franchise value, and team values increased by about $312 million from 2014-16 on average. Metroteamssame, metropop, and venueyropened were all negatively correlated with team value. Every additional 1 million people in a metro area leads to a decrease in team value of about $31 million, and having multiple teams from the same league in that area decreases the value by about $60 million. Likewise, for every year that a venue ages, team value drops by $1.5 million. Since professional sports is a private industry, the bubble is most likely driven by external factors such as the rise in TV and broadcasting revenue, and thus does not seem to be in danger of bursting. As such, it will be interesting to see how new TV deals increase these valuations even further. Additionally, one can theorize how recent and forthcoming sales transactions might continue to “set the market” higher and higher, as typically occurs in other industries throughout the economy.