Loeb & Loeb partners Arash Khalili, co-chair of the firm's Sports Practice, and Scott Zolke discuss the role of media rights and other value driver considerations in appraising sports franchises for acquisitions or sales transactions.
The full video transcript is below.
In the last year or two, valuations of franchises were greatly impacted by what the perceived media rights were worth. I think going forward, the way teams are valued based on the market size and perceived television value in the local market is going to probably be tempered a little bit in light of the fact that these media rights deals have blown out of control. They're going to have to be throttled back, especially as we see people cutting their cords, some people shaving the cord, and a lot of people just not even going to the cord. It's not uncommon for people to say, "You know what? I'll go buy an antenna and I'll get Hulu or I'll get Netflix and that's how I'll consume my television viewing." Well you're not getting sports. The NFL is experimenting with Twitter. They experimented with Yahoo!, but that's far from the standard norm right now. I think as we move forward in looking at how we put a number on the valuation, it's going to be very important to not get over our skis saying, "Well, the media rights are worth this." Well, the media rights may not be worth that.
The way you recapture a lot of your investment is through these revenue streams, right? Sponsorships, naming rights deals, digital, ticket sales, et cetera. A firm like ours, that has such a deep bench in the media space is able, in the diligence phase, to uncover where the hidden landmines may be.
Really what you're buying is more than just a franchise; you're buying the right to all these revenue streams and understanding how they work together, how the exclusivities work, what you're preserving, what you've left on the table, what the former franchise owner has given away or not acquired, and when the deals are expiring. All these things have to be looked at. We work together with the bankers and the financial advisers who come in and will carve it up, but we'll figure out and we'll help identify in the due diligence phase where it is. And we look at not just what exists today, but what about the way content is going to be distributed a year from now.
By the way, there was no TV 100 years ago. Think about this. The Chicago Cubs in the 1940s … Philip Wrigley owns the Cubs and makes a deal with WGN in Chicago to put the Cubs on television. The fear back then was, TV was going to cause people to not come to the ballpark.
"TV's not good for baseball."
Ask Fox today how good baseball is for TV and how good TV is for baseball.
The beautiful thing about what we do is, it changes. What was the rule a week ago may not be the rule a month from now. It's fun because you're constantly evolving.