As in any industry and sector, sports franchises are valued based on many factors and determinants. The factors that contribute to a franchise’s value are often intangible assets. These intangible assets, which would include such things as player contracts, media rights, stadium contracts or lack thereof, and the current relationships with fans, are significant factors which contribute to the overall financial status of professional sports teams and in turn, their franchise value (Humphreys & Mondello, 2008). This paper will analyze the economic determinants of professional sports franchise value. It will further seek to evaluate the value of the Dallas Cowboys. Currently, the Dallas Cowboys are the most valuable National Football League (NFL) team in America with a value of $4.2 billion (forbes.com, 2016).
Typically, businesses are valued based on either one of the following three methods or a combination of them. These include the cost asset approach, the market sales approach, and the income approach. The cost asset approach works on the basis of what it would cost to attain an asset of the same value. Because sports franchises have intangible assets such as players and contracts, this approach is not sufficient. The market sales approach is somewhat more reliable in that an individual would look at owning the franchise as an investment and looking at other investments with the same demographics in the same area. Because of the price differences among the various teams as well as the lack of available data for comparable franchises, this method is not fully efficient either. The income approach bases a value directly on the income of the franchise. This is accomplished by making future assumptions based on past performance in ticket sales, stadium attributes, and team performance. The market approach and income approach are used most often in determining sports franchise valuation (Humphreys & Lee, 2010).
The NFL team franchises are the most valuable franchises in comparison to the MLB, NHL, and NBA franchises. According to Forbes.com, the revenues of the NFL franchises also exceed the other league franchises. This shows a direct correlation in revenue to value. The Dallas Cowboys, for example, have a listed revenue of $700 million in 2016, which is $177 million more than the next highest valued team, which is the New England Patriots (forbes.com, 2016). The Dallas Cowboys increased in value 5% from last year, whereas, the New England Patriots increased by 6% (forbes.com, 2016). The ticket prices of the various sports also show a correlation to their value as NFL tickets are typically more expensive than the other sports franchises. Furthermore, the Dallas Cowboys’ stadium tickets for regular season games are relatively high in comparison to other team franchises within the NFL (Humphreys & Lee, 2010).
When investigating further as to the components that contribute to a franchise’s value, one is able to discover that there are many. For example, the Dallas Cowboys are currently valued at 4.2 billion as stated previously. Last year, they were valued at 4 billion. All of the values as well as the expenses for the franchise rose from 2015 to 2016 as well. According to Forbes, the Cowboys were purchased in 1989 by Jerry Jones, who at the time paid $150 million for the team. The franchise has appreciated exponentially. The stadium for the Dallas Cowboys is also said to increase the value of the franchise as this is said to be a state of the art facility with a large capacity to surpass other franchise’s annual revenue (forbes.com, 2016). All of these factors are therefore also components that contribute to the franchise’s value.
Another component is the economy, although even when the economy is not performing well, the NFL values continue to increase annually. This is because even if the economy is not doing well, the franchises are able to ask for financial assistance from the areas in which they are located (Scelles, Helleu, Durand, & Bonnal, 2013). The Dallas Cowboys are in the process of building a center specifically for practice, which they will sell tickets to attend as spectators which will cost over $300 a month with a onetime initiation fee of $4,500.00. The city of Frisco is paying over $261 million to cover a large sum of the costs to build this facility (forbes.com, 2016). The valuation of the Dallas Cowboys is broken down to the Sport, Market, Stadium, and Brand. The NFL is the highest valued sport, which then increases the value of the Dallas Cowboys. The number of championships and the season ratings also are determining factors in a franchise’s value.
Although attaining the best players often means paying out the most in salaries, bonuses, and incentives, typically the best players win the most games. Winning games in turn gains fans and sponsors as well as more media coverage and higher ticket and memorabilia item sales. All of these factors then increase the value of a team as well. Although it is difficult to specifically pin point the valuation factors of a sports franchise, the NFL, and the Dallas Cowboys in particular, all of the components named play into it. There are many factors which are intangible and thus difficult to quantify (Humphreys & Lee, 2010). Forbes lists the revenue and the stadium as large determinants in value, however, with the lack of financial data readily presented annually, it is difficult to ascertain why certain teams have larger profits and thus higher valuations unless all the other factors which are not easily quantifiable are taken into account.
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