Every year, Forbes.com unveils their “team valuations” estimating the value each franchise in the major sports. But while these numbers are often widely reported, there is some question as to how accurate or useful they are.When asked about the Forbes valuation of his team, Mark Cuban, owner of the Dallas Mavericks, said “It’s meaningless and worthless. You can quote me on that.” He added that “No one ever looks at buying or selling a franchise based off of Forbes’ numbers…You might as well go to a second grader and ask him how high can they count” (interestingly, that article at the Fort Worth Star-Telegram has since been deleted, thank you Google Cache!).
In baseball, the Los Angeles Dodgers and New York Mets have question marks surrounding their ownership. We heard rumours recently that Major League Baseball would force both marquee franchises to be sold based on each team’s current financial woes. And just this past week, MLB took over operations of the Dodgers.
If each team is indeed sold, can we use Forbes’ team valuations to predict the sale prices?
In the last 11 years, half of the teams in Major League Baseball have changed owners. Those teams sold for an average of $379 million* while Forbes gave those teams an average value of $337 million based on valuations published the year of the sale. That is a difference of 11.2 per cent.
Here is a full breakdown of each of the sales as well as the most recent valuations of the Mets and Dodgers…
In some cases, the sale prices may have been public knowledge before Forbes released their valuations. But, the valuations are based on revenues and operating incomes from the previous year, and in theory, sale price should have little or no influence. However, a team’s value may have changed by the time the sale was completed.
The valuations seem to be hit-or-miss. Six of the 15 sales were within 10 per cent of Forbes’ valuation of the franchise. However, six of the values were off by more than 20 per cent and a seventh missed by 19.8 per cent.
Of course, this doesn’t mean the valuations were necessarily wrong. It is quite possible the new owners just under- or over-paid for the teams. And while we tried to tease out debts incurred or other assets acquired, it is quite possible those were also included in the published prices.
Either way, we can see that the Forbes valuations may indeed give us a sense of how much the Dodgers and Mets would command in a sale. But it is also possible that the valuation won’t even be in the same neighbourhood.
Data via Forbes.com, ESPN.com, and BizofBaseball.com.
* In a couple of cases, the new owners purchased less than 100 per cent of the team. The sale prices used here prorates those figures as if 100 per cent of the team was purchased.
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