If you had invested in a North American sports franchise between 1991- 2022, you would have earned between at least a seven-fold return on your investment, bettering the return from the S&P 500 over that period of time by a two-to-one ratio. According to Sportico, in the past year alone, the average value of an NFL franchise has increased by 24 percent. The strong growth in the value of these franchises has proven to be particularly attractive to investors, especially in recent years. For example, the sale of the Denver Broncos in 2022 was for a 22% premium over a third party’s pre-sale valuation. Valuation premiums are not only limited to sales of controlling investments; in 2023, a minority share of the parent company of the Toronto Raptors, Toronto Maple Leafs and Toronto FC was sold for a similar premium over a recent third-party valuation for the franchises. Not surprisingly, franchise owners have been eager to cash in either in whole or in part.

The prestige of being one of very few franchise owners in each league has always kept values high. But what’s been the cause of these more recent soaring valuations? The lucrative media rights and sponsorships available for these leagues are a significant contributing factor. Live sports significantly drive cable package sales, accounting for 94 of the top 100 broadcasts in 2022. Streaming has also provided the leagues with an additional revenue stream. Similarly, sponsorships of franchises and commercial signage and naming rights of franchises have also proven to be more and more lucrative. Franchises are also constructing modern multi-billion-dollar, multi-use stadium venues to not only improve the gameday experience, but also serve as more attractive venues for non-sporting events throughout the year and to become destination locations. Finally, the leagues are leveraging their popularity to enter into a variety of other commercial partnerships, branding and endorsements, such as partnerships with sports betting companies, social media companies and collaborations with other media and fashion brands. The leagues have also been expanding their international influence by hosting more exhibition and regular season games in international markets. Franchises themselves have begun to offer franchise equity to players as part of the overall compensation packages, hoping that the franchises’ ever-increasing valuations will make them a more attractive destination.

Rules and regulations regarding ownership and debt limits can have an outsized impact on franchise valuations. Historically, the leagues emphasized local family ownership of their franchises, limiting the ability of franchises to raise funds from institutional capital investors. Recently, many leagues (excluding the NFL) have begun to liberalize rules regarding institutional ownership of their franchises, allowing these franchises to start capitalizing on their valuation increases. As franchises begin to routinely trade at multi-billion-dollar valuations, the pool of qualified individual investors has shrunk. Many bidders now must form buyer groups that consist of multiple billionaires who pool their resources to make bids on these precious limited assets. As valuations continue to increase, it is likely that owners of minority stakes will explore liquidity options in order to cash in some or all of their investment. How leagues adapt to these economic realities will be important.