Franchise Valuation

Franchise Valuation

Introduction

It is important to recognize that a sport is not game but it is a business as well to fully understand the professional team sport. Generally valuation of any organization or firm is the total costing of its assets, but in the case of the Franchise valuation it is not the same, it depends upon its revenues. In this paper I have analyzed the economic determinants of professional sports franchise value, discussing the major factors related to it, and then I have chosen the Sports franchise that is Pittsburg Steelers and evaluated its valuation by looking at the Forbes publication.

Discussion

Analysis of the Economic Determinants of Professional Sports franchise value

The valuation of professional sports franchise is not manipulated as the valuation of other industries or financial business. Basically these industries or financial institution are valued on their assets and cash transactions whereas these sports franchises are valued on their profits. Now the question that arises in our mind is that why these franchises are valued on the revenues, there are two basis for it, firstly because the operating expenditures are about same for every team within a league. Secondly, revenues are related to the measure of the excellence of a team's stadiums or venues, and they also follow the performance of the players, eventually the two main factors for the team evaluation. Professional sports teams values are increased over the past years and it is expected to increase more during next few years (Lee, 2002).

It is essential to recognize that sports in not game but it is a business as well to fully understand the professional team sport. In professional sports league revenues are divided between the members of the league. There are different division percentages among the leagues, teams and franchises. There are different economic determinants of professional sports franchise value like new grounds building, gate receipt etc which all adds into the revenue of the franchise. How the team is performing also affects the value of professional sports franchise of a particular team (Lee, 2002).

The analysis of the economic determinants encourages team relocation and the construction of new stadiums has created substantial focus. The movement of franchises and the constructing new stadiums are analyzed by many of economists and they also have measured the effects of these changes on its outcomes. There are many factors that affect the profitability of the franchise. One of factors can be the population of the city. We can expect that the teams that are located in larger markets will gain more profits as compared to the teams that are located in smaller markets. There are also other advantages of the teams having larger markets like television contracts, local cable issues etc (Alexandar & Kern, 2004).

Team performance during the championship or season is another factor that will probably affect the demand, thus the value of the franchise. If the performance of the team is declining then most likely the revenue will also decline and thus decreasing the franchise ...