Sports Team Owners Finessing The System (While Making Billions)
Breaking down the business of sports teams and the newest strategy of their owners - it's genius!
Today I’m going to break down how professional sports teams make money, but first, I want to touch on a trick owners have been pulling lately.
Check this out:
Arguably the best deal in the history of sports was completed earlier this week by the owners of the Buffalo Bills.
The state of New York is giving the Bills ownership $850 million ($600m from NY and $250m from Erie County) to assist in the funding of a their new $1.4 billion stadium.
Who are the Bills owners?
Terry and Kim Pegula.
Terry Pegula has a net worth of $5.8B according to Forbes. He also owns the Buffalo Sabres, Buffalo Beauts, Buffalo Bandits, and Rochester Knighthawks.
The two of them have the resources to fund all of the stadium costs themselves.
But hey, if they can get the state to do most of the up-front funding, why not?
The state of Nevada sent $750 million to help the Raiders build a new stadium, but that was to entice them to move from Oakland to Vegas.
This deal (worth $100 million more) is simply to keep the Bills from relocating.
New York governor Kathy Hochul has chosen to allocate these resources to NFL owners rather than to schools, roads, and public safety.
Maybe she doesn’t want to be known for losing the Bills, but would the Bills have left even if they didn’t get all of this funding?
Where would they go?
St. Louis? Toronto? Austin? London?
The real question is, who was negotiating the deal for Governor Hochul and the state?
$850 million seems like a lot, especially considering that the state doesn’t get much upside besides economic benefits to the city of Buffalo.
The Pegula’s will eventually sell the Bills and based on current valuations it would be for $4 billion or more.
And even more absurd…
The state of New York will get $0.00 from that eventual sale.
NFL owners are socializing costs and privatizing profits. What a business model.
Oh, and one more thing.
The Bills’ playbook is in motion for at least four other NFL teams/markets:
Virginia/Maryland (Washington Commanders)
Your tax payer money hard at work for new NFL stadiums. Who said sports don’t have a major influence on American society?
Ok, but how do sports owners make money besides negotiating with the states they reside in?
Let’s Dive In 👇
The NFL recently signed a 10-year, $100 billion+ broadcasting agreement with various networks.
Want to know what’s wild?
Rethink Research believes streaming services will help drive global revenue from sports media rights to $85 billion by 2025.
Broadcasting and media rights are the single greatest revenue source for sports around the world.
For example, NCAA March Madness does $1b/year and the tournament is only 3 weeks long.
Ticket Sales, Merchandise, and Concessions
Depending on the professional sports league, anywhere from 10% to 40% of overall revenue comes from in-person-related items like tickets, concessions, merchandise, parking passes, and more.
The Green Bay Packers do over $70M a year in ticket sales.
As at-home viewing experiences continue to improve, will attendance go down, remain indifferent, or continue to go up?
Time will tell.
Sponsorships and Licensing Deals
Pro sports teams make a lot of money by selling other companies the rights to their brand.
Here are a few examples:
Nike pays the NBA $125 million/yr to provide all of the uniforms and associated gear
Standard Chartered pays Liverpool FC about $55 million/yr to have their logo on the jerseys
The Miami Heat agreed to a 19-year, $135M deal with FTX to have their logo and name on the arena
The NBA approved a patch-sponsorship program on jerseys during the 2017-2018 season. The NFL is currently exploring this option.
Pro sports teams (and their leagues) do a great job monetizing all of their assets — and that’s why they continue to increase in value year over year.
Overtime: Buying College Players
Nick Saban said in an interview that the lack of rules surrounding the ways that athletes can make money via NIL endorsements has created a situation “where you can basically buy players”.
This does beg the question….
Is the current model sustainable in college sports?
Saban also pointed out:
Last year on our team, our guys probably made as much or more than anybody in the country.
Always recruiting — that’s why Bama has been elite for such a long time.
Have a fantastic weekend and I’ll see you on Sunday morning for the roundup.