If the Washington Redskins Are Worth $800 Million
What are the Dallas Cowboys, the Houston Astros, and other Texas teams worth? A highly subjective analysis.
In May the Washington Redskins of the national Football League sold for $800 million—the highest price ever commanded by a professional sports franchise. So you might be wondering: How much are pro sports franchises in Texas worth these days, even championship teams like the Dallas Stars of the National Hockey League and the San Antonio Spurs of the National Basketball Association?
As in other states, it depends on the value of the future economic benefits that the team is expected to generate. To an owner, these benefits include team profits, his or her personal income from salary, enhanced profits in companies related to the team under the same owner, tax-sheltering opportunities, capital gains, perquisites, prestige, power, and plain old fun. Each of these items depends on how well the team is managed, the owner’s other businesses, and the owner’s personality, among other things. Thus, a franchise may be worth different amounts to different prospective buyers.
Further, because an owner can take some of his economic return in the form of improving the performance of his other business—for example, a cable channel—or can choose to earn some of this return on capital in the form of interest income rather than profits, the reported bottom line is not always a meaningful guide to a team’s true worth. For this reason, analysts often use a revenue multiple rather than reported profits to estimate value. The multiple chosen varies by sport and also by team, depending on the expected future performance of each.
The result is that two teams, each with $100 million in revenue, can have quite different market values. For instance, team A may be about to enter a new stadium with an expected revenue increase of $30 million per year and favorable lease terms or may be about to sell naming rights to an existing ballpark for $5 million a year. Team B, by contrast, may be stuck in an old stadium with no expected new revenue. In this case, team A will have a higher value, despite having revenues identical to team B’s today.
Likewise, if two teams had the same revenue but were in different sports, they would likely have different values. One sport may have just signed a new multiyear television deal under which revenue per team grows at 15 percent per year over an eight-year period. Thus, the current year’s revenue is by itself an inadequate gauge of the team’s future profitability. One sport may have also recently entered into a long-term labor agreement, guaranteeing labor peace with restrictions on the growth of player salaries, while the other sport is on the verge of a long player strike. Here, too, the projected profitability of the two sports will diverge substantially and, hence, so will the value of the two teams.
With all that in mind, I have estimated the value of seven pro sports teams in Texas: the Texas Rangers and Houston Astros of Major League Baseball; the Dallas Cowboys of the National Football League; the Spurs, Dallas Mavericks, and Houston Rockets of the NBA; and the Stars of the NHL. Note that I have estimated the value of the team’s assets, not its equity; that is, I’m not considering the amount of team debt, which is privately held information.
The Texas Rangers
Consider what baseball did for George W. Bush. In 1989 Bush contributed approximately $600,000 toward the estimated $86 million purchase price of the Texas Rangers. He owned roughly 1 percent of the team but was selected as one of its managing general partners. In the early nineties, with his father in the White House, he was actively involved in derailing the efforts of Ohio senator Howard Metzenbaum to lift baseball’s anti-trust exemption. He was also involved in developing the plans for a new baseball stadium in Arlington, a project that he himself has acknowledged was in part a land play. For his efforts, Bush had a deal with his partners that his ownership share of the team would rise to near 10 percent.
Getting the new ballpark and control over the 270 acres of land around it entailed a lot of politicking. First, a referendum on contributing $135 million in public money toward the $191 million construction cost had to be approved by the voters. Second, state legislation was needed to grant Arlington bonding authority. Third, the Arlington Sports Facilities Development Authority (ASFDA) had to be created and endowed with the power of eminent domain. With that accomplished in April 1991, the ASFDA condemned a certain number of acres around the ballpark site (depending on whom you talk to, anywhere from 11.7 to 13) and offered the owners $817,220 for them. The owners sued, and it was ultimately determined that the land was worth $4.98 million. No matter; the condemned acres became part of what former Rangers president Tom Schieffer calculated were 60 acres owned by the team. In addition, the team was granted control over 210 more acres around the park along with an option to buy the land.
In 1994 the Bush ownership group got a loaded new ballpark with a sweetheart lease. The Ballpark in Arlington has 126 luxury suites rented on an annual basis and 10 to 15 more sold on a per-game basis, plus 5,386 club seats that each sell for more than $1,200 per season. The Rangers contributed or raised a total of $56 million toward the $191 million construction cost, and much of that, along with the annual rent, comes back to the team through various channels. The Rangers’ venue revenues at the Ballpark in Arlington were upward of $80 million in 1998, compared with venue expenses of only $5.5 million.
Ballplayers produce more revenue in newer facilities, even when they perform at the same level. Team owners with new facilities can make more competitive bids for the top players and enhance team quality. Improved on-field performance along with the cachet and comforts of a new park set the franchise on an upward cycle. The result in the case of the Rangers was that the value of the franchise more than tripled, and the investors in the Bush group saw the value of their equity multiply. George W.’s $600,000, for instance, became nearly $15 million.
The team’s current owner, buyout mogul Tom Hicks, is similarly poised to experience growth in the $250 million investment he made in 1998. First, baseball’s popularity has surged since he bought the team, thanks largely to last season’s heroics by Mark McGwire and Sammy Sosa; the new network TV contracts that will be signed after next year should grow handsomely. Second, Hicks plans to sell multiyear stadium naming rights for perhaps as much as $100 million. Third, the Rangers’ annual rent is scheduled to drop by $1.5 million in a few years, after the stadium’s bond obligations are met. Fourth, Hicks wants to package his radio and TV entities with the Rangers and the other pro team he owns, the Dallas Stars, which would at the very least generate more competition for his sports programming, appreciably raising his local media revenue. Fifth, the land development around the ballpark—if handled properly—offers the prospect of more than a modest return. (An oddity: According to the City of Arlington, the Rangers’ acres are appraised at $5.43 million, on which the team paid 1998 property taxes of $34,697. Hicks, however, has said that of his $250 million purchase price, the value of the land earmarked for development was $50 million. Something may be off.)
Exactly how much the Rangers are worth depends on the success and organizational structure in Hicks’s forthcoming land development and media projects. It also depends on Major League Baseball’s ability to deal with its financial and competitive imbalance problems and avoid a player strike after the 2001 season. With team revenue around $120 million and rising, a current value in the neighborhood of $280 million to $300 million seems reasonable.
The Houston Astros
DraytonMcLane, Jr., bought the Houston Astros in 1992 for a reported $115 million. Playing in the Astrodome in 1998, the team generated approximately $85 million in revenue. Even without a new stadium in the year 2000, the standard industry sales-price-to-revenue multiple of two would suggest that the franchise today would be worth about $170 million.
If the construction schedule is met, the Astros will be playing in a state-of-the-art facility next year. Enron Field will have a retractable roof and 42,000 seats and will cost at least $248 million to build (68 percent of which is coming from public coffers). There will be, in all likelihood, higher attendance at higher ticket prices, plus more luxury and club seats, more signage, more concessions and merchandising income, and so on. The Astros will reap all revenues generated at the new stadium, and the estimated venue costs will decrease from $8 million to $7 million a year. Look for the new park to increase team revenue by $25 million to $30 million a year and for the value of the franchise value to jump to at least $250 million. Thus, the value of McLane’s investment will have more than doubled in less than ten years.
The Dallas Cowboys
There’s no question that the cowboys have been the NFL’s premier team during the nineties. The team has led the league in revenues over the past two years, with the Washington Redskins a close second. According to George Hays, the Cowboys’ vice president of marketing: “If the Washington Redskins can sell for $800 million, then the Dallas Cowboys are worth more than $1 billion. We are a hell of a lot more profitable than they are.” There may be some hyperbole mixed in with Hays’s hubris, but he’s not far off.
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