How are the valuations derived?
Much like house valuations on online real estate sites, they are based on several factors, including location, who owns the arena the team plays in, and the team’s local television deals. James L. Dolan, the owner of the Knicks, also owns Madison Square Garden, whereas the Lakers lease the space at Staples Center, which will become known as Crypto.com Arena on Christmas Day.
“If you have two teams, let’s say one owns the building and the other leases it, what I’m valuing is the economics,” said Mike Ozanian, a managing editor at Forbes who compiles its valuations. “In other words, what are the revenues that the team generates at the building versus its expenses?”
Assets related to the team don’t necessarily factor in, at least not completely. In the case of the Knicks, while Dolan owns MSG Networks, the regional cable channel that broadcasts games for the Knicks and several other New York-area sports teams, that doesn’t figure into the valuation of the team. However, the revenue generated from the network does.
Valuators review public information on team finances, consult bankers involved in similar transactions, and consider previous sales and the scarcity of the product.
The franchise worth changes, Cuban said, based purely on “supply and demand against cost and availability of money versus expected cash flows, if any, and expected appreciation.”
What are the limitations?
In 2014, Forbes valued the Los Angeles Clippers at $575 million. Later that year, Steve Ballmer purchased the team for more than $2 billion. Much like when buying a house, sometimes it’s difficult to account for just how eager a given buyer will be.