If you keep an eye on the latest National Hockey League (NHL) news, the recent sale of the Ottawa Senators for $950 million might have caught your eye. While this is already an excessive amount, $950 million is still on the low end of the spectrum compared to other recent sales. In 2020, the New York Mets of Major League Baseball (MLB) sold for $2.4 billion. That is a lot of money. So you might be wondering, why are sports franchises so expensive?
If you have ever watched any professional sports games, you have seen the various advertisements shown on TV. As the 20th century rolled on, more households had access to TVs. Since then, networks have been in a bidding war over television rights and the advertising potential they provide. An example is the lucrative $2.7 billion yearly deal between Disney and the National Football League (NFL) for the television rights to Monday night football and the Superbowl. Revenue from these deals gave their owners a passive income source, which everyone loves. These deals are also linked to a jump in team value whenever one is signed because of their earning capabilities.
Another factor that helps increase the value of professional sports franchises is the monopolization of the major sports leagues. When you think about baseball, football, and hockey, the leagues that probably come to mind are MLB, the NFL and the NHL. The United States government enacted the Sports Broadcasting Act in 1961, which made professional sports leagues exempt from anti-trust laws. While this was initially related to their ability to sell their television rights, it also protects the major sports leagues from competition. Essentially, it is not illegal to try and create a competitor to these leagues, but your chances of success are minimal. Team owners also collaborate to keep salaries in check and share revenues, which eliminates concerns affecting the typical capitalist, such as changing taste.
Salary caps also help cut costs for many leagues. Implementing a salary cap allows owners to pay their players much less than on the open market and retain more money by limiting the amount teams can spend on players.
Still, even with these benefits, a professional sports team has never made enough revenue to justify the high purchasing price. This brings us to the last point of the investigation: the status and perks of owning a sports franchise. Being a team owner provides visibility, from attending a game to team parades or even interviews with the media. Furthermore, few people own professional sports teams. They do not go on sale often, with only a finite supply. A big part of the value isn’t the team itself but the value attached to it.
After looking at the information, I believe that professional sports teams are overvalued and are sold for way more than their actual worth. The limited number of teams available and their status as symbol inflates their already overvalued worth even more.