Before making an investment in that sports franchise you've been eyeing, it's important to take the time to thoroughly valuate the franchise. A proper valuation will help you determine whether the investment will bring you profits or drain your bank account as time goes on. Here is how you can valuate a sports franchise before making an investment in it:
Focus on Revenue Versus Expenses
A major consideration to make when deciding whether or not to invest in a specific sports franchise is the profit margins and the expenses. Calculating past revenue performance and estimating anticipatory performance is the first step. You'll need to consider the following:
- Ticket sale totals
- Concession income
- Parking fee income
- Television and radio contract revenues
- Sponsorship revenues
You will also have to account for merchandising sales in order to get a clear picture of how much profits you can expect to make during the first few years after investing in your chosen sports franchise. Once revenues are understood, you can compare them with franchise expenses to determine what your profit margins should be as time goes on. Aspects to consider include:
- Player and coach salaries
- Team and individual commissions
- Advertising costs
- Concession and merchandise overhead
- Insurance premiums
It's important to factor in transportation and accommodation costs for coaches and players while traveling to play games. These costs may not seem like a lot on their own, but they can add up and decrease your profit margins over time.
Consider the Possible Risks
Like any other type of investment, buying into a sports franchise comes with risks that should be considered beforehand to ensure that those risks are worth taking. Thoroughly inspecting the operating data of the prospective sports team is essential, as the information found within the data will provide you with insight into things like attendance and concession risks based on part performance.
Going through historical information such as insurance claims, legal cases, player turnover is another effective way to determine risk factors. After compiling a list of possible risks, compare them to the profit and expense margins you anticipate to decide whether you want to take those risks in the long run.
Hire a Valuation Team
To help ensure that your investment decision is one you won't regret in the future, consider hiring professional sports franchise valuation experts to guide you through the valuation process.
Companies that specialize in valuating sports franchises have the experience and knowledge it takes to determine whether investing in a specific franchise is the right choice for you based on your particular needs and profit expectations. They'll do all the legwork and present you with data that's easy to understand so you feel empowered to make an educated investing decision once the valuation process is complete.