The NFL Franchise Value issue of Forbes magazine hits newsstands today and you'd think that NFL owners would be celebrating.
Forbes estimates that the average NFL team is now worth more than $1 billion, with 19 teams surpassing the $1 billion mark--14 more teams than the five that passed that mark last year.
I respect what the guys at Forbes do. They come up with some good numbers for teams that are private entities and rarely release any information publicly. But if you are to believe that the ultimate determinant of franchise value is the amount a team could be sold for, the values are inflated.
I'll start with the obvious. The Pittsburgh Steelers are listed at $1.01 billion, yet the high bidder for the franchise that is actively on the market is Stanley Druckenmiller, who is only willing to pay $800 million.
Then there's the St. Louis Rams, who are listed at $929 million. It's well known that they're on the market and they can't get a sniff at the asking price of $850 million.
Now let's get to the greater issue. Bear Stearns is gone, Lehman Brothers will soon be, the credit markets are in horrible shape, the dollar is weak and American football is only going to get bidders from North America.
What does this all mean? It means that no matter how strong the NFL is, it's hard to argue that teams, as a whole, are worth much more than they were last year because fewer people can afford to buy these teams.
According to conversations I've had with people in the sports finance business, in order to buy a team, you now have to put up 50 percent of the total purchase up front. You think there's a bunch of people with $500 mil hanging around these days?
The final piece of the puzzle is scarcity. Rarely are more than two or three teams up for sale at the same time. But there's the sense that in the next year that will change.
We already have the Steelers and the Rams and, for a good deal, another two or three teams could turnover, especially if the owner's candidate John McCain doesn't prevail in the elections, as Barack Obama has promised to raise the capital gains tax.
It's nice to think that NFL teams can appreciate in the way Forbes estimates they have, but given the financials here in this country combined with the fact that foreign wealth doesn't necessarily want in on an NFL team, the numbers don't seem to add up.
The video clip is my interview with one of the co-authors to the Forbes article, Kurt Badenhausen.