Sports teams are often bonfires of cash, yet they still change hands for billions of dollars. How can that be? Pro sports are hotter than ever we've seen acquisitions of the NFL's Denver Broncos, English soccer’s Chelsea FC, and Italy's AC Milan. Check out this chart the 15 billion dollars of deals completed in pro sports by august 2022 were already more than any full year on record. Part of that has to do with it having been easier to borrow money when interest rates were low coupled with the soaring value of broadcast rights. But even then, how do the new owners of Chelsea, a team that regularly loses more than 100 million dollars a year decide it's worth more than three billion dollars? It's a particularly challenging question in European soccer when you try to decide how much a business is worth you tend to look at how much money it's going to make over the next few years and work back from there. If you're confident you can predict how much a company will make in 10 years time and that's a high number then the company gets a high valuation. If you can only predict two or three years out and it's a low number the valuation is far, far lower too. In soccer accurately predicting how much money you're going to make is an all-but-impossible task. Get relegated to a lower division or fail to qualify for the lucrative Champions League and you might take a 100 million dollar hit to your annual revenue. Sell a star player and you might get a one-off hundred million boost to your revenue. Just look at how annual sales have shaped up at the Italian giant Juventus over the past decade it's a veritable roller coaster.
NFL teams in stark contrast enjoy far more stable predictable earnings. The league shares merchandising and broadcasting revenue pretty evenly across the league, so the teams have good visibility on how much money they're going to receive. At the same time, there's a salary cap so they've also got a good sense of how much money they're going to spend. That's why NFL teams get such high valuations. Soccer teams are trickier but there is a solution of sorts, it's known as the Markham multivariate model named after this guy Tom Markham who developed it a decade ago as a Ph.D. student. It's a kind of complicated equation that looks like this it starts by looking at the value of the club's assets, its playing squad, its stadium, and other facilities, and how much money it's able to generate from those assets. But it then adds in a few other variables that help gauge how well-run the club is and how popular it is. By looking at what percentage of the stadium is filled in an average game you can get a sense of how well the club is managing to attract fans. A higher percentage means it's more popular and perhaps better run therefore it generates a higher valuation. The percentage wage ratio meanwhile looks at how much of the club's income is used to pay the playing squad. A higher percentage means the club may not be run very efficiently so its earnings may not be as sustainable and therefore generates a lower valuation.
“whatever somebody is willing to pay”
Is this a perfect solution? No, but it is a formula that a lot of would-be sports team owners use. Ultimately the answer to the question what is a sports team worth? is well, whatever somebody is willing to pay for it but in order to get to that number you need a starting point and that's what the model provides.
Questions:
Part 1: Comprehension
Watch and summarize the video thinking of who, what, when, where & why.
Part 2: True or False Questions
a) True or false – AC Milan has recently been acquired and now has new owners. T/F
b) True or False – Chelsea football club is worth around 100 million dollars. T/F
c) True or False – AC Milan failed to qualify for the Champions League last year. T/F
d) True or False – Looking at what percentage of the stadium is filled during average games can give an idea of how well the club is supported. T/F
Part 3: Guess the meaning of unknown vocabulary
a) "Coupled with" (0:33 min)
b) "All but impossible" (1:12 min)
c) "Lucrative" (1:16 min)
d) "Salary cap" (1:47 min)
Part 4: Dictation
a) Fill in the blanks (0:44 - 0:55minutes) It's a particularly _______________________________________and work back from there.
b) Fill in the blanks (2:04 - 2:18 minutes) It's a kind of complicated ___________________________________from those assets.
c) Fill in the blanks (2:51 - 2:57 minutes) Is this ___________________________________________________ use.
Part 5: Talking Points
Part 6: Role play Scenarios
Scenario 1: Negotiating a sports team purchase.
One person plays the role of a billionaire interested in purchasing a professional sports team, while the other plays the role of the current owner. They negotiate the terms of the purchase, discussing factors such as the team's value, revenue streams, and potential for growth.
Scenario 2: Hiring a sports team manager.
One person plays the role of the owner of a struggling sports team, while the other plays the role of a prospective manager. The owner asks the manager about their strategies for improving the team's performance, increasing revenue, and attracting fans.
Scenario 3: Preparing for a big game.
One person plays the role of a coach, while the other plays the role of a star player on a professional sports team. The coach and player discuss strategies for warming up, working out, and training before a big game, as well as ways to gear up mentally and physically for the competition.
Part 7: Writing Activity
Describe a time you attended or watched a live sporting event, when was it? what happened? Describe the full experience.
Part 8: Critical Thinking - Buy a sports team.
Objective: To buy a sports club with unlimited funds.
In groups imagine that you are a group of wealthy business people. You have unlimited funds and can buy any sports club in the world.
In your group decide on the club and create a presentation describing the club and your reasons for choosing it.
As a class listen to the presentations and ask questions, then reach a consensus on the best club to buy.
Answers:
Part 1: Comprehension
Alex Webb from Bloomberg Quicktake on YouTube recently explored how sports teams, like Manchester United, are valued, especially as they're being put up for sale. He notes the growing popularity of buying major sports clubs, citing the sales of Chelsea and the Denver Broncos. The report suggests that low-interest rates and increasing broadcasting revenue make these clubs attractive investments. However, buying a football club is more complex than an NFL team due to unpredictable factors like Champions League qualification. The report also discusses the Markham multivariate, a valuation method considering a club's assets, squad, stadium, and revenue generation capabilities. Webb concludes that while this method provides an estimate, a club's true value is ultimately what someone is willing to pay for it.
Part 2: True or False
A: True B: False C: False D: True
Part 3: Guess the meaning of unknown vocabulary or phrases.
a) "Coupled with" Answer: I think this means to be linked to another thing or situation because in the video the speaker talks about how both low-interest rates and higher broadcasting payments have led to an increase in the sale of sports clubs.
b) "All but impossible" Answer: I think this means to be almost impossible as the reporter talks about the reasons why it is so difficult to predict how much money a soccer club can make because there are so many unpredictable factors.
c) "Lucrative" Answer: I think this means to produce a great deal of money because in the video the reporter talks about things that generate profits for soccer teams, and the Champions League qualification hugely affects a club’s ability to make money.
d) "Salary cap" Answer: I think this is an agreement on the maximum players can be paid because in the video the report talks about how American football is easier to predict financially as there are more stable earnings and salary caps.
Part 4: Dictation
a) Fill in the blanks (0:44 - 0:55 minutes) It's a particularly challenging question in European soccer when you try to decide how much a business is worth you tend to look at how much money it's going to make over the next few years and work back from there.
b) Fill in the blanks (2:04 - 2:18 minutes) It's a kind of complicated equation that looks like this it starts by looking at the value of the club's assets, its playing squad, its stadium, and other facilities, and how much money it's able to generate from those assets.
c) Fill in the blanks (2:51 - 2:57 minutes) Is this a perfect solution? No, but it is a formula that a lot of would-be sports team owners use.
Part 7: Writing (example)
In December 2014, I went to a football match between Manchester United and Leeds United with my university friends. It was very exciting. The stadium was full of fans, and everyone was cheering. Manchester United and Leeds United played very well. The first half of the game had no goals, but in the second half, Manchester United scored first. Then, Leeds scored, making the score equal. Near the end, Manchester United scored again and won the game. After the game, we celebrated with other fans in a small bar near the stadium. We drank lots of beer and watched other premier league games on TV together. It was a fun and unforgettable day.
