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They’re worth what? Decoding soaring sports contracts and team values

This month, Forbes released its annual list of the 50 most valuable sports franchises in the world. The top five comprised a football team, a baseball team, and three soccer teams—all worth billions of dollars each.

To understand how these teams come to be worth so much, Northeastern law professor Roger Abrams—a leading authority on sports and labor law—said it’s important to look at the big picture.

Location is king

“I ask my students to consider: ‘What do I get when I buy a franchise?’ That determines its value,” Abrams said. “You get the exclusive rights to sell the sports life in a certain geographical area.”

Often, Abrams said, it’s that geography that can contribute massively to a team’s worth. What’s the old realtor’s motto? “Location, location, location.” Jerry Jones, owner, president, and general manager of the Dallas Cowboys, for example, purchased a lot of surrounding land when he built the team’s new stadium.

“Land is an important asset for a club,” Abrams said. “Jones has turned that land into places where people can actually live. It’s what comes along with the club.”

Not coincidentally, the Cowboys are ranked first on the Forbes list, worth a whopping $4.2 billion.

Top 50 Teams By League
Ranked by Forbes. Teams are sorted by value.
Media matters

Generally, though, TV contracts are a team’s greatest asset, Abrams said. The three top soccer teams on the Forbes list—Manchester United, Barcelona, and Real Madrid; at Nos. 3, 4, and 5, respectively—are consistently televised worldwide.

“The British Premier League is the premier soccer league in the world,” Abrams said. “It will be shown in Budapest and in Ghana and throughout China. It’s everywhere. That’s not the case with American baseball. Soccer is the world sport, and if you develop the market, you have exclusive control over the market.”

The New York Yankees, landing the No. 2 spot on Forbes’ list at $3.7 billion, harnesses value from both geography and TV contracts—New York is a top-tier media market.

Big payday in the NBA

The first NBA team on the Forbes list is the New York Knicks at No. 7, valued at $3.3 billion. Two NFL teams (the Cowboys and the New England Patriots, at No. 6), an MLB team, and three soccer teams beat out the entire NBA. And yet, professional basketball players have some of the largest individual contracts in all of pro sports, as we illustrate below.

So, what gives?

“Count the number of people on the bench,” Abrams said. “That’s who you have to pay. In football, you have 53 players; there are a lot more people involved. The NFL earns more money as a league, but it has to be divided among more people.” [For comparison, basketball teams can only have up to 15 players on the payroll.]

Illustrating Abrams’ point, in its annual survey of athlete salaries, Sporting Intelligence reported that despite spending the most on player salaries ($4.1 billion), NFL players ranked sixth in the world in average salary ($2.4 million). The NBA, meanwhile, was third in total salary expenses ($2.9 billion), but its players pulled in the world’s top average athlete salaries ($6.4 million).

Furthermore, salary caps in each league affect player salaries in different ways. The NFL, for example, has a “hard salary cap,” Abrams said, which means that over the next couple weeks football clubs will start cutting some good players because they can’t fit their salaries under the cap.

And in the NBA, which has seen revenues boom recently, players—who get a percentage of gross revenue—are seeing much bigger contracts as a result.

Consider too, that in basketball, “one or two players can make all the difference,” Abrams said. “In football, other than the quarterback, it’s hard to find the one player who makes all the difference.”

Team and Player Contract Values