Kicking off the blog with a sports economics post

This is not exactly macro, but I thought I would start the blogging assignment with an item I posted over at thesportseconomist.com last week. -Victor

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While the Philadelphia 76ers got all of the press this year with their record-tying 26-game losing streak, the Milwaukee Bucks quietly ended up blowing out the competition for worst team in the NBA finishing 15-67, fully 4 games behind the hapless 76ers.

So what kind of reward does owner Herb Kohl get for guiding his team to NBA ignominy? Try $550 million, the price tag announced today as Kohl sold the team to New York investment firm executives Marc Lasry and Wesley Edens.

In other news, it was widely reported last week that in the latest government data on college athletic programs, the University of Alabama athletic department generated more revenue than every NHL team and 26 of 30 NBA teams.

So, here is an interesting thought experiment:  if the University of Alabama football team, which finished with only 4 fewer wins than the Bucks despite playing 68 fewer games, were a regular sports franchise, what would it sell for?

Of the $143 million in revenues generated by the athletic department, the football team is directly responsible for $88.7 million. The Bucks just sold for 5.05 times their annual revenue. Using this multiplier would put a value of roughly $450 million on the Crimson Tide football team. Revenue to market value numbers for other teams in the the NBA and NFL run between 3.2 and 5.2.

Of course, Alabama has another thing going for it as well. While Kohl had to pay his players about $54 million this season to generate those 15 wins and their corresponding $109 million in revenue, the Crimson Tide only incurred $2.2 million in player payroll expenses. In total, the school spent only $41.6 million on football, generating a profit of $47.1 million. On average, NBA and NFL teams at valued at 26.6 times their annual profits in the Forbes rankings. Using this multiplier, the Alabama football team would go for $1.253 billion, making it the 13th most valuable franchise in the US. By contrast, the endowment of the entire University of Alabama system in 2013 was $1.055 billion.

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One thought on “Kicking off the blog with a sports economics post

  1. lizzielyman

    This post would fit into the debate I read a couple weeks ago that Bill McBride posted about that showed the push towards College Athletes getting paid. The debate began with the Northwestern University football players gaining the right to join the College Athletes Players Association union.

    With the examples of Northwestern University and University of Alabama one would see the push for compensation because these college athletes are generating more revenue per year than spent on their program, as well as, having such demanding schedules where by definition the athletes are underpaid employees.

    The issue lies within the fact presented by Armen Keteyian and Jeff Benedict, authors of The System: The Glory and Scandal of Big-Time College Football, who found that only 22 of the top 120 football programs break even or make a profit. Leaving many college athletics programs at risk of shutting down completely if athletes gain money compensation.

    Reply

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