So in Boston the median disposable income for a family of 4 is a little higher than the national average. It is $42,568. So Let’s take a typical Boston household. Some basic numbers (yearly). $42,568 minus $20,000 for mortgage, $7200 for food, $1500 for cable/phone, $5,000 for car expenses, $6,000 for insurance leaves $2,868 to go to savings, going out to dinner etc. I think these are pretty typical numbers for around here. By the way, disposable income is shrinking by about 1% per year.

So CBS Boston did a nice job breaking down what is would cost a family of 4 to go to a Patriots game. $597.26. That is a pretty big chunk of $2,868. 20.8% actually. That is pretty expensive fun! Here is the link

Overall the cost of going to any game continues to go up, and up faster than the increase or decrease of disposable income. There have been some great studies on this, the FCI (Fan Cost Index) which really measures the purchasing power of fans at sporting events. Really an indication of how far a dollar goes at a given game. Check these links out. Some great detail on FCI by team and sometimes by league.

So this really gets back to a point I made months ago. How much to teams and leagues really care about the fan at the game. Most fans are priced out or going to the game is a big special event. Given that ticket revenue is only 16% of the revenue of an NFL team as an example, and not every team, only teams that own stadiums even get any of the hot dog or parking revenue, the real money is in TV and advertising.

Love to hear what you guys have to say. Some really basic math tells me that 20% of the average disposable income of a family of 4 to go to a game is about the average, give or take a few percentage points. And the average cost is going in the opposite direction of the economy.

Forbes Analysis

There are a few things to consider here. First of all the player to cost ratio ( I know it says NHL but it is calculated the same for each team). Basically saying how much payroll there is for each team versus the other teams and how that has related to wins. My argument is that is a great number in a league without a salary cap. Like Baseball. By this standard the Red Sox really do not get a return on their investment. A score of 57 (really anything below 100) show that they are spending more on payroll per win than the average team. So a big payroll really not being spent effectively. The Patriots are 132 and the Celtics 145 (Bruins numbers are actually pre Stanley Cup win, I bet their number is different). So relative to other teams, the Patriots and Celtics spend more effectively. With 100 being average, their payrolls lead to more wins per dollar really than the average. The question is how would they fare in a non-salary cap system. This just really measure performance about what they spent versus a standard salary cap. An OK stat, but a little misleading because of that.

The revenue per fan number is really where I take issue. Local revenue of the team divided by the population of the metro area. Teams with more than one team have their number divided in half. So Boston has 4 sports teams, how accurate is that number really? Should the number be divided in half again because there are 4 teams and not 2? One could also argue that the fan base of these teams is more than just the Boston Metro area. Providence, Hartford, Portland, Manchester all significant cities that have huge Boston team fan bases. And are also skewed. Maine really has a ton of Red Sox fans and Bruins fans. Hartford less Bruins and Patriots, more affected by the NYC teams. NH probably has the weakest base of Celtics fans. Providence probably the strongest Patriots base because of proximity to the stadium. There are a lot of variables here, I just don’t think the Forbes number is accurate for a major metropolitan area that has several different teams. The calculation is a bit simplistic as well actually.

I would lean to the average spend per fan at a game and add average spend per fan on accessories (shirts and the like). The first is a pretty easy number to calculate, just the ticket revenue, beer and food sales, pro shop sales divided by attendance at games and it’s most basic level. The spend per fan is really relevant not only to the team and marketing teams, but to the average fan in relation to the typical discretionary income the average fan has. That ratio between average spend and average discretionary income per region to me really tells the story and how it relates to how much a fan will spend. The accessories number is a bit more problematic. But that might be a number divided by the population of the metropolitan area that would make more sense. More of a general sales overview.

The age old problem here has been competition for the fan dollar. The teams believe they are all in hot competition for the same fan and the same fan spent. I really do not see that. To me, each fan has a team (or two) they are much more highly invested in than the other teams. A die hard Bruins or Patriots fan is less likely to spend a great deal on Celtics or Red Sox games. Maybe a little, but are much more likely to devote their time and resources to one of those teams. The competition is actually minimal I believe. I think that us why we have seen this “pink hat” phenomenon. The teams marketing to the casual fan to get them to be invested in their team only. Pink Hats just seem to be a great way to pick them out of the crowd (or logo pink shirts and the like). I just know a ton of people that are much more into on team than the group. I really wonder if there is a way to have a season ticket combined for all the team in a market as a revenue generator. Like 4 NFL games, 10 NBA and NHL games, 15 MLB games all on one ticket. THAT would be cool.

What do you guys think about this?

My theory is pretty straightforward. While salaries have trailed inflation a little bit, the bit hit is services. Back in the 1990s, how much did you spend on your mobile phone? Internet service? TV subscription? Never mind other stuff like Netflix, gaming subscriptions, etc. Think about it. As an example, I spend $130/month for mobile phone, $150/month for cable TV/Internet/Phone. Just for starters. So $280/month for basic services. That’s $3360/year.of pure disposable income right out there the door. For most people that is a pretty big chunk of their monthly disposable income. Never mind the increased cost of tickets to sporting events.

Stop and think how much you pay for services as opposed to what you paid say in 1990 (dating myself I know). Let me know what you guys think of this? How would you spend that type of added disposable income if you could. Might make a difference in the economy….

As we subscribing ourselves into depression?

http://www.businessinsider.com/espn-nfl-monday-night-football-2011-9

Let’s say you are that kind of wealthy. Perhaps worth, say $300 Million dollars (if I had that kind of money you would need INTERPOL and a GPS to find me, but that is another story). Your goal with this money is, obviously, to make more money. Setting up yourself and future generations. We would all do this, anyone who says differently is probably lying. So what does $300 MM really mean. Ok, let’s say you have a very conservative portfolio all that money is in. Generates 5% per year. So that means, keeping is high level and simple, about $15MM per year in income. Great money no question. So after taxes, fees etc. plan on about $7MM per year in actual cash income. Still great (hate taxes). And now you want to own a sports team. Given the current lockout, let’s say this is a few years ago and you want to buy an NBA team. Well, how does that work?

Let’s take the first team on our list, the Atlanta Hawks. Nice established team. Valued at $295MM. Now you are not going to use your ENTIRE net worth to buy the team. That’s just stupid. What usually happens is you get a loan, like a mortgage. So let’s say you put $50MM as a down payment and get a $245MM loan to buy the entire team. Pretty typical looking deal. At 5% interest on the loan you are talking about $400,000 per month as a loan payment. Not to mention that instead of $300 MM you are now worth $250 MM and now instead of $7MM per year net you are getting about $6.75MM. And remember this is to pay for everything from living expenses on up. $300MM does NOT mean you can spend $300MM. The numbers start not to work pretty quickly don’t they? Not to mention the Hawks LOST $7MM last year. That money comes from somewhere. Guess where? Yep, YOU! You share in the profit when times are good, and pay up when times are bad. So you would be on the hook for $4.8MM in loan repayment and $7MM in losses. So a total last year of $11.8 MM. THAT hurts.

Ok so what really happens. Ownership groups. Basically you might put a group together where you put of $25MM, a group of people might put up a total of $50MM (so $75 in total), you own that majority of the shares compared to everyone else, and share the loan and the profits/loss. So now the loan is about $320 K per month. You pay 1/3 of it so about $105K. And receive the same proportionate share of profits and/or losses. Much better deal. The ownership group can be put together in a variety of ways. Often the majority owner may only own 20-25% of the ownership group and a bunch of minority owners with him. That owner may own more of the team for the lower amount of capital because his shares are valued more etc. for putting the whole thing together, but these are the basic concepts.

Now then, back to YOU there Richie Rich. You are getting about $6.75MM per year in net income, you have to structure the ownership group in a way that you can afford it and not have it take ALL of your yearly income. $300 MM really doesn’t go as far as it used to does it? So if you are an owner, under this type of ownership structure, can you see why when the team loses money you are not just going to write a check? They treat these businesses like actual investments, that is what has changed. And do you know how many people are worth $300 MM and more in the US? It’s a pretty short list. This is why lockouts happen usually.

Anybody have any interesting/unique structures based on this you could come up with for owning a team? Love to get your thoughts…..

**** And yes I know you can use cash flows from the acquired business to pay the note, just trying to keep it simple and high level for now******

Also, I dug up recent NFL transactions. Who bought what team and what did they pay. Remember, in each of these deals the buyer probably only put up about 20% of the purchase price in case and have a loan for the rest. And not with an interest rate you would see in a mortgage. Probably in that 7-8% interest rate range. Love to get your thoughts…..

Team Valuations

in the NFL, the two most profitable franchises are Dallas and Washington. Dallas has revenues in 2010 of $473 MM (million), Net Operating Profit of $174MM and a franchise value of $1.8 Billion. Washington had revenue of $368 MM, NOI of $118MM and a franchise value of $1.5B. The worst franchises in the NFL were the Giants, Oakland and Detroit. The Giants revenues were $257MM, NOI of $1MM, and a franchise value of $1.18B. Oakland revenue of $228MM, NOI $2MM, value of $758MM. Detroit revenue $215MM, NOI of $2MM and a value of $817MM. A pretty big gap between NOI numbers, but not a huge gap in valuations really. And the relationship between revenue and NOI really driven bby owning the stadium.

The NBA tells a different story. The gulf is far wider. The Knicks and Bulls were the most profitable in 2010. The Knicks had revenue of $226MM, NOI $64MM, franchise value of $655. Chicago revenue of $169, NOI of $51MM, and a value of $511MM. By percentage, these guys are extremely profitable compared to most other franchises. On the other end of the scale, the least profitable were Orlando, Indiana and Denver. Orlando revenue was $156MM, NOI of NEGATIVE $23MM and a value of $345MM. Indiana revenue of $95MM, NOI of -17MM and a value of $269MM. Denver was similar with revenue of $113MM, NOI of -$12MM and a value of $316MM.

As you can see the gulf between the most and least profitable teams by percentage is wider in the NBA than the NFL, but also the NFL lockout was about how much money the owners could make, the NBA about those that are losing money. Overall according to the numbers I saw, 15 NBA teams lost money in 2010, no NFL teams did (although $1MM NOI is close). As a result I think the NBA season just will not be played. But that raises a bigger question. Do NFL franchises run their operations better and that is why they are more profitable? Or, here’s a thought, did the NBA lockout happen maybe 5-7 years later than it should have? The NFL seems to have headed off a path where they would be losing money, the NBA reacted AFTER losing money for several years. Love to get your thoughts….BTW based on these numbers, do you really think Orlando can resign Howard?

And as a review, here is the definition of Net Operating Income from Investopedia Net Operating Income – NOI

What Does Net Operating Income – NOI Mean?
A company’s operating income after operating expenses are deducted, but before income taxes and interest are deducted. If this is a positive value, it is referred to as net operating income, while a negative value is called a net operating loss (NOL).

Investopedia explains Net Operating Income – NOI
NOI is often viewed as a good measure of company performance. Some believe this figure is less susceptible than other figures to manipulation by management

Read more: http://www.investopedia.com/terms/n/noi.asp#ixzz1VCo3pmDN

In the NBA, almost none of the teams own their stadium. Ticket revenue is 29% of income, not the 16% of the NFL. TV deals are fractured and there is not a global deal everyone really shares in. Local sponsorship, local TV deals, and tickets drive the revenue without that large scale TV deal. As a result NBA teams are affected a great deal more by local economic conditions. As another contributing factor, take a look at the teams that are profitable and overlay that with the teams that made the playoffs. Successful teams are profitable, less successful teams struggle financially. And since there has really been no salary cap, successful teams get more successful because they can afford more and better players, they just have to pay the luxury tax. Less successful teams, don’t have the money to upgrade a roster, trapping them in a cycle unless they hit the draft lottery.

With the NBA asking for a 1/3 salary reduction/rollback from the players, and suing to not only justify their lockout but plant the seed that a union decertification is illegal, they further distanced themselves from the players. Owners want a hard cap and a far lower number than the current luxury tax threshold, and the players flat out don’t believe that the owners are losing money. This is ugly and I really don’t see the NBA having a season this year. Far too much of a gap between the sides.

As done before, the attachment below has the overall revenue for NBA compared to the other leagues, as well as operating income. I also included the operating income, revenue, and ticket price numbers for all NBA teams. Let me know what you think. The numbers tell a pretty depressing story if you are looking forward to the NBA this year…

NBA Financial Stats