The New York Knicks went leaps and bounds after their overhaul last year, having brought in Tom Thibodeau as their head coach and making other changes in the back office. The team made the playoffs for the first time since 2013, with the likes of Julias Randle and Derrick Rose stepping up to become major contributors.
Things aren’t moving in the same direction this season. The Knicks are sitting 12th in the Eastern Conference at 13-17. Making the playoffs is still possible but it isn’t happening unless they can recommit to playing the kind of basketball they played last season.
Be that as it may, only two other NBA teams can even attempt to rival New York when it comes to value. The Knicks are in one of the league’s major market locations and have been among the most valuable franchises around for as long as fans can remember.
The Los Angeles Lakers, another huge-market franchise, currently have a host of All-Stars including LeBron James, Anthony Davis, Russell Westbrook, and Carmelo Anthony. Over the years, they’ve had top names such as Shaquille O’Neal and Kobe Bryant and have won six championships since the year 2000.
The Knicks haven’t been close to successful, though they have had some names of their own. Anthony called Madison Square Garden home for six years. Amare Stoudemire is another high-profile player to have worn a Knicks uniform in recent memory.
The two teams are quite far apart when it comes to success and history yet both of them were estimated to be worth more than $5 billion by sports business publication Sportico earlier this year. The Golden State Warriors are the only other team in that range.
Forbes valued the Knicks at $5.8 billion this October, matching the Lakers to $5.5. Back in 2000, Forbes reported that the Knicks were the league’s most valuable team at $390 million—the Lakers were said to be the second most valuable at $360 million.
Nearly 22 years later, sports franchises have become way more valuable and there is a lot more money in the game. Television rights deals are getting better and better as broadcast networks pay top dollar to get NBA basketball on their channels.
“This gets into the next greatest fool theory of team ownership,” professor of sports management at Syracuse University Rick Burton said. “It suggests that there will be a next greatest fool willing to pay that amount to get that franchise. And franchise values are essentially the most important job of the league commissioner, which is to drive up the asset appreciation of the franchise holders.”
“When buyers have cash and are liquid, and business for the league involved is good, prices go up and vice versa,” Dallas Mavericks owner Mark Cuban wrote in an email.
So what is a valuation? You might ask. Short answer: it’s simply an estimate of how much money a team would be sold for. It’s really an educated guess, though. Sportico explains it’s pretty much the same as estimating the price of a house on the market
“At the end of the day, we’re estimating what a private enterprise is worth,” sports valuations reporter at said publication, Kurt Badenhausen, noted. “No different than estimating what the value of your house is worth.”
There are several factors to consider when placing a value on a team. Location is a big one and New York is one of the most popular in the world. Things are about to get even better for NY as sports betting is coming to the Empire State. Additionally, Knicks owner James Dolan owns MSG, while the Lakers are leasing the Staples Center (very soon to be the Crypto.com Arena).
“If you have two teams, let’s say one owns the building and the other leases it, what I’m valuing is the economics,” Forbes’ Mike Ozanian explains. “In other words, what are the revenues that the team generates at the building versus its expenses?”
Not all of the assets related to a team are taken into consideration. Dolan also owns MSG Networks, a regional cable network that airs Knicks games, as well as games played by other teams based in New York. It doesn’t factor into team valuation but the money it brings in does.
Persons tasked with valuations review the public information on team finances and also seek out bankers involved in transactions relating to the team. They also take previous sales and rarity into consideration.
According to Cuban, the value of a franchise changes due to “supply and demand against cost and availability of money versus expected cash flows, if any, and expected appreciation.”
“We do it with the best information we have based on a team’s finances, their arena situation, and the market that they’re in,” Badenhausen added. “But sports teams don’t get bought and sold like traditional businesses, because there is an intangible factor in there because while there are thousands of businesses you can buy, there are only 30 N.B.A. teams that you can buy.”