Bulls, Bear or Ballplayers?

From Wall Street to the stadium, sports franchises have been outperforming the stock market and drawing investor attention. In this episode, NASDAQ’s Michael Normyle joins IBKR’s Jeff Praissman to break down whether owning a team could be the next big play for your portfolio.

Summary – IBKR Podcasts Ep. 289

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman 

Hi everyone. This is Jeff Praissman with Interactive Brokers. It’s my pleasure to welcome back to our podcast, NASDAQ’s U.S. economist and senior director Michael Normyle. Hey, Michael, how are you? 

Michael Normyle 

Doing well, thanks. Glad to be back. 

Jeff Praissman 

I’m excited to have you for our monthly podcast, and particularly excited for this episode. We’re gonna do something a little bit different than we normally do. We generally talk about the economy or what’s coming ahead, but this is gonna be a fun one — a fun summer topic. 

So, you had written an article a little while back on the valuation of professional sports teams. Today, we’re gonna take a dive into that. First thing I want to ask you is: given that professional sports teams have historically outperformed the S&P 500 by significant margins, why do you think more teams haven’t pursued public listings? What barriers might be keeping majority owners from taking this path? 

Michael Normyle 

Yeah. To put some numbers on that outperformance: Morningstar researched sales over the last 20 years and found that the average sports team value has grown at least twice as fast as the S&P 500. For the NBA it was three times, and for MLS it was five times. In terms of why more teams aren’t public — I think that’s a good question, and it’s actually pretty hard to say. It could be an overlooked and underappreciated option just because it’s not been done by too many teams. For example, in the NFL it’s not allowed by the rules. But maybe if we see more teams go through with it, then it could just become a more popular option. 

Jeff Praissman 

Yeah. And I can also see the fact that they are becoming so valuable that it might at some point become the only option. There’s only so many people that can buy these teams, and if values continue to go up… 

Looking back at the data, it shows sports teams have been a really good investment in recent years. What unique economic moats do professional teams — the franchises themselves — possess that might explain their strong performance relative to other industries? 

Michael Normyle 

I think there are a few, but the biggest might be that live sports are an increasingly precious commodity in this age of streaming TV. Live sports is one of the few areas that really requires watching in real time, whether on TV or in person. In 2024, for example, 75 out of the 100 most-watched telecasts were sports. Sports viewership is only expected to increase, with a report from Goldman Sachs estimating that U.S. streaming live sports viewership will increase 50% from 2022 to 2027. That makes sports teams increasingly stand out and increasingly valuable. 

Second, and relatedly, sports teams often have long-term media rights deals that give them predictable income regardless of whatever else is happening in the economy. That’s an uncommon degree of certainty for sports teams compared to other businesses. Plus, if a team owns its stadium or arena, they can earn money from other events like concerts. Those have become big business in recent years, with some tours from top artists racking up hundreds of millions of dollars or more. 

Jeff Praissman 

Yeah. For investors considering sports team stocks — and there are a few out there — how should they think about the relationship between on-field (or on-court) performance and financial performance? Is there a measurable correlation between championships and share returns, or does it not matter and sports teams are just valuable regardless? 

Michael Normyle 

There’s not been a lot of research on this subject recently. There is some research from the early 2000s that suggested a link between big-game performance and market reaction for English soccer teams, but I’m not sure that would still be the case today across all leagues. 

I do think it’s interesting, though, because part of being publicly traded is fiduciary duty. That would incentivize focusing on long-run performance. In that case, on-field performance should really go hand in hand with financial performance. Of course, it’s not going to be a perfect correlation. But if your team is doing well, oftentimes you can charge higher ticket prices — that means higher ticket revenue. And at the same time, many leagues have salary caps that limit maximum spending to a degree. So there’s no theoretical limit on revenue, but there is a limit on spending. 

Jeff Praissman 

And wins versus financial performance seems not to matter with the Cowboys — and I gotta take that dig ’cause I’m an Eagles fan, so I have to always take my shot at an NFC East rival. But switching leagues: in the NBA, for example, they just recently had a media rights deal that represents a two-and-a-half-times increase over the previous contract. I know sports are super popular, but how sustainable is this growth trajectory for sports media rights? 

Michael Normyle 

I think it’s gonna take a while to find out, since that’s an 11-year deal for the NBA. Of course, doubling or tripling the value indefinitely isn’t sustainable, especially for well-established leagues like the NBA. That said, there’s a good chance the next deal can be bigger, especially if leagues are able to grow their global footprint — which has been an increasing goal for U.S.-based leagues. Also, sports teams still have room to grow with the rise of sports betting. That same Goldman report I referenced earlier estimated that the U.S. online sports betting market will essentially triple from 2022 to 2027. Partnerships there are another revenue stream, too. 

Jeff Praissman 

Yeah. And online betting is everywhere — those companies are in people’s mobile phones, and it’s just such a commonplace activity at this point. You note that sports teams are recession-proof to some extent. Could you elaborate for our listeners on how they performed during previous economic downturns compared to traditional market sectors? 

Michael Normyle 

That goes back to what I mentioned earlier with long-term media rights deals. Since the NBA, for example, signed an 11-year deal, if there’s a recession in the next 11 years, teams will still get fixed media rights revenue throughout that period. That helps insulate at least a portion of the business from recession. Plus, some leagues have revenue sharing, which can help boost the bottom line for lower-performing teams. But a lot of these teams went public relatively recently, so we really only have the COVID recession as a point of comparison — which disproportionately impacted live events. So it’s not really representative of broader performance. 

Jeff Praissman 

Right — it went from full to absolutely zero because you couldn’t have anyone in the arena. Whereas in a traditional downturn, maybe you’re not selling out, but you’re still at 85% capacity or something like that. That makes sense, too, what you’re saying about these long contracts. If the NBA has an 11-year deal, and five years in there’s a downturn, they’re still getting paid. And media rights are a huge portion of their income stream. 

In your article, you also mentioned that public listings could help teams fund new facilities with less reliance on taxpayer money. That’s always a hot-button issue: cities struggling, and suddenly a professional sports team wants $2 billion to build a stadium. How might this shift the economics of stadium development and potentially change the relationship between teams and their host cities? 

Michael Normyle 

Yeah, I think you could say it’s a fairer way to fund stadiums. In the old model, cities often helped fund stadium development — so all taxpayers funded the stadium whether or not they were a fan or investor. 

With public listings, fans and investors are opting into owning the team, knowing that might require funding a stadium. But at the same time, that new stadium might allow for higher ticket revenue, more ad sales, things like that — which investors could then benefit from later on. 

Jeff Praissman 

Yeah, it’s like an R&D investment in a way for these stadiums. And of course, many sports investors are also passionate fans as well. Does this dynamic create — what opportunities and challenges — for publicly traded teams in terms of shareholder relations and corporate governance? 

It’s hard to imagine anyone getting excited over a utility company. However, if you’re investing in an NBA team or something that’s public, you could be a diehard fan as well and think you know better than the GM. 

Michael Normyle 

Yeah, I think in terms of opportunities, it does provide another channel of engagement for fans — maybe even an impassioned speech on an investor call, I’m not sure. It’s another way for teams to communicate with fans. Long-term strategy can be spelled out in annual reports in a way that’s uncommon for sports teams and certainly not required for privately owned teams. But the flip side is that those disclosures could be viewed as a challenge for some. So there are pros and cons — and teams would just have to weigh those for themselves. 

Jeff Praissman 

And we touched on this in the beginning — whether or not more teams will follow this route. Obviously, the NFL (except for the Green Bay Packers, who were grandfathered in) just doesn’t allow it at this point. But looking ahead, do you see a future where a majority of major professional sports franchises would be publicly traded? And if so, what catalysts might accelerate this transition? 

Michael Normyle 

I think there’s a chance we see more sports franchises publicly traded, but probably not the majority. Of course, they’re welcome to list on NASDAQ and prove me wrong if they wish. One of the main catalysts — and you touched on this before — is simply the rising valuation of teams. There are so few individuals or even groups of investors that can afford the price tags these days. For example, the L.A. Lakers just sold at a $10 billion valuation. That really leaves a very select group of buyers. 

Turning to public markets alleviates that concern. Instead of a few billionaires as the pool of buyers, you’ve got a few billion investors. Other factors could be a big CapEx cycle that requires an injection of cash, especially if cities are less willing to fund stadiums. Or if private valuations are at a discount to public valuations, that could be a cyclical factor pushing teams toward going public. 

Jeff Praissman 

Got it. That makes sense. And Michael, this has been great. I really enjoyed this — love this topic. Any final thoughts you want to leave our listeners with? 

Michael Normyle 

I think one thing to point out is that some of our listeners might already be minority owners of sports teams — since many public teams are included in major indexes. For example, the Braves and F1 are in the NASDAQ Composite. The Rangers are in the S&P 600. UFC and WWE are in the S&P 500. So next time you need a fun fact or icebreaker, you can tell people you own multiple sports teams. 

Jeff Praissman 

Yes! This was great, Michael. And until next time, for our listeners: you can find more from Michael and NASDAQ on our website under Education — where you can see past podcasts and webinars. You can also go to nasdaq.com and find a ton of articles by Michael and his team on the economy and much more. 

Thanks again, Michael. 

Michael Normyle 

Yep, thanks.