Why Are Professional Sports Teams So Valuable?
Plus: there is always a real estate component
From 2006-2010, I lived within a stone’s throw of Fenway Park, first off of Beacon Street just a short walk across a large parking lot to Yawkey Way (since reverted to its original name of Jersey Street), and then down the road in Brookline for two years. I worked for the Boston Red Sox for those years, and my job, my apartment, my grocery store, my gym, and my other favorite spots were all within about a half-mile radius of one another. I counted once in the summer of 2006 that I worked at Fenway Park 42 days in a row, which was not a bad way to spend a summer at all. It’s hard to say this to people who think of working for the Red Sox as a dream job (it was!), but eventually you do get the challenges and frustrations of any job the way you would working that much, and once the 2006 regular season ended (unceremoniously, that particular year), I forced myself to start at least taking Sundays off. I did love working for the Red Sox, but I always knew I wanted to move back to Maine, which is what came to pass, so my Red Sox career ended in 2010.
Now back in Bangor, Maine, I might make it to Fenway Park once a year, give or take. The truth is, I barely recognize the area that surrounds the ballpark. I’m sure the apartment I paid $800/month for in 2006 on Aberdeen Street across that big parking lot is three to four times more today. Most, if not all, of my favorite spots from those few years are gone: Boston Billiards, Baseball Tavern, Il’s Deli, Boston Beerworks, the Chicken Bone — none of them exist today.
I don’t mean to claim there was some massive gentrification process around Fenway Park only after I left. Gentrification is a loaded word, most relevant in the context of people getting priced out of their homes in longtime neighborhoods due to economic development and the general evolution of things. Losing my gym that happened to be right on the other side of the Green Monster is cause for nostalgic pause, but it’s not lifechanging. Even when I was living there, the area from Kenmore Square to the Longwood Medical Area had already been pretty well-gentrified as compared to its earlier grittier days before my time.
By the way, one of today’s primary topics is about the real estate around professional sports venues, but the advancement of the Longwood Medical Area, which includes Harvard Medical School, Dana-Farber, Brigham and Women’s, Boston Children’s Hospital, Beth Israel, and others, is just as much a reason for the massive development in this area over the past two decades as anything — it’s one of the largest concentrations of top tier medical institutions in the country if not the world.
But regarding the topic at hand today, real estate development is big business. So, too, are professional sports. And increasingly, the two are intertwined. Real estate development is being done by sports franchises themselves (or at least their ownership groups), who recognize that their own investments in professional sports team can amplify the value of all of the surrounding real estate, so why not own that real estate themselves?
Professional Sports as an Investment
Few people will ever be in the echelon of investors who can afford to acquire a professional sports team or to be a part of an ownership group that does so. In 2002, the Boston Red Sox were purchased for roughly $380 million. Today, people who track these sorts of things estimate the value of the franchise at nearly $5 billion, which puts them third in Major League Baseball behind only the Yankees and the Dodgers in terms of value. I’m biased, but in my opinion these are clearly the three most beloved brands in Major League Baseball (you might also throw in the Chicago Cubs), so it’s no surprise they are the most valuable. But even the Tier 2 teams are now generally all worth over $1 billion. The Baltimore Orioles, for example, were the most recent MLB team to be sold. The value? Nearly $2 billion.
In the NFL, valuations are even higher. The Denver Broncos sold for nearly $5.0 billion in 2022, and the Washington Commanders sold for just over $6.0 billion one year later. The Dallas Cowboys, a team that is often cited as the most valuable franchise in all of sports, is purportedly worth approximately $13 billion. Even a less iconic team (despite winning this past year’s Super Bowl) like the Seattle Seahawks will likely sell for $7.0-$10 billion. In fact, the Seahawks are actively for sale right now.
I know $10-$13 billion for a sports team might seem obscene to some people, but you have to remember these are actually businesses. A $13 billion valuation would put the Dallas Cowboys roughly equivalent to the Hasbro company. The DocuSign company, for example, is worth about $9 billion, as is Zillow. Which would you rather own? The Seattle Seahawks? Or DocuSign. I’d take the Super Bowl champs.
The main reason why professional sports teams sell for so much is that, simply put, Americans have a deep and abiding love for professional sports, and these teams generate a ton of revenue. The Cowboys comfortably gross nearly $2.0 billion per year. In an attention-driven economy where our focuses are split in so many different directions, sports still draw people (and their dollars in).
There is, of course, the prestige factor. Who wouldn’t want to be an owner of a professional sports team? The number of opportunities is scarce (30 MLB teams, 32 NFL teams, and about the same in the NBA and NHL), so when a team does become available, the pool of qualified and interested buyers becomes more like a feeding frenzy. Even in the comparatively upstart WNBA, news broke just this past week about the owner of the Houston Rockets NBA team, Tilman Fertitta, purportedly trying to acquire the Connecticut Sun team for $300 million. He would then move the Sun to Houston.
In any of these leagues, if you want to own a franchise, you can’t just start one up; you have to acquire one from an existing owner (or be approved through a complicated, lengthy, and expensive league expansion process). But once you are in, you get to participate in media rights profits. Because we love sports so much and because of the unique nature of sports as live action activities (i.e. you basically have to watch it in real time), the media rights, which are shared between the leagues and their owners, are incredibly valuable.
Each team in the NFL, for example, receives a roughly equal share of the league’s national media rights revenue. People who watch professional sports are incredibly valuable to advertisers because they are often in key demographics and they are willing to actually sit down and watch a screen for 3-4 hours without interruption. They will then watch highlights later, sometimes over and over again through multiple screens (i.e. TV, phone, computer, etc.). Advertisers will pay big bucks to reach these audiences.
Just look at football, for example. The current set of television and streaming contracts covering CBS, FOX, NBC, ESPN/ABC, and Amazon totals about $110 billion for the NFL over 11 years, or roughly $10 billion per year for the league as a whole. When divided among 32 teams, that works out to approximately $310–$320 million per team annually from national media rights alone. And this is just the national media share; teams also earn additional income from local TV contracts, not to mention ticket sales, sponsorships, merchandise, and stadium revenue, which pushes total annual revenue for most franchises well above $500 million.
The Real Estate Angle
Factor in media revenue, other sources of team-related income, and the prestige factor of owning a team (plus, I would imagine/hope for most team owners, the fun of it all!), and you get a very rewarding and profitable enterprise. But there is another way professional sports franchises (or their ownership groups, at least) are maximizing their returns on investments, and that’s through real estate — specifically, owning and developing as much of the real estate around their stadiums, arenas, and facilities as they can.
Consider the Atlanta Braves, for example. In 2017, they moved into Truist Park, but the stadium was only part of the vision. Surrounding the ballpark is The Battery Atlanta, a mixed-use development of restaurants, offices, apartments, and retail that operates year-round, not just on game days. Who is the owner of The Battery? Atlanta Braves Holdings, Inc. Essentially, the Braves don’t just sell tickets anymore; they participate in rents, leases, and an entire ecosystem of economic activity at The Battery, making them one of the largest real estate developers in Cobb County, Georgia and a vertically integrated conglomerate.
NFL teams are doing the same. The Los Angeles Rams took the concept to another level with Hollywood Park, the sprawling development surrounding their recently constructed SoFi Stadium. Far beyond simply a sports venue and stadium, it’s a master-planned mini-city with residential units, office space, entertainment venues, and public parks. The stadium may be the centerpiece, but it’s one of countless revenue streams within the development. The New England Patriots have done the same, massively developing the area in Foxborough around Gillette Stadium into Patriot Place. Rather than partner with a developer on this project, the whole thing is owned by the Kraft Group, which also owns the team.
One advantage many of these teams have had, particularly the Patriots, is in building their stadiums and adjacent developments in less dense areas. The Patriots are not in Boston or Hartford, for example; they are in Foxborough, population 18,400. It is common now when a new stadium is built that it is done out in the suburbs somewhere, and the reason is that ownership groups do not want to be constrained in their real estate development opportunities. The Chicago Bears would like to launch a massive mixed-used development along the lines of what the Braves, Rams, and Patriots, have done, and so are looking to Arlington Heights, an easier area to build in 25 miles out of Chicago than where they are now (there are also rumors they could be lured across state lines to Indiana; no word on whether they would become “The Indiana Bears,” a moniker enough to make even the most casual Bears fan sick).
But long-time franchises in iconic locations have been figuring out this real estate thing, too. Take the Red Sox, for example. Part of the joy of being a Red Sox fan is Fenway Park itself. The oldest ballpark in Major League Baseball, Fenway is one of the top tourist attractions in Boston (and, indeed, all of New England), and many people will go to games just as much for the ballpark as the team itself. Years ago, there were rumors the Red Sox might try to move from the historic site, motivated largely by wanting to have a new stadium with development opportunities around it (plus increased modern, premium/luxury seating, which is also a big revenue driver for a team). The fans revolted. Instead, the current ownership group, which bought the team in 2023, has invested heavily in the ballpark itself to keep its historic charm, while modernizing many of its amenities (and revenue lines).
The Red Sox (through Fenway Sports Group) have also invested heavily in the periphery around the stadium by acquiring and redeveloping numerous properties. They have also reimagined the former Yawkey Way and Lansdowne Street as more pedestrian-friendly, year-round destinations. Fenway Park was built in 1912, but over 110 years later, it’s part of a broader, modern commercial strategy.
Lessons for the Rest of Us
The large numbers associated with professional sports ownership economics can boggle the mind. 99.99% of us will never be in that echelon. If the Red Sox do eventually sell for $5+ billion, if you could somehow negotiate a 1% stake as part of a broader ownership group, you’d still need to pony up $50 million.
But there are lessons here for anyone doing real estate development in their own way. Location matters, first and foremost. I mentioned above about all the development in the Longwood Medical Area of Boston with hospitals, laboratories, and scientific research centers. Residential rental and retail properties alike within several miles of a hospital setting like that, for example, will never lack for tenants. And vice versa, if you are investing in a rural area of the country, for example, where the hospital is experiencing intense financial stress and at risk of closure or at least a significant reduction in capacity, your real estate is at real risk of losing value if that hospital were to actually go down because many of the would-be tenants for the rental properties and other commercial spaces don’t necessarily stick around once the hospital closes.
But the opposite is true, too. Many successful real estate developers have made a career out of investing in properties, including land, in areas that are ripe for development. Location matters, but also in the greater context of what complementary development might take root in the future. Maybe if you get lucky, you’ll own some land in a suburb that catches the eyes of a team owner looking to build the next sports, retail, and entertainment campus.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Thoughts and opinions here do not represent First National Bank.