2011 NBA Franchise Values: Lakers Top List, Thunder Valued at $348 Million

Forbes has released its yearly calculations of NBA franchise values by total valuation. The most valuable franchise is now the Los Angeles Lakers, which Forbes values at $900 million. The Lakers switched places with the Knicks, who took the top spot last year. The Bulls round out the top three.

Lakers Top List of Most Valuable NBA Teams | Forbes

According to the story, the combination of the new CBA and huge local television deals have pushed the average NBA franchise value up to $393 million, an increase of 6.5% year-over-year. Despite the cancellation of 240 games due to the lockout,

The deal is more favorable to owners compared to the prior agreement. It cuts the percentage of total league revenues that players receive from 57% to a range of 49% to 51%, which is more in line with what NFL and MLB players get. It will save owners $250 million annually at the start of the agreement.

You can find the franchise value ranking from last year at THIS LINK.

Here is a snapshot of all the teams' valuations, ranked from most valuable to the least:

2012_value_medium

Source: Forbes.com

I have highlighted the teams that have lost money this past season.

A few additional comments after the jump:

  • The Thunder saw their franchise value grow 6% in the past year alone. The franchise has grown since Clay Bennett bought the team. They have done a great job controlling player expenses while slowly increasing their revenue stream (6.8% growth in the last year). Also, the team sold its naming rights to Chesapeake Energy for a 12 year term, which will pay them $3 million in year one and increase at 3% annually.
  • A big part of the Thunder's financial resurgence has been their ability to control their operating costs. In an economic landscape where prospects are uncertain, the Thunder have been able to see growth in their operating income despite the economic downturn.
  • There are a few teams that are ranked peculiarly ahead of the Thunder. Both the Nets and the Raptors have higher current valuations than OKC. The Nets are the most perplexing, since they have been losing money for a decade, have a ton of debt, and are in the process of relocating. I suppose it goes to show how valuable location truly is.
  • The debt/equity ratio continues to look troublesome to me. As I wrote before, the debt/equity ratio, sometimes referred to as the leverage ratio, tells you is how much borrowed money the team is using to finance its assets. The advantage to using debt is that it requires less out of your pocket up front, so you can create larger business opportunities with less cash on hand (hence the term "leverage" - it acts like a lever, moving large things with minimal effort). Conversely, the more debt you use to finance your operations, the less you get to put in your pocket because a portion of it must be used to pay the debtors.
  • Also in regards to both operating income and the leverage ratio, it is important to note that operating income excludes debt payments. Therefore, even if a team has a healthy operating income, the excessive use of debt to finance business will erode the team's net income.
  • Lastly, the NBA business model is based on a number of fixed expenses. For example, lease payments, player contracts, and other debt financing tools must be paid, lest the team default. Conversely, revenues are much more variable and subject to the economic climate (currently poor, but improving). This balance sheet was a big reason why we had the lockout - teams wanted to reel in a lot of these fixed costs that they could still control. I believe this is a big reason why we saw so few contract extensions signed before the January 25th deadline. Of the extensions that did come through like Kevin Love, there was a great deal more financial constraint in offering him only a three year guaranteed deal with a 4th year option. The rest of the 2008 players will be turned loose in the restricted free agent market where teams will determine if the upper bound of each players' value.
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