What are college football programs actually worth? Experts say from $1.65 billion to $0

New York Times

4 days ago

On Monday, The Athletic put a price tag on every Power 4 college football team if they could be bought and sold like pro franchises, from Texas (almost $2.4 billion) to Houston ($91 million).
Today, we're going to consider a related but different question: How much are those programs actually worth?
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That's a topic being researched by a pair of valuation experts, Kevin Kaiser of the University of Pennsylvania and Jacqueline Garner of Georgia Tech. Although their work is ongoing, their initial figures range from more than $1.6 billion (Ohio State) to … $0. The differences in the questions and answers are both significant and relevant, as they explained in a recent conversation.
Because professional sports teams are businesses, it's natural to think of them like any other company or investment: The price you pay reflects how much money you think it will make.
That, however, is not how the industry works in practice. The billionaires who buy teams view them as trophy assets to show off, like a superyacht or a van Gogh.
'We don't think of these things as investments when the people buying them are buying them for the consumption benefit of telling their friends they just bought a football team,' said Kaiser, an adjunct full professor of finance at Penn's Wharton School of Business. 'In that sense, they're buying it based on how happy they are, and the price they pay is a reflection of happiness, not (cash flow) value.'
The disconnect means the prices for pro franchise transactions — like the $6 billion sales of the Washington Commanders and Boston Celtics — are much higher than how much those teams are actually worth on paper.
'We can't back into a value of that,' said Garner, a senior lecturer at Georgia Tech and former financial economist at the other SEC (the Securities and Exchange Commission). 'There's no set of estimates where we can come up with $6 billion with their cash flows. Even if I make really nice assumptions or nice estimates, I can't come up with $6 billion.'
The same idea would apply to theoretical transactions of college football teams.
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Even if the cash flow figures mean a program has little to no financial value, a booster with deep enough pockets will want to buy it, anyway, for the joy and bragging rights of owning their beloved team.
If (when?) investment companies fully venture into college sports, they can't and won't approach the process the same way billionaires do in the NFL or NBA.
'They don't need a trophy asset,' Garner said. 'In fact, they'll lose their job with trophy assets.'
Instead, those firms have a fiduciary duty to pursue deals that make money. That leads to some of the major lingering questions with college sports and private equity: How will outside groups cause cash flows to grow enough to make it worth their investments? Where does the extra money come from? What expenses get cut?
Kaiser envisions another likely scenario. What if a private equity firm that wants to make money partners with a booster who wants a trophy asset? The different perspectives would affect everything from the purchase price to the payouts.
'You can kind of imagine that private equity's going to position themselves to maximize their take from the cash flow and leave the other party stuck with the stump that basically isn't going to generate much cash flow, but they're going to have the happiness of saying they own the team,' Kaiser said.
When paying players directly became legal on July 1 through the House vs. NCAA lawsuit settlement, schools added an immediate expense of up to $20.5 million. But that's just Year 1; the payments are expected to increase 4 percent annually after that.
If you assume investors seek a 10 percent return on buying a team, Garner and Kaiser said the revenue-sharing era hacks almost $350 million off a program's valuation unless it's offset by things like higher ticket prices. The hit is large enough to wipe out any value from some of the Power 4's smallest revenue generators.
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'The great teams, the big ones who we all know, they'll be relatively fine,' Kaiser said. 'But relatively fine, still, it hurts to lose $350 million in value overnight. This is, in my view, going to generate a long-term consequence that's probably going to separate the football teams from the universities eventually.'
It's hard to consider any college football programs as long-term investments without acknowledging the entire landscape. Conference realignment is relatively quiet at the Power 4 level, but the next seismic wave (if it happens) could be not far off as TV deals for the Big Ten, SEC, Big 12 and College Football Playoff all expire between 2030-34.
The valuation for programs in that future top tier — whatever it looks like — will depend on how much their cash flow increases through things like ticket sales or TV contracts.
'They're going to be getting a lot more cash flows because of this shift vs. other schools, and then the value gap is going to grow wider,' Garner said.
How much wider?
'The difference isn't tiny,' Kaiser said. 'It's astronomical, and so the difference in valuation will be astronomical. If suddenly we have D-I teams that are moved out of that premier league or super league or whatever it's going to be, then they're going to be relegated effectively to D-II schools in some respects.'