ELI5 In terms of economics, how exactly do professional sports teams doing well and having success make their teams more valuable?
ELI5 In terms of economics, how exactly do professional sports teams doing well and having success make their teams more valuable?
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People like to see teams that win–if your favorite sports team has been winning 75% of their games, you’ve got a better chance of seeing them play well and win, which is much more fun than if they’ve been winning 40% of their games and you’d be more likely to see them play badly and lose.
It super depends on the sport. There’s a mix of sponsor revenue, direct ticket revenue, revenue from selling TV rights, prize money, and revenue from merchandising that varies hugely depending on what sport you are talking about and how the organizing body is structured, whether there’s salary caps, relegation, revenue sharing between teams, etc.
Teams make money by selling the rights to broadcast their games on TV, selling tickets to their games, selling merchandise, selling advertising at the stadium, and selling the rights to use their trademarked names and logos. When a team is winning more people want to attend and watch their games, driving up ticket sales and increasing the value of their TV deals. It also makes more companies want to associate with them, increasing the advertising and trademark licensing income. When teams make the playoffs, that also gives them more games to sell tickets to and at higher prices.
Winning teams sell more jerseys, get more publicity. More jersey sales and publicity means sponsors get more widespread visibility and association with success, which in turn means that sponsorships are more lucrative.
Advertisers are paying for ‘eyeballs’ and winning teams attract more viewers and increase attendance (and revenues) at games as well. If you make it to the finals, that means additional games and revenue. Fans want to advertise their own affiliation to ‘winners’ and buy labelled clothing and other paraphernalia making more money for the teams/owners.
Essentially, when a professional sports team does well, the local economy benefits. Teams doing well fill the stadiums, which in turn, gets more people in to buy more merchandise, more season tickets, more adult beverages, more food, what have you. That, in turn, creates more business for the city and local businesses that are positioned around the stadium. Before games and after, people will more likely spend their money walking around the city in bars, restaurants, movie theatres, etc.
All in all, the team’s value is first valued by that measure, on future returns. Historical significance is also factored in, meaning how many championships they have won, how successful their drafted players are, their coaches, and most importantly their QB. How new and up to date their stadium is, their other facilities as well can also contribute.
Many things can go into the value for professional sports teams, but the dollar value when a team is sold is really based off of the same value for any business and/or product: whatever someone is willing to spend for it. The final value is determined by what the highest bidder wants to pay.
at the end of the day, it’s all about the money. value is based off current profit and potential profit.