The factors working for and against the Heat’s value.
by Kyle Stack / @KyleStack
How much are the Miami Heat worth? It’s a difficult question to answer precisely, as just about any sports economist will tell you. But the team’s worth is intriguing to know for at least a couple reasons.
Any team which adds Chris Bosh and LeBron James to a roster containing Dwyane Wade is due for a bump in value. That would 
be the case no matter what NBA season it was. Of course, the ‘10-11 campaign isn’t just any season; it’s one which could be the last before the bubble bursts on NBA labor negotiations, possibly resulting in a work stoppage.
When Forbes comes out with its annual NBA team value rankings in early December, the financial magazine’s judgment on team values could shine a valuable light on whether teams are struggling financially to the degree the League claims. Until then, all we have is speculation. But at least it can be educated speculation.
With that in mind, I asked Robert Boland, a sports economic professor at New York University, to estimate the Heat’s franchise value. The question of what goes into valuing a team is a loaded one. Many factors are considered, and they depend on who’s considering them. Forbes takes into account team debt, their arena debt and their revenue from the prior season. The value of a team’s arena, the quality of its players, the team’s local TV deal and its history as a winning (or losing) franchise all come into play. There are certain factors with the Heat that we already know.
Forbes valued the Heat at $393 million in December 2008 — 12th in the NBA at the time — and at $364 million last December, which also ranked 12th in the League. It’s safe to say the latter figure is a starting point. The values of some other teams make that $364 million figure appear insignificant compared to what the current value of the Heat could be.
“I’d look at the recent sales of the (New Jersey) Nets and (Golden State) Warriors very favorably,” Boland wrote in an e-mail message, indicating those deals could benefit the Heat in their franchise value determination.
Russian businessman Mikhail Prokhorov completed a deal in May to buy 80 percent of the Nets and 45 percent of their arena project in Brooklyn. Figures have varied for exactly how much he paid. The Wall Street Journal reported that Prokhorov shelled out $260 million for the team and arena. The Star-Ledger, however, reported he spent $200 million for the team and arena, $180 million in franchise debt from former majority owner Bruce Ratner’s company and another $100 million in bonds to finance the Brooklyn arena.
The Warriors sale was more striking. Even though Forbes valued the franchise at $315 million in 2009, Manadaly Entertainment CEO Peter Guber and former Boston Celtics minority partner Joe Lacob purchased the club from Chris Cohan in July for $450 million. That price is partly a reflection of the significance of the San Francisco-Oakland-San Jose media market, which ranks sixth in the US, according to city-data.com. But if the Warriors, a notoriously inept team on the court, are worth $450 million, one would likely assume the powerhouse lineup the Heat feature would push them past that mark.
“You have to think great players, under favorable long-term contracts, sold-out games equaling an active fan base and a good arena should put the Heat’s value around $500 million based on comparative team values,” Boland wrote. That would put them in line with the Chicago Bulls, who were valued at $511 million by Forbes in 2009. The New York Knicks ($586 million) and Los Angeles Lakers ($607 million) topped the Forbes‘ list last year.
Of course, the Heat do have limitations. The disparity in the Miami-Fort Lauderdale market, which ranks 16th in the US, is difficult to compare against New York, Los Angeles and Chicago, which rank first through third, respectively. “The valuations of the Bulls and Knicks serve as a cap for the Heat’s value at least until they actually have a run of championships, develop a larger following and perhaps a television distribution platform,” Boland wrote.
When contacted on details of their TV contract with Sun Sports, which is owned and managed by FOX, the Heat explained simply that they were in a multi-year deal. Sun Sports wouldn’t include any details other than to say they were in a long-term partnership with the Heat.
Boland wrote that Michael Jordan’s purchase of the Charlotte Bobcats in March also works against the Heat. If the Heat were up for sale, which in this case is strictly hypothetical, their ability to sell at a premium would be undermined by Jordan’s deal. He acquired the Bobcats for $275 million; they were purchased by their original owner, Bob Johnson, for $300 million in 2003.
The fact the New Orleans Hornets ownership situation is still cloudy — majority owner George Shinn’s deal to sell his 75 percent stake to minority owner Gary Chouest has been unsettled for months — and that Detroit Pistons ownership is in transition create more uncertainty for NBA team valuations.
There’s another problem for the Heat: Their players are their best assets. The Heat don’t have the prestige of the Lakers or Knicks. Their arena, while considered above-average and environmentally friendly given its LEED certification, isn’t a game-changer. And while LeBron, Bosh and Wade are obviously very good-to-great players, their value was compared by Boland to that of a quarterback throwing a pass.
It’s said that when a quarterback throws a pass, there are usually three results, two of which have negative consequences: He can throw a completion, an incompletion or an interception. Likewise, the ‘Bron/Bosh/Wade triumvirate have three notable end results, two of which are negative: They can win a championship, get hurt or leave the team. While it doesn’t seem as if any of the three will leave South Beach anytime soon, the risk of injury hovers over each player every game. A championship, while realistic, isn’t guaranteed.
This isn’t meant to diminish their value; it’s simply to note a franchise is usually better off when there are more constant factors contributing to its value. A prime example is the Washington Redskins. Year after year they’ve been at or near the top of Forbes‘ NFL team value rankings, in part because of the sponsorship deals the franchise has attained since Dan Snyder bought the team in 1999. Forbes valued the Redskins in August at $1.5 billion. That’s despite the ‘Skins posting just two playoff wins and making the postseason only three times since Snyder’s ’99 purchase.
So, what’s a realistic number for the Heat’s franchise value? Boland noted Forbes‘ Michael Ozanian put the franchise at $411 million shortly after they acquired James and Bosh and re-signed Wade in July.
“That isn’t a bad number when you think about a basic price peg,” Boland wrote. “It establishes a starting point to argue 10 to 20 percent up or down. The one truism in sports post-recession is winning matters, and that is the one power or perception the Heat have in its favor.”
“If I were working with a buyer, I’d try to offer just under $400 million,” Boland continued. “If I were working with a seller, trying to get to $500 million would be ideal. That puts us with a midpoint of $450 million. I think you could call any dollar below that a win for the buyer and any dollar above that a win for the seller.”
We’ll find out what Forbes thinks when it comes out with its NBA team valuations next month.
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