Business, NFL

LA Rams’ Astronomical Value Increase

Forbes.com released its annual countdown of “The World’s 50 Most Valuable Sports Teams” on Wednesday.

It is always intriguing to observe the continual growth in the industry of sports.  For instance, Jeffrey Lurie purchased the Philadelphia Eagles for $185 million in 1994, the most ever paid for a sports franchise.  The Eagles are now valued at $2.5 billion, more than a 1,250% increase in just 23 years.  That’s approximately an annual value increase of 55% (without taking inflation in to account).

Despite this phenomenon, these annual lists are rather predictable.  The organizations that round out the top of the list are either highly successful or have the luxury of playing in an elite market – or a combination of both elements.

Other features, such as popular superstars or strong brand equity, play a role in an organization’s valuation.  Yet one organization that suddenly propelled to the top of this list sheds light on what is really important in regards to the assessment of sports franchises.

The Los Angeles Rams have been ranked by Forbes.com as the 12th most valuable organization in sports, 6th amongst all NFL franchises.  At $2.9 billion, the Rams’ value increased 100% in just one year.

The brand of the LA Rams is certainly respectable, but not enough to propel it to these new heights on its own.  They have a bit of an identity crisis, clumsily sporting three entirely different color schemes and eras of Rams football in one season.

rams pic.png

The Rams surpassed legendary brands such as the Green Bay Packers (26th), Pittsburgh Steelers (28th), and Oakland Raiders (34th).

Historically, the franchise has rolled out some of the game’s biggest stars.  This includes the notorious “Fearsome Foursome” led by Deacon Jones, “The Greatest Show on Turf” led by Kurt Warner, Marshall Faulk, Isaac Bruce, and Torry Holt, and other stars such as Eric Dickerson and Jack Youngblood.

Currently, there is superstar potential in their young backfield.  Quarterback Jared Goff and Running Back Todd Gurley II present hope for the organization’s future, but they are far away from being household names.

The Rams surpassed Cam Newton and the Carolina Panthers (37th), Von Miller and the Denver Broncos (24th), and Russell Wilson and the Seattle Seahawks (19th).  Newton, Miller and Wilson rank as the 4th, 10th and 11th best-selling jersey’s in the NFL, respectively.

The organization was highly successful prior to the AFL-NFL merger, but have only captured one Lombardi Trophy in three attempts in the modern era.  They are far removed from their “Greatest Show on Turf” team, as their last playoff appearance came in the 2004-2005 season.

The Rams surpassed the 6-Time Super Bowl Champion Pittsburgh Steelers and the 13-Time NFL Champion Green Bay Packers.

This sudden development of organizational value validates the unpleasant business decisions owners boldly make.  The most influential elements in valuing sports organizations is its stadium and home market.

While most NFL Owners make a “pretty penny” through annual organizational operations, the biggest payday occurs upon selling (or reselling) the franchise.  And if selling isn’t a desired option, the biggest priority then becomes increasing the team’s value, thus adding to the owner’s personal net worth.

So when Rams’ owner Stan Kroenke, a Missouri native, hauled the organization from St. Louis to Los Angeles in 2016, he undoubtedly anticipated this astronomical increase.

One cannot overstate the monumental discrepancy between the Los Angeles market – the 2nd largest television market in the United States with over 5 million TV homes – and the St. Louis market – the 21st largest television market with just over 1 million TV homes. 

Sure, Los Angeles is not the greatest sports market.  The oft-labeled “fair-weathered” sports city had two NFL franchises before, and that didn’t work out so well.  USC Football and the LA Lakers rule the market, as the other organizations are generally left to survive with the scraps.

Several commenters and journalists noted the challenges of succeeding in a highly saturated, non-sports-centric city.  Yet the primary goal of sports owners remains the same: Increase organizational value for resell and/or net worth purposes.

Constructing state-of-the-art stadiums satisfies the need to increase value and the need to accumulate immediate revenue.

While most of the weekly gate revenues are designated for the league’s shared revenue pool, money generated from luxury suites abide by different rules.  Owners keep larger sums of revenue from luxury suites, therefore new stadiums are flooded with them.  The Los Angeles Stadium at Hollywood Park will unquestionably have the desired suites to fill the pockets of Stan Kroenke and Chargers’ Owner Dean Spanos.

And since the stadium does not belong to the city or the state, the stadium only adds to the value of the organization.  Therefore, for every bowl game, neutral site match, major concert or Super Bowl that is hosted by the stadium,  the brand of Los Angeles Stadium grows, and with it, the brand of the LA Rams.

The Los Angeles Chargers (I’ll never get used to typing that) will definitely experience a similar rise in value in the next Forbes valuation, despite playing in a soccer stadium for the next few seasons.

So as the Rams currently play in a public stadium that’s rarely filled to capacity, exist in the shadows of a saturated sports market, roll out a team that hasn’t made the playoffs since the 2004 season, and seemingly can’t decide on a color scheme or consistent brand – value still increases.

A new stadium is on the horizon and the market is absolutely elite.  St. Louis and San Diego are left football-less and Los Angeles possesses an embarrassment of riches.  While some contested the move to Los Angeles, Kroenke achieved the goal every owner hopes to achieve: Increase the organization’s value.

 


 

Be sure to check out my thoughts on the Oakland Raiders’ signing of Marshawn Lynch, as well as a brand evaluation of the Big Baller Brand.

 

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