Peter Thiel-Led Group Has Reportedly Bid US$3 Billion for the Phoenix Suns of the NBA

Trying to understand the valuations that extremely wealthy individuals (who are also frequently savvy business owners/financiers) agree to pay for sports franchises is one of life’s mysteries.  It must be pointed out of course that there are only so many NBA/MLB/NFL franchises, so scarcity considerations play a role in the price tags of the teams.  However, that alone seems to explain only part of the pricing dynamic.

For example, on December 10, The Wall Street Journal reported that a group including the well-known venture capitalist Peter Thiel submitted a US$3 billion bid to buy the Phoenix Suns NBA team and the Phoenix Mercury WNBA team.  (For practical purposes, the Suns represent essentially the entire bid.  WNBA teams have consistently sold for US$10-US$15 million per public records and published reports.)  If the sale were to be completed at that price, it would be the second highest transaction price for an NBA team; the Brooklyn Nets franchise (in the giant New York media market) was sold for US$3.3 billion in 2019 to Alibaba’s Joseph Tsai.

The issue with Mr. Thiel’s bid for the Suns is that the team’s revenue in the 2021-2022 season was US$302 million and its operating income was US$87 million, both according to Forbes.  That suggests eye-watering bid price-to-revenue and bid price-to-operating income multiples of 10x and 34x, respectively.  For some perspective, Apple Inc. (NASDAQ: AAPL), the world’s most highly valued company with virtually assured growth prospects, trades at an enterprise value-to-revenue ratio in the vicinity of 6x.

Source: Forbes.

Certainly, the bidding group is counting on the NBA’s reaching a more lucrative TV deal when the current pact ends after the 2024-2025 season.  Media reports suggest the league may be able to wrangle a nine-year agreement worth US$50-US$75 billion, a significant upgrade from the current US$24 billion, nine-year deal.

Consequently, in three years, the league could have about US$5 billion more annually to divide among 30 teams, implying the Suns could realize additional future revenue of perhaps US$160 million.  In turn, this would suggest the team has “pro forma revenue power” in the vicinity of US$500 million.

Still, that would mean the group’s bid for the Suns equates to a quite robust ~6x revenue multiple based on sales three years from now.  Notably, the Suns will be able to keep only about half of any incremental TV revenue as labor agreements generally call for about a 50-50 revenue sharing with players.

(As an aside, the rumored magnitude of the new NBA TV deal is remarkable given the declines in viewership in the NBA since the Michael Jordan/Chicago Bulls heyday.  For instance, approximately 29 million viewers tuned in to the 1998 NBA Finals.  This number has dwindled to around 20.3 million in 2017 and to 12.4 million for the June 2022 NBA Finals.)

Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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