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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: The WNBA valuations have been published, so we’re determining three key takeaways from the numbers plus what a bull or bear investor is looking at with the W right now.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: MLB back? 👀 

• 💪 Weekly Reminders that Sports are Awesome: A legendary sports photo, and an innovative tennis ad.

Hey team,

The WNBA is in the midst of one of its biggest seasons ever, and we’re now getting a deeper sense of how the league is performing off the court.

Sportico released its first ever WNBA valuations (paywall) this week, sizing up the 12 clubs by perceived market value based upon a mix of factors like revenues, market, real estate ownership, and more.

Some quick hits on the valuations:

• Average valuation: $96 million

• Average revenue (2023): $13.2 million

• Average revenue multiple (valuation / revenue): 7.3x

The report is packed with insights, and it set off a great series of discussions around the sports business about the W’s past, present, and, most importantly, it’s future.

I wanted to dig into this in more detail and see what learnings I could glean from the valuations. Below are my findings.

In this week’s SBP, you’ll learn:

• How investors think about sports team investing and what’s driving the WNBA’s valuations

• My three main takeaways from the report (plus a special bonus that made me giggle)

• The bull/bear investment case for the W, and my ultimate opinion

What’s a valuation?

A valuation is a common business term used to describe the current or projected worth of something.

These numbers are, in practice, used as an estimated market value of an asset or company. Acquirers will usually pay something around this valuation to take control of said asset or company.

All assets can appreciate or depreciate in value based upon a variety of factors, including:

• Business fundamentals

• Market dynamics (“tailwinds” or “headwinds”)

• Momentum

For investors, the goal is to find the arbitrage opportunities with undervalued assets at a lower price point that are expected to grow exponentially and provide outsized returns over a period of time.

A common method for determining value is using a “revenue multiple” (value divided by revenue), and comparing it with like companies. This helps the investor to get a sense of where the asset stacks up in the market and can help them make an informed decision on the risk involved.

As an example, the below graph illustrates the various revenue multiples across the major North American professional sports leagues.

As with most things, valuation is as much an art as it is a science.

So, while the methods to calculate these valuations are consistent and rooted in principle, the assumptions and estimations that comprise how the market determines the final number and how that number is interpreted fall into the more fluid category (i.e., should we be spooked that the NBA is at 11x, is it a sign the NHL is undervalued at only 6.2x?).

With this in mind, how should we interpret the WNBA valuations?

Three takeaways from the WNBA Valuations

Takeaway #1: The revenue multiples are pretty reasonable

This 7.3x average looks pretty solid compared to the other pro leagues, and even better when paired with another US growth league in the MLS (9.6x).

Plus, based upon Sportico's analysis of the projected 2024 revenues, the W’s multiple is actually expected to drop even further to 5.5x.

Takeaway #2: Ownership of facilities matters

What these teams own in addition to the club and brand is a big factor. One such example is the owned real estate around an arena or a practice facility.

The two top teams, the Aces and Storm, both have immaculate new practice facilities/team offices, the Mercury (#4) are building one, and the two new expansion teams will both have owned facilities.

An example where not having a facility has hurt the club: the Chicago Sky.

Takeaway #3: The most inflated multiple belongs to the Fever due to one very specific person

The Fever have a multiple (9.9x) roughly 2 points higher than the next closest team (the Aces — 7.9x). They rank as the sixth highest valued team despite finishing second to last in 2023 revenue.

Enter: the Caitlin Clark effect.

The club’s revenues will likely jump in 2024 and beyond which should bring this multiple down, but it demonstrates how important she is and that the club’s valuation is primarily tied to her stardom.

It’s hard to think of another player who has almost single handedly lifted up a small market club in such a short time like this. LeBron in Cleveland is the only other that comes to mind and I don’t think even he reaches this.

Bonus: 

This killed me. George Kliavkoff is now known for not only being the Neville Chamberlain of the Pac-12, but also fumbling the bag with the Las Vegas Aces.

Bull/Bear Case for the WNBA

Despite these positive valuations, the WNBA is an incredibly polarizing asset. Just go on Twitter and you’ll see the colorful takes from both sides.

There is a fair amount of risk involved, but there is also a lot of upside and potential value given the get-in price is so much lower than other leagues.

Below are the bull and bear cases for the W and what investors are considering.

Bull Case

Revenue Growth

Revenue has doubled over the last five years, and it is projected to increase at least 30% in 2024 (up from ~$200M in 2023). That’s before the new media rights deal kicks in, which is expected to grow 4x to nearly $240 million over the life of the next deal.

These per team revenues are on average 40% higher than the NWSL, which is the closest comp to the W.

Star Power

Two words: Caitlin Clark.

Strong Moat

Unlike the NWSL or the MLS, there is no major competitor(s) that is drawing the top talent away from the WNBA. Being the only show in town gives the league the opportunity to grow into itself and not divert money, time, and resources on fending off competition.

Plus, because it is a fixed asset, the scarcity value remains high, and when expansion teams do come in, they are thoroughly vetted and pay a premium.

The next two WNBA teams — San Francisco and Toronto — play in major markets and have ownership groups with deep ties to sports and the NBA. These teams are expected to become the gold standard, as investment bankers around the space are projecting the San Francisco team to do $30 million in revenue next year in its inaugural season and quickly become the most valuable team in the league.

Bear Case

Expenses > Revenues

While some teams (i.e., the Storm) are cash flow positive, the W as a whole loses money each year, and this number is expected to balloon to $50 million this year as they agreed to pay for charter flights for all teams — a hotly contested issue over the last several years.

There’s also a question about if the WNBA’s ownership structure will allow for the teams to generate significant returns. Unlike the other leagues where there are really only two sides that split revenue — the owners/league and the players — the W has multiple other parties:

• NBA: 42%

• WNBA: 42%

• Equity holders from the 2022 fundraise: 16%

This structure shows that the W is splitting the pie several ways before hitting the clubs’ bank accounts, which means it will have to work that much harder to continue its ascension.

Uneven standards across teams

This happens with all younger leagues, but there are straggler teams that are not performing up to the level of the other clubs. This situation, in turn, drags down the league via lower revenues, image issues, and the potential for ownership volatility.

For example, Atlanta’s low valuation ($20 million less than the 11th-ranked Dallas) is mostly tied to the fact that they play in a suburban arena well outside the city that only holds 3,500 people. The economics don’t work with that.

Some of this has to do with the wealth disparity between the ownership groups and the existing NBA facilities that can be tapped into by owners who have both NBA and WNBA teams (i.e., New York Liberty, Minnesota Lynx), but it’s a problem nonetheless.

Too single threaded with Clark

There is no disputing Caitlin Clark’s talent and marketing appeal. It is bringing in an enormous amount of new fans and driving the league to new heights.

That being said, investors don’t like being overly dependent on one thing due to the risk of something bad happening to it. In this case, Clark’s massive upside comes with an equal amount of pressure and risk.

Another young star, Cameron Brink, just went down with a knee injury and is out for the season. What would happen to attendance and ratings if, god forbid, something happens to Clark?

In a more macro sense, what if she never reaches her full potential and becomes a middle of the road player?

The Verdict

Despite the risks, put me in the bull camp for the WNBA.

There is enough structure around the league at this point to help sustain this growth and lift up the straggling teams, Clark is already showing promising signs for reaching stardom, and the get-in price of less than $150 million is still quite reasonable when compared to the other professional leagues.

Plus, as I said in last week’s thought bubble, the W has reached a new peak in being a part of the day-to-day cultural narrative.

Regardless of what side of the debates you fall on, this WNBA season has had several compelling storylines that have been in the public zeitgeist and touched off fierce debate in major public forums — sports talk, social media, etc.

Regardless of what side is right, I would argue all of this is a net positive for the W.

I think of it like a marketing funnel.

In today’s society, drama and storylines capture the general public’s attention. These people become aware of what’s going on due to the narratives and fierce debates about these stars, and they tune in. A subsection of those viewers turn into casual fans due to the quality of play, and a subsection of that group turns into super fans.

🍸️ Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: The WNBA valuations came out this week, sizing up the 12 clubs by perceived market value based upon a mix of factors like revenues, market, real estate ownership, and more. The average valuation is $96 million, the average revenue (2023) is $13.2 million, and the average revenue multiple (valuation / revenue) is 7.3x

• Shot: A valuation is a common business term used to describe the current or projected worth of something. These numbers are, in practice, used as an estimated market value of an asset or company. Acquirers will usually pay something around this valuation to take control of said asset or company. A common method for determining value is using a “revenue multiple” (value divided by revenue), and stacking it up against comparable companies. This helps the investor to get a sense of where the asset stacks up in the market and can help them make an informed decision on the risk involved.

• Shot: Three takeaways from the report:

  • The revenue multiples are pretty reasonable. This 7.3x average looks pretty solid compared to the other pro leagues, and even better when paired with another US growth league in the MLS (9.6x). Plus, based upon Sportico's analysis of the projected 2024 revenues, the W’s multiple is actually expected to drop even further to 5.5x.

  • Ownership of facilities matters. What these teams own outside of the club and brand is a big factor. One major example is the real estate.

    Takeaway #3: The most inflated multiple belongs to the Fever due to one very specific person

• Shot: There is both a bull and bear case to be made for the W.

  • Bull: Revenue growth, star power, and strong moat

  • Bear: Expenses > revenues, uneven standards for teams, and too single threaded with Clark

• Chaser: Despite the risks, put me in the bull camp for the WNBA. There is enough structure around the league at this point to help sustain this growth and lift up the straggling teams, Clark is already showing promising signs for reaching stardom, and the get-in price of less than $150 million is still quite reasonable when compared to the other professional leagues.

🤯 “Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. Don’t look now, but the MLB is starting to make some moves 

💪 Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. This picture of Jayson Tatum celebrating the Celtics’ championship with his son is going to be an all-timer.

2. The ad on the London Bridge for the new Roger Federer documentary is incredible.

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex