Brooklyn Nets: What’s driving the franchise’s valuation?

The Brooklyn Nets have won seven of their last ten games, have a chance at the one-seed, and given the current standings, shouldn’t be at any risk of falling below the three-line. Going forward, head coach Steve Nash will hope to get his team healthy and build as chemistry as possible, but given the team is regarded as the title favorites per most betting markets, things are in pretty good shape.

Given that Kevin Durant has taken some time in recent days to focus on the “business side” of sports, I suppose it’s okay for me to do so as well.

What is driving the valuation of the Brooklyn Nets franchise? And how does this valuation compare with the rest of the NBA?

If one could buy stock in professional sports franchises, the return on investment would be pretty solid. From 2007-2020, the average franchise value of NFL, NBA, MLB and NHL teams has grown by the following:

NFL: +218 percent (9.3 percent annualized growth rate)

NBA: +501 percent (14.8 percent annualized)

MLB: +330 percent (11.9 percent)

NHL: +227 percent (9.5 percent)

If $100 were invested in these “indexes” in 2007, these would be the valuations as of 2020:

NFL: $318

NBA: $602

MLB: $431

NHL: $325

In the NBA specifically, every franchise is currently valued at over $1 billion (per Sportico), with 15 of 30 sitting between $1 and $2 billion. Five franchises are valued between $2 and $3 billion, leaving six valued over the $3 billion mark (care to guess which ones?). The Chicago Bulls, Boston Celtics, and Brooklyn Nets have $3-$4 billion valuations, and after a sizable gap, the Golden State Warriors, Los Angeles Lakers and New York Knicks lead the pack (each over $5 billion).

The below chart compares each franchise’s valuation with its total revenue for the 2019-20 season. Total team revenue is comprised of both revenue related directly to the NBA (e.g. broadcast deals, sponsorships, ticket sales), along with non-basketball sources (e.g. concerts held at arenas). It’s also worth noting that while COVID-19 led to a decline in revenue last season (~10 percent cumulatively), this impacted the entire league — so the top earning teams from 2018-19 were still the top earners last season.

As might be expected, these franchise value and revenue variables seem to be fairly well correlated. Two teams, however, stray a bit from the trend line. While the Nets have a higher valuation than their revenues would suggest (above trend line), the Houston Rockets’ is lower (below).

Why is this? It’s not entirely clear. Let’s start with Houston.

  • Franchise valuation doesn’t ebb and flow with team success quite as much as one might think — there’s a reason the New York Knicks are on top — but losing James Harden and having the 2nd-worst record in the NBA certainly doesn’t help the cause.
  • Ever since Yao Ming became a part of the franchise, the Rockets have had a tie to the Chinese market that would seemingly give their valuation an extra boost. The Daryl Morey controversy may have hampered this relationship a bit, even though sports executives are apparently skeptical it will have much of an impact going forward.

What about Brooklyn? Here’s some speculation.

  • The New York City market has an obvious appeal that is likely contributing to Brooklyn’s elevated valuation.
  • There is also an “up-and-coming” feel to the franchise that might also be helping matters. The team only moved to Brooklyn in 2012, and with the Kevin Durant-Kyrie Irving-James Harden trio in the fold, could very well have a bright future. Big picture, star players have proven they are quite willing to come to Brooklyn, something that should benefit the franchise moving forward.
  • Joseph Tsai is one of the richest owners in the NBA and should be willing to dive into the luxury tax to bring the team success.

Regardless of the reasons, Sportico’s “franchise value” formula seems to be high on Brooklyn. If the betting markets are correct — and the Brooklyn Nets win the title — I’d wager the valuation will keep on rising.