Evaluating Investment in the NBA

While costly, franchise investment remains attractive due to the NBA's encouraging growth prospects and robust long-term ownership demand.

NBA franchise valuations continue to rise, with recent sales of the Phoenix Suns, Charlotte Hornets, and Milwaukee Bucks (25% stake) implying an average franchise value of $3.85B, a 35%/100% increase over 2022/2019 (per Forbes). The Golden State Warriors are the league’s most valuable team, worth $7.7B or 10x revenue of $765M and 98x operating income of $79M (vs. an NBA average of 11x revenue and 44x operating income). Golden State’s high valuation relative to operating income is unsurprising: sustained contention requires high spending on player salaries and associated luxury taxes.

While high, franchise valuations understate true consideration commanded in sales (even in minority sales without a control premium). The Phoenix Suns sale for $4.0B (vs. 2022 valuation of $2.7B), Charlotte Hornets sale for $3.0B (vs. $1.7B), and Milwaukee Bucks minority sale at a $3.2B valuation (vs. $2.3B) represent 48%, 76%, and 39% increases, respectively, vs. pre-transaction estimates. Applying this 54% average markup to a hypothetical sale of the Golden State Warriors suggests a sale price of $11.9B.

Despite rising franchise valuations and further separation of said valuations from underlying cash flow fundamentals, NBA investment remains attractive due to the league’s growth prospects and robust demand for franchise ownership over the long term. Below are the most important NBA franchise investment considerations.

The Good

1. Robust ownership demand: demand for NBA ownership over the long-term, rather than underlying business fundamentals, is the #1 driver of franchise value. A growing set of billionaires globally (2,640 in 2023 vs. 2,095 in 2020 per Forbes) means more buyers can afford majority ownership. Relaxed league rules allowing private equity ownership (up to 20%) unlock additional capital and boost competition for ownership. League expansion in Vegas and Seattle seems imminent, with each prospective franchise worth an estimated $4.0-5.0B after expansion fees in the range of $3.0-$5.0B to be dispersed to the league’s existing 30 franchises.

2. Media rights boom: under its current media deals with Disney (ESPN) and AT&T (Turner Sports), the NBA receives $2.6B annually for ~165 nationally televised games. Forbes expects this figure to double or triple when the current deals expire after the 2024-25 season. In a hypothetical increase to $7.5B annually, each franchise would receive ~$80M in incremental media revenue (50% of basketball-related income is allocated to players per the CBA). Assuming all incremental revenue flows to operating income implies an average franchise valuation of 8x revenue and 22x operating income (at current valuation estimates). The NBA can capture additional media upside via new partnerships with streaming providers (e.g., Amazon and Apple) and alternative media formats (e.g., podcasts and video games). Further, the NBA In-Season Tournament has the potential to grow into a significant media asset while adding team-centric intrigue to previously low-stakes mid-season games. Beyond financial gain, media proliferation cements the NBA’s prominence in the cultural zeitgeist.

3. Globalization: an estimated two billion fans follow the NBA globally, and international interest in the NBA presents a significant lever for growth. Beyond monetization opportunities, growing viewership strengthens basketball talent pipelines abroad that in turn produce NBA players who drive more viewership in their home markets. Over the long term, this positive feedback loop adds incentive for capable international buyers to pursue franchise ownership.

4. Complements such as social media, sports gambling, and the WNBA: social media and legal sports gambling grow NBA viewership, offer new pathways for monetization, and boost the league’s cultural relevance. Sports gambling presents a particularly large opportunity and has yet to be legalized in California and Texas (the league’s largest two markets). Torrid growth of women's basketball (+21% and +103% increases in WNBA and NCAAW March Madness viewership, respectively) deepens the NBA's cultural relevance, particularly with female fans.

The Bad

1. Macroeconomic and geopolitical dependence: franchise value hinges on demand from capable and willing buyers over the long term. As a result, global stability, macroeconomic strength, and the NBA’s sustained cultural prominence are necessary for breakeven and positive ROI. Investors must accept outsized influence from factors beyond league control, particularly relative to traditional alternative investments with shorter investment horizons and/or higher degrees of liquidity.

2. Global competition: threats to the NBA’s basketball hegemony could emerge globally, either from upstart leagues with significant capital (e.g., in Saudi Arabia) or via degraded competitive differentiation from existing leagues (e.g., EuroLeague) that creates a more balanced league landscape à la European soccer. The impact of alternative league success on valuation is unclear.

3. Value shift from teams to players: superstar players command increasing attention from fans relative to teams. The San Antonio Spurs gained an estimated $500M in value by selecting French forward Victor Wembanyama in the 2023 NBA Draft, while LeBron James single-handedly added $396M in economic impact to Los Angeles with his move to the Lakers (per Yahoo Finance). Increased player-centricity stands to erode franchise collective bargaining power over the long term and raises the stakes if popular players leave for alternative leagues.

4. Domestic competition: longstanding sports leagues such as the NFL and MLB compete with the NBA for domestic fan attention. Alternative sports and entertainment options (e.g., MLS, PLL, and subscription streaming) pose additional competition for viewership and cultural relevance.

The Bottom Line

While costly, NBA franchise investment remains attractive due to the NBA's encouraging growth prospects and robust long-term ownership demand. That said, NBA hegemony will not last forever and owners must gain comfort with significant risk from factors beyond league control. NBA ownership timelines exceed those for traditional alternative investments, and minority shareholders must sacrifice majority sale control premiums when selling on their own timeline.

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