Photo credit: https://www.forbes.com/sites/willyakowicz/2025/01/22/where-is-sports-betting-legal-america-2022/
Professional sports are in a bubble. And no, I don’t mean like from the COVID-19 pandemic.[1] I mean more similar to the bubble we saw in 2008 as the economy was melting down due to speculation on the housing market.[2] Sports franchise valuations are at an all time high, and they just keep on rising faster and faster. Recently, the Boston Celtics sold at a valuation of $6.1 billion, with the potential to be valued at close to $7.3 billion by 2028, an almost 20% increase over that period and a compounded annual growth rate (CAGR) of 6.169%.[3] By comparison, the target rate for inflation on an annual basis is roughly 2%, meaning that the value of the Celtics is rising faster than inflation.[4] This can be problematic as these values get so large that only select few individuals or families can buy these assets. Now, institutional investors are buying portions of them, which is fueling the growth among other factors.[5] Over the long term, sports franchises are even beating the S&P 500, which many professional hedge fund managers can’t even do.
The big question is, are values going too far, too fast? Like we saw in 2008, too much of a good thing can be a disaster. As values continue to go up, it is likely that the industry won’t be able to sustain these valuations and you may see team prices come back down to earth, particularly if there is a recession on the horizon. Franchises are valued based in part on the predicted future cash flow that they will generate, and as those cash flows slow down or become more uncertain, it becomes harder and harder to justify sky-high valuations. A large amount of the cash flows for professional sports leagues come from television contracts, but linear television is starting to go the way of the dinosaur and that process is only likely to speed up. As more events move to streaming, it becomes easier for a customer to switch or turn off their service. This may make it less lucrative for sports leagues to sign these large contracts with linear television networks that we have seen in recent history. This may also mean that customers are more likely to give up their streaming services when times get tough. It is difficult to cancel a cable subscription when you are locked into a contract for a term of years, but it is relatively easy to turn off the Hulu subscription. All it takes is one tiny hole to slowly leak the air out of the bubble before it pops entirely.
[1] https://www.nba.com/news/in-virus-era-bubbles-provide-game-changing-lessons-learned
[2] https://www.investopedia.com/articles/economics/09/subprime-market-2008.asp
[3] https://www.cnbc.com/2025/03/20/boston-celtics-sold-for-6point1-billion-to-bill-chisholm-sixth-street-group.html
[4] https://www.federalreserve.gov/economy-at-a-glance-inflation-pce.htm#:~:text=What%20is%20the%20Fed’s%20inflation,personal%20consumption%20expenditures%20(PCE).
[5] https://www.theringer.com/2022/11/28/sports/sports-team-franchise-valuation-sale-prices
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