Putting a Value on the Saints

JIM MAHONEY/AP PHOTOGRAPH

Let us talk appreciation. No, not that warm, fuzzy feeling you get when somebody does something nice for you. I am talking about dollars growing into bigger dollars – like when your house (you hope) appreciates in value from year to year.

But we’re not really interested in your house.

Let us talk about the New Orleans Saints. (The mere mention of the team produces a warm and fuzzy feeling all by itself, doesn’t it?) The team – our team – is gearing up for a season in which they will be called upon to defend their world championship title every time they take the field. And we, the fans, are preparing to support them like crazy every step of the way. (Personally, I can’t wait.)

It is safe to assume that the team’s owners are getting similarly psyched right now. They are no doubt still enjoying a bit of Super Bowl euphoria even as they begin to get knots in their stomachs over the 2010-’11 season. At the same time though, team owners Tom Benson and his granddaughter Rita Benson LeBlanc very likely have their eyes on the books. No, not the books coach Sean Payton and quarterback Drew Brees recently released (though they may become best-sellers), but rather spreadsheets and the like that show how the team stacks up financially.

As pre-season football action gets under way, we’re nearing the time of year when Forbes magazine releases its annual NFL team valuations. The feature is a much-ballyhooed ranking of each team in the league based on an estimate of its potential sale value. It is an interesting – if not entirely accurate – look at such juicy figures as a team’s annual revenue, operating income and debt.

In the ranking Forbes published five years go, using figures compiled from the 2004 season, the magazine ranked the Saints at No. 22 among the 32 teams in the league. Estimating the Saints’ ’04 revenue at $175 million, Forbes pegged the team’s value at $718 million. Pointing to the team’s Superdome lease, which incorporated a big taxpayer subsidy, the editors wrote: “Even with this taxpayer handout, the Saints’ stadium deal puts them in the bottom third of the league.” The article called attention to rumors then swirling that Benson might be looking to sell the team.

Jump ahead four years. In September 2009, when Forbes published its value estimates based on the previous season, the Saints once again came in at No. 22. While the team appeared stuck in the rankings, though, the value Forbes assigned it had rocketed by 30 percent. With revenue now pegged at $213 million, the Saints were worth $937 million, Forbes declared.

Of course, that was several months before the team became the World Champion New Orleans Saints by defeating the vaunted Indianapolis Colts in Super Bowl XLIV. Surely, when Forbes releases its new valuations next month, the Saints will have lunged far up the list, right? Do not count on it, says valuation expert Don Erickson.

“Winning a Super Bowl could actually be a negative,” he says.

Erickson, who founded the Dallas advisory firm Erickson Partners LLC and has performed valuations of some 50 teams in the NFL, NBA and NHL, says that a team’s performance on the field as not nearly as indicative of its value as the average fan might think.

“The key to any business is revenue and profits,” he says. “If revenue stays flat and you add costs, then your profits go down. It’s that simple.”

The problem (Problem?) with winning a Super Bowl, Erickson says, is that players’ expectations go up. “They’re thinking, ‘I helped win the Super Bowl for you, so instead of getting $3 million, I need $5 million,’” he says.

If an owner wants to hold on to the players – and keep the fans happy – the team’s costs are likely to climb. Unless the owner is able to cover those costs with new revenue, profits will suffer. “So even though you won the Super Bowl, the team could actually be worth less,” Erickson says.

That isn’t to say the value of the Saints really has declined. Erickson notes that he has no inside knowledge of the team’s financial status, and as to the Forbes rankings, he says: “They are just guessing, don’t forget that. They find out how much the stadium suites are rented for, they look at ticket prices and attendance, and they put together an estimate of revenue, then they multiply it by four or so and call that the value.”

One factor that makes team valuations more complicated is a deal to build a new stadium. Such deals often involve taxpayer-supported subsidies and complex debt agreements that make simple analyses of revenue and profit more difficult.

In the case of the Saints, while a new stadium isn’t on the table, a significant renovation of the Superdome is part of a big real estate deal in which Benson bought the next-door office tower and former shopping center and committed to developing a sports entertainment complex on the site. As part of his agreement with the state, which owns the ’Dome, the state will lease a large chunk of space in his office building and will move many local employees into the structure.

It would take a good deal of analysis to calculate the impact of all that on the overall value of the Saints, and unless Benson gets a hankering to sell the team, he’s not likely to invite any outsiders to examine his books.

Meanwhile, though, it’s safe to say that Benson is chuckling and winking all the way to the bank. With unofficial estimates of the Saints’ value climbing toward the $1 billion mark, Benson can look back gleefully to 1985. That was the year he purchased the team from then-owner John Mecum. The price he paid: $70 million.
 

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