Most Valuable NBA Teams

Forbes has released their valuations of NBA teams for the year 2008. Do the teams at the top really deserve to bet there?






Let's take a closer look at the top 5:

1) New York Knickes.
Valuation: $613 Million
Current Record: 8-10

2) Los Angeles Lakers
Valuation: $584 million
Current Record: 15-2

3) Chicago Bulls
Valuation: $504 million
Current Record: 8-11

4) Detroit Pistons
Valuation: $480 million
Current Record: 11-6

5) Cleveland Caveliers
Valuation: $477 million
Current Record: 15-3

What? 15-3? These guys are only a 1/2 game back from the lakers and we're a little over a 1/5 of the way through the season. And although the East has improved significantly in recent years, they are still top heavy, and lack the depth of the West. I cannot WAIT for the Cleveland-Boston Eastern Conference Finals.

Anyhow, we can see that team valuation has little to do with how the team performs. Chicago and New York are perenially among the most valuable despite being bottom feeders for the past few years. Which is no surprise as New York is the single largest media & entertainment market in the US and Chicago is the city where Jordan took flight.

What may seem funny about the valuations is that they have seemingly no relationship to income. Usually, businesses are valued based on how much money they can earn in the future (which tends to be related to how much profit they make currently). If we think of worth in its purest sense (what someone else will pay for it) then it starts to make more sense.

The NBA is a unique type of business in which expenses can vary wildly from year to year. A significant proportion of a team's expenses lie in its payroll. The Knicks, for example, have one of the league's highest payrolls this year at $98million. But due to some drastic cost cutting measures (like disparaging the entire team) the Knicks only have $69million in payroll for 2009-2010. That's $30million that will go directly to net income.

Question: Shouldn't ticket sales be related to the quality of team the Knicks put on the floor?
Answer: Heck no! New York is a special, special place, where the basketball fans haven't had anything at all to get excited about, other than Patrick Ewing--yippeee! The Knicks have become some sort of weird fabric of culture and society.
For those reasons, team valuations are most closely linked to revenues. Building a revenue base involves a whole lot more than just winning. Just ask the 17 time world champion Boston Celtics who are only the 9th most valuable team in the league.