Prestige is only part of the reason why a growing chorus of celebrities are clamouring for the Ottawa Senators: Buying a pro sports team is one of the best moves any investor can make, says an academic who studies sport policy.
Canadian comedy legend Russell Peters became the latest to enter the fray for the franchise over the weekend, announcing that he was joining Snoop Dogg and Neko Sparks in their bid to buy the team from Eugene Melnyk’s two daughters.
Historically, pro sports teams have been unprofitable enterprises that tended to pay out more in player salaries and expenses than they could possibly generate in revenue.
Who wants to buy the Ottawa Senators? Here’s a list of potential owners
While that remains broadly true for many teams from a balance-sheet perspective, the values of the teams themselves have nonetheless skyrocketed in recent decades. The current bidding war for the Senators highlights how pro sports franchises have become less of a vanity purchase and more akin to buying fine wine or rare art.
“We have seen nearly 50 years now of pro sports franchises just exponentially getting more and more valuable and it doesn’t seem to be showing any sign of slowing down,” said Simon Darnell, director of the University of Toronto’s Centre for Sport Policy Studies.
“That is another reason why these high-profile, relatively powerful people want to be associated with professional sports: It is a great place to park your money.”
Since 1996, the average National Hockey League team’s value has increased by 1,112 per cent, according to data from the trade publication Sportico. That is nearly double the 580-per-cent growth delivered by the S&P 500 over the same period.
“If the Senators sell for US$1-billion, which it looks like they are going to, that is crazy compared to how much that franchise was worth when it first came into the league,” Mr. Darnell said.
Mr. Melnyk paid US$92-million for the Senators in 2003. That would make for a 20-year return on investment of more than 1,000 per cent if the billion-dollar sale price is achieved.
And the Senators are far from the most valuable NHL franchise. Almost the opposite, with Sportico ranking the team as 27th out of 32 in the NHL with a value of US$655-million. (Toronto hockey fans will be pleased to know the Maple Leafs top the Sportico ranking with a US$2.12-billion valuation.)
There are two other reasons why celebrities likely see money-making potential in owning the Senators specifically, Mr. Darnell said. One is that having a strong personal brand helps attract corporate sponsorships, which are often a key source of revenue.
That is is why Canadian actor and Welsh soccer club Wrexham AFC co-owner Ryan Reynolds was – until recently – among the interested parties. It is also why Toronto billionaires Jeffrey and Michael Kimel have the Weeknd fronting their bid for the team.
The Senators are also in negotiations with the National Capital Commission to move from their current home in Kanata to a new LeBreton Flats facility, just west of downtown Ottawa.
“Certainly the economics of owning pro sports franchises are such that the stadiums are really important and access to corporate sponsorship is really important,” Mr. Darnell said. “This will all help to move in that direction.”