Common Issues with Revenue Generated from Broadcasting Right
February 12, 2025
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In the previous few articles, we have already seen that the valuation of a sports franchise is heavily influenced by the value of its human assets i.e. the players. This is because sporting franchises do not generally own a lot of assets.
Hence, player contracts are one of the biggest contributors to the overall balance sheet of a sporting franchise. Hence, in order to gauge whether the valuation of a sporting franchise is accurate, an investor will also need to understand how individual players are valued.
Investors cannot simply assume that the book value of the players is correct. This is because if they do make such an assumption, they are likely to acquire a club that may have a lot of overvalued player contracts on their balance sheet.
The valuation of a player is indeed a complex activity that is dependent upon several variables. Some of the important variables that have an impact on the valuation of a player have been listed in the article below.
It is common for sporting franchises to do some analysis of the previous cost data. They try to find a trend regarding whether the contract price that has been paid for a player has shown a consistent upward trend or whether there have been ups and downs in their valuation.
A player whose historical data shows a consistent upward trend is likely to get a contract with a better valuation.
Therefore, when players are nearing the end of their contract term, the transfer fee is less. Also, when they do not have an active contract, there is no transfer fee. Hence, these players receive a higher compensation as compared to the players who have a lot of time left on their contract.
Nowadays complex data models are used in order to understand whether the skills being brought in by the prospective player complement the skills which are already possessed by other players on the team. Since there is no data available regarding the skills of new players, they generally receive a lower valuation as compared to players who have some experience.
On the other hand, the skills of older players are considered to be more or less fixed. Hence, players who have just started playing receive a low compensation. But younger players who have some experience receive better compensation and finally players who have crossed a certain age threshold again receive lower compensation.
Players who have a huge fan following on social media as well as who have a high level of engagement with their fans are considered to be assets by sporting franchises.
Teams are willing to pay a higher compensation in order to obtain the rights to sign such players. The importance of social media following in the valuation of a player has been increasing in the recent past.
For instance, when it comes to soccer, players from countries such as Brazil and Argentina are considered to be highly skilled. These nations have produced many great players in the past. It is for this reason that newer players from these locations are considered to be more marketable and hence are paid a higher compensation as compared to their peers from other locations.
Hence, the valuation of injury-prone players tends to be lower. Also, if a player has discipline issues, they are likely to bring a lot of negative publicity to the club. The public as well as the media are hyper-focused on the negative news relating to sporting franchises and their players. Such negative news leads to a fall in the brand value and goodwill of the club. It is for this reason that players with discipline issues are given a negative valuation.
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