Economic paper Essay Example | Topics and Well Written Essays - 500 words - 1

Economic paper - Essay Example Shelly has already indicated that she would not consider any buyer who intends to relocate the L.A. Clippers franchise. In addition, she is keen to get a sale price that would leave the Sterlings with â€Å"enough† money after the hefty tax obligations (Shelbourne). This presents an issue with the evaluation of such a sports franchise. Sports franchises are often valued at significant amounts. For instance, the L.A. Clippers was valued at $575 million in January 2014 (Forbes). The values of basketball, football and hockey teams may seem astonishing as well as ambiguous because it might not be clear how the values of the teams are arrived at. This is because many people do cannot ascertain how a team’s performance, qualities, assets, accomplishments, ticket prices, venue, concession sales and broadcasting revenue contribute to the overall value. There are various approaches that are use in valuation: income approach; market comparison, and asset-based approach. According to Baum, Baum and Nunnington (67), the value of a team would be computed on the present value of the future net cash flows that it will be in existence. This method utilizes a value estimate based on on expected cash flow obtained through the discounted cash flows method. An anlyst makes assumptions on how the various value drivers contribute to expected earnings and work backwards to compute the present value. This is a common method in valuing sports franchises and it utilizes factors such as team performance, ticket sales and stadium attributes. The market comparison approach uses the competition principles in a free market and depends on the hypothesis that the price of one investment applies comparable investments with little mofifications (Munizzo and Musial 126). Analyst looks at the actual data on generated revenues, one can make comparisons between a franchise that is being valued and other franchises that have recently been traded. Some of the important