Risk and Team Values CASE ANALYSIS

Risk directly affects the values of professional teams. Groppelli and Nikbakht (2012) state that to maximize the value of a firm, managers must focus on increasing the growth rate of cash flows and reducing the risk or uncertainty of those cash flows. One measure of an organization's risk is its credit rating. According to Fitch Ratings (2002), factors affecting the risk of cash flows and, therefore, the credit rating of leagues and teams, include player salary restraints, national television contracts, revenue sharing among member clubs, league influence on team financial matters, debt limits, and the relationship with the players' union.

Exhibit 3.11compares the average franchise value for the NFL and MLB from 2010 through 2014.