Why a Walmart heir’s $4.65 billion purchase of the Denver Broncos is a 'smart buy': Expert

Walmart (WMT) heir Rob Walton and his ownership group are buying the Denver Broncos for an NFL-record $4.65 billion, and one valuation expert is bullish on the purchase.

“I like it from the standpoint of this is a very wealthy individual and he’s looking to diversify his investment portfolio,” Michael Rapkoch, founder and CEO of Sports Value Consulting, which oversaw 41 team valuations in 2019 alone, told Yahoo Finance. “And… The NFL is a smart buy. So the Broncos, the Bowlens held it for 38 years. Guess what? The Broncos are going to be here 38 years from now. I don’t know what company you can say that about.”

With a wealth of knowledge across multiple leagues, Rapkoch’s sports investment thesis is akin to billionaire investor Howard Marks’s famous axiom: It’s not what you buy. It’s what you pay.

In Walton’s case, whether he over or underpaid for the team by a few hundred million dollars won’t matter in the long run, Rapkoch argued, given the franchise’s staying power and the investment diversification benefits.

Rapkoch noted that sports teams have a history of competing with, if not beating, the returns of the S&P 500 (^GSPC). Take the Lerner Family which owned the Cleveland Browns from 1998 to 2012. As the stock market slogged through the dotcom bubble and the Great Recession, the S&P 500 returned just 2.38% per year during that 14 year period. Meanwhile, the Lerner’s $530 million investment ballooned to north of $1 billion by the time of the sale, returning 14% per year.

“This is a completely different risk profile than commercial real estate, stocks, than anything out there,” Rapkoch said. “The stock market can go down. The value of the Denver Broncos isn’t going to go down.”

The Broncos sale came just a few weeks after Todd Boehly’s ownership shelled out $5.3 billion for the Chelsea Football Club, the highest amount ever paid for a professional sports team. Rapkoch’s team doesn’t see the valuations coming down anytime soon either.

He cited how former Broncos owner Pat Bowlen paid the most ever for an NFL team in 1978, and then unforeseen technological advancements like the internet and social media turned a $75 million team into a $4.65 billion franchise.

“What’s going to be the driving force?” Rapkoch said. “No one could anticipate you know the internet, social media, the national media contracts coming forward. All I know is that every year, the NFL and all of the leagues have done a great of taking their league to the next level and the proof is positive. I mean, leagues don’t go backwards.”

Josh is a producer for Yahoo Finance.

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