Forbes says Philadelphia Union value increased by $55M

After a two year hiatus, Forbes MLS Soccer valuations are back and they tell some interesting stories. These figures always must be taken with a grain of salt, but they also tease a transparency rarely glimpsed in the world of Major League Soccer. So look we must.

The Philadelphia Union have been plagued with stories of financial difficulty this season, but Forbes paints a picture of one of the more healthy franchises in MLS. According to Forbes the Philadelphia Union franchise value increased from $90M for the 2012 season to $145M based on 2014 numbers, a 61% increase in 2 years. Nick Sakiewicz recently said that the Union owners have invested over $100M of their own money into the club. When exactly that money was invested we don't know, but for fun let's assume they invested $100M in the inaugural year 2010. They would have gotten a 45% return in four years. That sounds pretty good until you realize that the S&P 500 increased about 70% over that same period. But if the ownership group had at all borrowed money to fund the investment, their returns could be much higher. In fact, if just 15% of their investment was borrowed, and therefore $85M invested out-of-pocket, then their return would be on par with the S&P 500. In short, no need to cry for the Union ownership group if you believe these numbers.

The Union ranked 11th in the league in overall valuation. Here is a chart of all of the clubs, not including the expansion clubs, who were not included in the analysis.

When it comes to revenues and EBITDA (Earnings before interest, taxes, depreciation and amoritization) the Union fare even better, ranking 7th in the league in both categories.

According to Forbes, the Union revenues increased by 17% to $25M in 2014 and were one of only seven teams that saw their revenues increase. They are also one of just eight clubs that have positive EBITDA, at $2M. The Union reportedly had $1.2M in EBITDA in 2012.

It may be concerning for fans keeping track that while the Union rank 7th in revenues and operating income, they rank 10th (or lower if you take out loaned players) in player salaries according to data from the MLSPU. The Forbes numbers don't yet include the two expansion clubs, Orlando City SC and New York City FC, and those two clubs appear on their way to passing the Union in revenues. That means their revenue rank is somewhat closer where they rank in paying players. Even still, if you believe these numbers, the fact that the Union are unable to invest more in players is indeed puzzling.

Forbes isn't as bullish on the future prospects of the Union for some reason. Look at the value to revenue ratio of the clubs below. That's Forbes indicating what they believe to be the growth potential of the profit stream, which takes into account growth expectations and the long term ability of the club to generate profits from that revenue. Here the Union rank lower at 13th.

It should be noted that these value to revenue ratios are very healthy for sports franchises. Looking at all of the recent Forbes sports team values, only the NBA has a better value to revenue ratio than MLS. These numbers show that Forbes is definitely bullish on MLS' future prospects.

Looking at the MLS numbers in total some odd figures jump out. Even after removing Chivas from the 2012 season, the revenues and operating income of the entire league have declined. So the massive value increase is not a function of higher revenues or increase profits, but rather Forbes new view of future potential.

The new television deal which increased league revenues by over $60M per year were not included in these numbers but the forward value of them appear in the valuations. Whether or not MLS revenues really declined between 2012 and 2014 or Forbes numbers just became more accurate is difficult to tell.

Forbes has been in the business of estimating the value of sports teams for well over a decade. Are the valuations perfect? Of course not. But they are also the only source of consistent measurement using a consistent methodology. MLS is bullish on the future of MLS, projecting that franchise values have increased on average 50% over the last two years, despite suggesting that revenues are flat and profits are breakeven at best. The Philadelphia Union look like one of the healthier franchises by this measurement, causing more confusion for Union fans as they try to determine exactly how this club will compete with the heavyweights of the league in the future.