David Rosenthal: prediction

Transcript context

…Here’s another thing that I found really interesting in the Forbes list. I would not have projected this at first and it started to make more sense when I was thinking about it. But NBA teams on average, I mean this is kind of eyeballing, I should crunch the numbers, but it looked like the valuations of these teams are about 10x their revenues and about 15x their operating income. For anybody who’s building a software business, you’re thinking, “Oh my SaaS business is probably going to get like a 3x to 5x revenue multiple.” Or I guess I just wouldn’t have expected that these sports teams would like have a 15x operating income multiple and in kind of talking through with other friends before the show, it kind of makes sense because you would think like okay, am I sure that this B2B SaaS company is going to be around in 15 years? No. Am I pretty sure that this NBA franchise is going to be around and generating somewhere in this neighborhood of operating income that it is right now, give or take 20 percent? Yes. Like sports franchises are such an enduring part of the fabric of a city and the fabric of American culture that, you know, we just trust that these things are going to continue to be around and continue to be popular. Yeah. I think there’s another really key element to analyzing this transaction, which let’s get into now and we can continue to discuss throughout the show which is growth. Right? I mean, when you’re talking about multiples, multiples whether it’d be of EBITDA or operating income or revenue, what they really are in terms of valuations is a proxy for your expected cash flows over the future, the discounted cash flows in the future which is the theory of how you value companies. And multiples are just sort of putting your finger in the air and guessing kind of how much growth you’re going to have in your cash flows over the next several years and how much that's going to be worth to your bottom line in terms of the valuation of the company. What’s really interesting is the growth in the NBA over the last few years and how much. I wish I had harder numbers on this. I don’t know if you do, Ben, or if our listeners do. Hopefully we can pop into the Slack after and chat with listeners.…

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