December 14, 2022

If not WNBA expansion, then what? — Clare Duwelius talks Minnesota Lynx — Must-click women’s basketball links

The IX: Basketball Wednesday with Howard Megdal, Dec. 14, 2022

Cathy Engelbert. (Screenshot from Media Avail)

A pair of significant pieces of news broke this morning in Mike Vorkunov’s interview with Cathy Engelbert. First and foremost, Engelbert walked back the timing she’d expressed as her goal as recently as September, at the WNBA Finals.

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Back then, in response to a reporter’s question, Engelbert said this: “I would say I would love to announce by the end of the year.” It echoed a goal she’d set several times, publicly, in 2022.

In today’s piece, Engelbert said this: “We’ve got a whole process,” Engelbert said. “We’ve got data, we’ve got interesting discussions going on but it’s not something we’re going to rush it to just to say we expand. I’ve told so many business leaders this, and they all seem to agree with me — like I’m a big, big believer in let’s transform the economics and then we’ll expand, not expand and then hope that economics transform. We want to bring new owners in that are going to be successful in standing up a franchise that can compete for a championship. So I’m not in a rush, but yeah, would we like to get it done in the next few years? Absolutely.”

Expansion, and transforming the economics, are linked, of course. Further, it’s unclear what has changed. Vorkunov reported that Engelbert said the league had narrowed expansion cities to ten, but… she’d said that in September, back when 2022 was still the goal.

There is one other part of this that was new and interesting — buried in the final graf.

“She has leaned on the WNBA’s valuation from its capital raise, which valued the league at $475 million, according to sources, as a baseline for how much a new team could cost, though she said there is a ‘range of reasonable estimates on what a franchise would be worth.'”

That’s an awkward sentence, but it contains no dispute or pushback from Engelbert or the league on a valuation of $475 million. As I reported back in March, that was the correct number, but in the weeks and months that followed, the league and Engelbert herself worked strenuously to push a league valuation of $1 billion. Here is Engelbert saying the league is valued at $1 billion in the New York Times back on March 4. This is how Engelbert explained that back in June, during a media avail with reporters at Barclays Center, when I asked about the discrepancy. Response is here in its entirety.

“So the way sports are valued, which by the way, I come from a valuation background where most valuations are done on a DCF or discounted cash flow basis, but sports appears to be on a revenue multiple,” Engelbert said. “So you take somewhere in a range of five to 15 times revenue, and then that’s the going value a lot of sports franchises are ascribed.

“I don’t think there’s been a lot of league valuations because nobody until us really did this kind of capital raise at the league level where we were owned you know, 50-50 by the NBA and the WNBA owners. Those got went to a small dilution and then we brought in this outside investor group of which some included NBA and WNBA teams. So again, the league doesn’t exist without the teams and vice versa. So that’s why it’s a over a billion.

“But if you broke it down, the league, based on our revenue and multiples and evaluation based on when you sell equity, and you sell equity, we sold it, you know, 75 million, and we sold 15%, the math is just that, it comes to 475 million post-money because you raise 75 million. And you know, when you sold that, so it’s just math, it’s really just math, but then that’s why we never want to say oh, the league’s worth this because again, you’ve got to put the teams with the league.

“So we haven’t had any recent transactions of teams issuing equity or teams,” Engelbert continued. “You know, issuing debt or something. So that’s why we say we know it’s over a billion because we know what the average franchise is probably about worth based on their revenue and a multiple on that revenue. But our teams are growing.

“You know, look at what Seattle is doing this year and the fans they’re putting the seats out there and the sellouts they’ve had and the sponsors they brought in they did an Amazon Prime Video deal. So every team’s valued probably a little differently, just like in any league. But if you add up 12 times, plus the league valuation, that’s where you get the over a billion dollars.”

Now it’s back to $475 million. And expansion is being pushed back indefinitely.

While the WNBA has, apparently, not reached a conclusion on expansion, the NWSL appears set to do so in the next few weeks, with one of the teams, Utah, already reported as selected by Jeff Kassouf. And just today, the PHF announced that its salary caps are set to double, to $1.5 million per team. More than one WNBA source mentioned to me that this puts the far newer league in a place with team salaries higher than the WNBA.

All of which is not to say that Cathy Engelbert is sitting on a pile of money she refuses to give to the players, of course. This stuff is hard, as the many current and former commissioners of women’s sports leagues who subscribe to The IX can tell you. But the WNBA has always had a timing problem when it comes to its money and future.

There’s prioritization coming in 2023, but the infusion of cash from a new media rights deal, since the league and ESPN have not found common ground on an early opt-in as I suggested to get the W paid early, isn’t coming until 2025. Will stars stick around? Will the economics change? Will a recession affect media spending, or even consumer spending?

We don’t know, and it’s why the NWSL, in the wake of its teams selling for many times what they did just a few years ago, is cashing in. The WNBA not doing so has second-order problems, too. The league has forestalled calls for everything from expanded rosters to injured lists to developmental leagues over the idea that yes, roster spots were coming, and they’d be on the new teams — internally, discussed as many as 16 by 2025, according to internal documents I’ve reviewed.

So if the players aren’t going to have new roster spots, and the revenue influx from expansion fees isn’t on the immediate horizon, and the media rights deal is still years away, exactly what can the league use, financially, to defend itself over the prioritization era that’s now upon us?

“Good news is, we have a ton of interest from a lot of cities,” Engelbert told Vorkunov. “I didn’t think we would have that much interest.”

Converting that interest to the financial transformation Engelbert often speaks of? That is the great challenge of 2023. And it won’t be powered by expansion fees, apparently.

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