I'm now seeing $2 billion in some disclosures / news outlets. Would be interesting to see exactly what is contained in the offer docs and what the justification is, particularly on value.
Few things to consider:
- Revenues for any given tennis tournament stem predominantly from 3 channels. 1) Direct ticket sales - B2C (i.e. to ordinary spectators like us) or B2B package deals (another way of saying corporate / "wholesale"). 2) Broadcasting rights (such as the $500m paid by Channel 9). 3) Sponsorship deals, of which there are several. Can vary by tournament. Note - broadcast and sponsorship deals are somewhat stable, but ticket sales (and prices) can fluctuate wildly. Wouldn't surprise me if some of the events are loss-making...
- Worth noting that PIF itself has a 5-year sponsorship agreement with the ATP, including a takeover of the rankings system. They contribute their own money under contract, and that obviously changes the economics somewhat. The cash flow, return proposition and therefore value to PIF specifically would be lower than, say, a third party bidder having no existing tie-ups with either tour conducting an outside-in valuation.
- Operating Costs - costs associated with the day-to-day running of each event. Capital costs - regular maintenance during "off-season", one-time revamps / upgrades / facility installations. There are ongoing expansions and modifications all over the place
- Obviously the key expense that is publicised is prize money distributed to players (effectively the "wages"). This continues to rise.
- In 2022-23 the ATP introduced a 50-50 profit sharing mechanism, whereby half of the profits generated by ATP level tournaments are distributed back to the players. The WTA is not yet in the right financial position to offer this sort of sharing mechanism.
I don't know what the tax situation is with the ATP & WTA as overarching corporate bodies, but that aside the free cash flow stream will be lower than one might think. There is reasonable transparency in media coverage of the various revenue components (headline-grabbing stuff i know), but the true scale of cost and capital outlays are left to the imagination. Much more opaque, aside from the whole prize money element, and a reason for why this doesn't seem like a particularly high offer. It actually may not be entirely unreasonable.
The most interesting thing is how the annual revenue and cost profiles disclosed by the ATP and WTA sync up with whatever i said above. Their combined annual revenues are US$400 million or thereabouts...
Incidentally: I know the headlines say take-it-or-leave-it, but PIF has been known to lowball offers and can occasionally be "persuaded up" by the order of 15-25%. If I had to guess, a "fair value" may be in the $3bn range, very unlikely to be much more than that...