Valuing sports franchises: intangible asset experts will dominate
“Intangible assets often comprise approximately 90% of total sports franchise value,” said Drew Dorweiler (Dartmouth Partners Limited), a featured speaker at the recent NACVA/IBA conference in San Diego. Each of the five general categories of intangible expenses set forth by SFAS 141 (Appendix A) can apply to sports-related properties, including:
- Customer related intangibles, such as season ticket holders, personal seat licenses, corporate boxes, and customer lists.
- Technology based intangibles, such as internally developed software, scoreboard graphics, fan websites.
- Marketing related intangibles, such as trademarks, trade names, internet domain names, non-compete agreements, and logos.
- Contract based intangibles such as merchandise and logo license agreements, sponsorship agreements and arena/stadium rights.
- Artistic-related intangibles such as photographs and audio/video libraries.
Valuation of sports franchises comes up more often than one might expect, given the surprising number of minority owners in professional and semi-professional franchises.
To get in the game—or refine your team’s current skills, tune into the BVR webinar “Valuing Sports Franchises” led by Dorweiler on September 15, 2011.
Defined value clause now has four-court approval
In a long-awaited decision (two and a half years after trial), the U.S. Tax Court just upheld the defined value formula clauses that set the fair market value of transfers of private company stock in a gift/sale transaction. The defined value clauses—which limit gift tax exposure from the transfers—were not contrary to public policy, the court found (defeating the IRS’s long-entrenched position), and were arm’s length transactions.
If the IRS’s was ‘down,’ it may now be ‘out.’ “This is now the fourth case to uphold defined value transfer provisions (the others being McCord, Christiansen, and Petter),” comments Steve Akers (Bessemer Trust) in his latest tweet for Wealth Strategies Journal 2.0 (Beta). The case involves a “McCord-type clause,” Akers notes—and is appealable to the 5th Circuit, which also decided McCord but was not presented with the public policy and arm’s length arguments. As to those issues, the Tax Court held that the defined value clause do not “immediately and severely frustrate any national or state policy,” Akers writes, and “having negotiations and adverse parties is not essential to the existence of arm’s length transactions.” If the decisions in Petter (8th Circuit 2009) and Christiansen (Tax Court 2009) delivered a “one-two punch” to the IRS’s long-held resistance to formula value clauses, as Akers wrote for the BVWire, then this latest case may have knocked it out completely. Look for the complete digest Hendrix v. Commissioner, T.C. Memo. 2011-133 (June 15, 2011) in the August 2011 Business Valuation Update; the Tax Court’s opinion will be posted soon at BVLaw.
Help for IP valuations: transactions and messaging
One of the toughest aspects of any IP valuation has been the lack of public data on prior IP transactions. Analysts can only make “guesses” of IP value, and that’s always context- specific, according to Andrew Ramer (Marqera), who spoke at last week’s Intellectual Property Business Conference. Another challenge: messaging. Co-presenter Richard Buttrick (RB Intellectual Property) acknowledged that IP valuation is vital to SMEs (Small to Medium Enterprises), but, “in its current form, it is too difficult, complex, unreliable, and expensive.” Thus analysts must present IP and intangible asset valuation in a way that SMEs understand.
Although the difficulties reflected in these presentations are real, BVWire readers know that ktMINE is a good starting place for finding comparable public data, at least with respect to royalty rates and arm’s length license agreements. Good data will help create credible IP values and a clearer “road map” to a conclusion.
Current sources of bond data for valuing promissory notes
G. Matt Barberich (Marks Nelson Vohland Campbell Radetic) is valuing a promissory note/receivable, and has asked analysts on LinkedIn’s BV Professionals group for the “best resource available" to obtain current yields of notes of varying degrees of default risk (e.g., S&P ratings of Aaa, Baa, C, D, etc.), other than Moody's Aaa and Baa corporate ratings available at the Federal Reserve.
Don Drysdale (Drysdale Valuation) suggests Bonds Online’s Reuters Corporate Bond Spread Tables. “This will give you bond spreads based on debt ratings and for different maturities,” he says, and current data are relatively inexpensive ($35), compared to pricier historical data ($200).
Craig Cook (Grant Thornton) recommends Capital IQ because its search interface provides a range of bond issues, “which could come close to fitting your subject note parameters.” Moody's also “publishes a simplified version of their credit rating model for various industries,” he adds, ”which can assist you to identify the appropriate rating of your company.”
Build your BV firm brand through speaking/ sponsorship
Decosimo CPAs will lead next week’s 11th Annual Valuation of Hard-to-Value Securities and Portfolios Conference, hosted by the Financial Research Associates (FRA) in New York City. Decosimo’s Karl J. Jordan is chair of the event, and Marshall Harvey, CPA.CFE, an assurance principal with Decosimo’s investment partnership specialty team, will present, “Valuation Hierarchy – Defining and Clarifying ASC 820’s Sophisticated Leveling Issues.” The speaking model appears to be working well for Decosimo, which consistently sponsors FRA’s educational conferences.
How can your firm get more involved with this critical business development tool? BVRs new YS Advisory provides practice management and marketing support; contact Lexie Gross for further information.
BVR Guides now e-Book and Kindle-friendly
BVR is pleased to announce that many of our publications are now available in e-Book and Kindle formats. “E-Books offer several advantages, including instant access, searchability, and portability,” says Colin Murcray, BVR’s Director of Guides and Books. As a result, BVR has made the following available in E-Book and Kindle formats at its website, and will add more soon:
- The AHLA/BVR Guide to HealthCare Valuation
- BVR’s Guide to Issues in Estate & Gift Tax
- BVR’s Guide to Discounts for Lack of Marketability
- BVR’s Guide to Personal v. Enterprise Goodwill
- BVR’s Guide to Restaurant Valuation
- Reasonable Compensation: Application & Analysis for Appraisal, Tax and Management Purposes
- The Comprehensive Guide to Lost Profits Damages, for Experts & Attorneys
- BVR’s Guide to Valuations for IRC 409A Compliance
Earn last-minute CPE with some of the best
Don’t miss-out on Ron Seigneur (Seigneur Gustafson CPAs) and Pete Peterson’s (Maxfield Peterson, P.C.) webinar “Valuing Law Firms” to air today, June 29th. Focusing on the operational nuances, valuation challenges, and emerging trends in legal practices, this latest installment in BVR’s Industry Spotlight Series will provide insights on law firm valuation from an expert appraiser and former law firm CFO (Seigneur) and one of the nation’s top law practice consultants (Peterson).
Just Announced: BVR’s Online Symposium on Litigation and Economic Damages
BVR is pleased to announce the launch of the Online Symposium on Litigation on Litigation and Economic Damages, a 12-part webinar series focusing on issues relating to what every financial expert should know when preparing or presenting material to the court. Curated by editors of BVR’s Comprehensive Guide to Lost Profits Damages for Experts and Attorneys, expert appraiser Nancy Fannon (Fannon Valuation Group) and attorney Jonathan Dunitz (Friedman Gaythwaite Wolf & Leavitt), the web series will cover a wide range of issues, including:
- Working with Financial Experts
- Tuesday, September 13, 2011
Featuring: Tim Devlin and William Marsden
- Calculating Damages for Insured Claims
- Tuesday, October 4, 2011
Featuring: John Garaffa and Jack Montgomery
- Supporting your Case: Discover and Evidence
- Tuesday, November 1, 2011
Featuring: Nancy Fannon and Jonathan Dunitz
- Getting the Information You Need: A Guide to Electronic Discovery
- Tuesday, December 13, 2011
Featuring: Richard Gelb and Dan Gelb
- Patent Damages: The Entire Market Value Rule
- Thursday, September 22, 2011
Featuring: Craig Jacobson and Stephen Lieb
Subscribers to the Symposium will have full access to BVR’s Litigation Desktop Learning Center, an online multi-media library of all past litigation programs. Click here for more information or to register.
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