Category: Pop Culture

Marty Hanan is the founder and President of ValueScope, Inc., a valuation and financial advisory firm that specializes in valuing assets and businesses and in helping business owners in business transactions and estate planning. Mr. Hanan is a Chartered Financial Analyst and has a B.S. Electrical Engineering from the University of Illinois and an MBA from Loyola University of Chicago.

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Ten Reasons to Get a Business Valuation Prior to a Transaction!

Top Ten Reasons to get a Valuation

Business owners and shareholders cannot adequately plan for a sale or merger unless they understand the price that the business will bring in a fair transaction. In order to know this price, an appropriate valuation is required.

The right valuation will:

Clearly indicate the value and value drivers of the business, arming sellers with the tools necessary to negotiate the best possible price.
Identify how to support a higher value prior to the sale by adjusting for related-party transactions and/or expenses (e.g., owners’ compensation, related-party leases, and other perks).
Help determine the optimal time for a sale by gaining an understanding of general M&A trends and specific trends in your industry.
Show expected future wealth and returns under multiple scenarios: hold for now, sell all or some, recapitalize with debt or new equity partners, bring in a strategic partner, invest new capital for growth, etc.
Help with retirement planning by structuring a transaction to minimize estate taxes.
Help determine optimal transaction terms, lowering risk and improving returns.
Show you how your business compares to your peers. This will help identify areas to increase the value of the business.
Show the “intrinsic value” of the business under current ownership and the “fair market value” of the business to others.
Assess and demonstrate synergies to a specific-buyer, supporting that they could pay a price above the fair market value, and still earn above-market expected returns.
Help identify the segments of your business that are most valuable, allowing management to focus on those areas that will most impact the overall business’ value.

For more information, contact:

Ten Reasons To Get A Business Valuation Prior To A Transaction!

Martin Hanan

FOUNDER AND PRESIDENT

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Playboy Mansion Sells for $100 Million

Playboy Mansion Sells For $100 Million

Playboy Mansion Sells for $100 Million

A principal of a private equity firm purchased the Playboy Mansion, but Hugh Hefner is allowed to remain at the residence until he moves or dies – reportedly for $1 million in annual rent. The purchaser also bought the next door property in 2009 for $18 million. Once Hefner is out/dead,the two properties will be combined into a single 7.3 acre estate. Playboy Mansion Sells for $100 Million.

The new “owner”, 32 year old Daren Metropoulos, is the son of billionaire investor Dean Metropoulos. He flipped Pabst Brewing Co two years ago for $700 million in cash, a $550 million profit.

The Playboy Mansion is reportedly just shy of 22,000 square feet – although many news outlets use an estimate 20,000.

A 50,000 square foot residence called Fleur de Lys sold in 2014 for $102 million. It was on the market off and on for 7 years with an original list price of $125 million in 2007 after the divorce of Metro Networks founder David Saperstein and his socialite wife, Suzanne.

The 56,500 sqft residence of former TV producer Aaron Spelling sold for $85 million in 2011 to the 22 year old daughter of Formula 1 billionaire Bernie Ecclestone. It was reportedly on the market in 2014 for $150 million (after $20-25 million refurbishment)

The table below summarizes the three transactions and the listing on the Spelling home.

Playboy Mansion Sells For $100 Million

Based on the comparable transactions of Fleur de Lys and the Spelling home, as well as the current asking price of the Spelling home, the Playboy Mansion sold at a premium of close to $2,000/sqft or $44,000,000.

Tags: Playboy Mansion Sells for $100 Million

Brent Shockley

SENIOR MANAGER

bshockley@valuescopeinc.com

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Value of High-Intensity Exercise

As part of my never-ending quest to value everything, I have attempted to value exercise – not just any exercise, though. I’m talking rigorous, consistent, intense exercise. The kind of exercise that “gym rats” do – once a day, maybe twice a day. Value of High Intensity Exercise.

I’m talking a combination of metabolic conditioning¹ and weight training. I’m not talking about walking the dog or even walking fast. I’m not talking about light weights either. I’m talking about getting the heart rate up to 80%, maybe 90% of maximum levels during interval training, and weight training to the point where your muscles fail with 6 to 12 reps at, say, 80% of your max one-rep weight. I’m talking about averaging at least an hour a day, for at least 300 days a year, for the rest of your life!

I’m neither a doctor nor a trainer, but I am a valuation expert and a gym rat. I’ve read numerous books and articles about the benefits of rigorous exercise and I have practiced what they preach (more so in the last couple of years). I’m on a bike almost every morning between 30 and 60 minutes, sometimes cruising at 120 beats per minute (BPM), sometimes doing intervals reaching 150 BPM (my theoretical max is 160 at age 60 but my real max is probably 170).² I’m also in the gym 5 to 6 days per week lifting heavy weights (e.g., benching 125% of my body weight for ten reps).

Relative Health and High-Intensity Exercise

My analysis begins with a 50-year-old male. This individual currently has a certain level of health. I measured the individual’s health going forward relative to the individual’s current level of health. I refer to this as the individual’s relative health.

Now, let’s presume that the individual can choose to either: 1) lead a sedentary lifestyle for the rest of his life, or 2) lead an active lifestyle where he engages in the type of high-intensity exercise that I have described above. If the individual chooses to lead a sedentary lifestyle, then his health will decline more rapidly, and he will have a lower life expectancy. The graph below illustrates the expected relative health of our individual for the two life paths.

Value Of High Intensity Exercise

Without getting into the biology of why both high-intensity metabolic conditioning and weight training are so important and why the combination improves relative health and life expectancy, I have developed a simple model of the “economic” value of high-intensity exercise.³

The Components of Value for High-Intensity Exercise

There are two components of value to almost everything – the monetary component and the psychological component. The monetary component refers to the value that results from changes in an individual’s cash flow as a result of high-intensity exercise, while the psychological component refers to the value gained from non-monetary changes, such as improved self-image. You may ask, how do you place a value on non-monetary changes? Well, I discuss that in more detail below.

Monetary Benefits of High-Intensity Exercise

I identify and model four monetary benefits and costs of high-intensity exercise:

Improved earnings – Various studies (as well as common sense) suggest that fit people earn more. One such study suggests about 9% more.
Longer work life – Of course, if you’re fit and healthy, you can have a longer work life (i.e., a longer period of earnings). Therefore, my model assumes you retire at 70 instead of 65.
Lower health care costs – Also, your health care costs will be less. My research suggests that a 50% savings over an average normal cost of $2,000 per year is reasonable (but that savings increases in real terms as we age).
Cost of working out – To be fair, I need to subtract the cost of working out (e.g., a fitness club, maybe a trainer too).

Assuming wage growth

Assuming wage growth equals inflation and is offset by the time value of money, the monetary value of a commitment to this type of exercise for our 50-year-old man making $100,000 annually is about $580,000 in present value terms. Now admittedly, I’m also making a few other assumptions, namely, there is no opportunity cost to exercise, you would be doing something unproductive with the time, exercise increases your productivity generally, exercise is enjoyable, and/or some combination of all of that.

The graph below shows the value and contribution of each of the monetary components. Improved earnings contribute 19%, or $144,000, of the value from monetary benefits. The longer work life is the largest monetary benefit, contributing 69%, or $510,000, to the total value from monetary benefits. The monetary benefit of lower health care costs was a nominal 1%, or $6,000, of the total value from monetary benefits, although this is dependent on the individual’s starting level of health.⁴ The cost of working out is approximately $82,000 for the individual’s life and reduces the value from monetary benefits by 11%. The total monetary value of high-intensity exercise is therefore $578,000.

Value Of High Intensity Exercise

Psychological Benefits of High-Intensity Exercise

The second, and perhaps the more interesting component to ponder, is the psychological component to the value of high-intensity exercise. I identify three primary psychological benefits of high-intensity exercise:

A healthier life – As a proxy for the value of a healthier life, one can conduct a survey to determine the wage sacrifice an individual would be willing to accept for a healthier life. I assume 10% of wages based on an informal poll I conducted. Further, I assume that the psychological benefits of a healthier life increase as you age, quantified by the difference in the two relative health decay curves (see graph above).
A longer life – From the actuarial tables and various studies, I assigned an increased life span of 12 years to the man doing this for the next 40 years (living to about 90 (a “gym rat” for life) versus 78 (relatively sedentary)).⁵ But what’s that worth? That’s a tough one, but there is a field of damages called hedonic damages that attempts to value pre-mature death. For purposes of this blog, I will assume the value of each extended year is the same as his real wages.
An improved self-image – And what about self-image? Here I look at the cost of cosmetic synergy as a proxy and get a result of about $2,500 per year. While the self-image gap grows over time between decay and “growth” (see relative health graph above), I will assume that self-image is worth less as you age such that they offset, and the value of self-image is therefore constant over time.

What does this all add up to? About $1.7 million. The graph below shows the value and contribution of each of the psychological components. A healthier life is worth about $371,000 and contributes 22% to the psychological value. An additional 12 years of life is worth $1,200,000 and contributes 72% of the psychological value. Improved self-image is worth $103,000 and contributes 6% of the total psychological value.

Value Of High Intensity Exercise

Total Value of High-Intensity Exercise

The total economic value of high-intensity exercise is about $2.25 million, which consists of $578,000 from monetary components and $1,674,000 from psychological components.

Value Of High Intensity Exercise

Modeling Details

For those modeling geeks who are interested, this section covers the details of the model. For everyone else, you can skip this section and proceed to the concluding thoughts.

The primary assumptions of the model are captured in the table below.

Model Assumptions

Value Of High Intensity Exercise

The table below contains the estimated benefits for the monetary components based on the above assumptions. Health care costs turn negative in the model at age 79 due to the longer life expectancy under the high-intensity exercise case. There are no expected health care costs at age 79 and beyond under the sedentary case because the individual is expected to be dead (statistically speaking).

Value Of High Intensity Exercise

The table below contains the estimated benefits for the psychological components based on the above assumptions. The estimated value of a healthier life is estimated as 10% of the individual’s annual salary multiplied by one plus the difference in relative health. For example, at age 60, the individual’s relative health is 100% under high-intensity exercise and 88% under sedentary. The value of a healthier life would be $11,200 (= $100,000 × 10% × (1+100%-88%)).

Value Of High Intensity Exercise

Concluding Thoughts

One way to think of this is if you’re about 50 and your net worth is $2.25 million, you would double it by committing to a rigorous metabolic conditioning and weight training exercise program. Seems like a good investment, monetarily and psychologically.

Notes:

I use the term metabolic conditioning to refer to both aerobic and anaerobic exercises designed to stimulate and train the circulatory, respiratory, and energy production systems of the body.
Interestingly, you can get similar results from some hobbies – but they have to be the right ones: mountain biking and cross country skiing to name a couple. In my case, I’m the drummer of a rock band and trust me, it works.
I’m not qualified to opine on the physiological effects of high-intensity exercise. If you are interested, please see, for example, the book titled Younger Next Year by Chris Crowley and Henry S. Lodge, M.D.
A significant reason the total benefit of lower health care costs is so minor is that you will, of course, incur additional health care costs because you are living much longer.
The average actuarial life is 81.

Tags: Value of High Intensity Exercise, High Intensity Exercise, Intensity Exercise Benefits, Monetarily Benefits of Intensity Exercise, Psychologically Benefits of Intensity Exercise

Martin Hanan

FOUNDER AND PRESIDENT

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UFC Valuation Rivals the Dallas Cowboys

The slowest sports w Ufc Valuation Rivals The Dallas Cowboys eek of the year got off to a Ronda Rousey-esque start on Monday with the announcement that the Ultimate Fighting Championship (UFC) has been sold for $4 billion to talent agent WME-IMG and a group of private equity investors. The mixed martial arts league, founded in 1993, was near bankruptcy in late 2000 when Dana White, working as the manager for UFC fighters Tito Ortiz and Chuck Liddell, contacted childhood friend and casino operator Lorenzo Fertitta about purchasing the struggling league from Semaphore Entertainment Group. Lorenzo Fertitta and his brother Frank formed Zuffa, LLC to purchase the league for $2 million in January 2001. Mr. White was installed as president and a part owner (9%). UFC Valuation Rivals the Dallas Cowboys.

The Fertitta brothers and White began to streamline the sport with rules and regulations to appease the concerns of broadcast partners and state governing bodies previously unwilling to sanction fights. After three years of significant losses and relying solely on the financial resources of the Fertitta brothers, the league’s popularity exploded in 2005 with the debut of the Ultimate Fighter television show on Spike TV. The mainstream media began to take notice of the league’s appeal in 2006 when a fight between Tito Ortiz and Ken Shamrock scored higher in the 18-34 male demographic than several games of the World Series.

The majority of UFC’s revenues originate from pay-per-view with additional revenues from the league’s TV deal with Fox and its over-top-streaming (OTT) service UFC Fight Pass The Fox media rights deal signed in 2011 provides an average of $100 million per year through 2018 and the league has sponsorship deals with Bud Light, Reebok, Monster Energy, EA Sports, Toyo Tires, Harley-Davidson and MetroPCS.

Ufc Valuation Rivals The Dallas Cowboys

The purchase price of $4 billion is the largest of any sports organization. It is nearly double the amount paid for the Los Angeles Dodgers in 2012 and the Los Angeles Clippers in 2014 and equivalent to Forbes’ latest valuation of the Dallas Cowboys. A valuation comparison of the UFC deal and the latest valuation of the Dallas Cowboys is presented in the following table.

Ufc Valuation Rivals The Dallas Cowboys

The UFC deal represents an annual return of 63.3% over 15.5 years compared to 13.1% for Jerry Jones’ investment in the Dallas Cowboys. (Mr. Jones paid $140 million in 1989) The Cowboys recently eclipsed Real Madrid as the most valuable sports franchise in the world.

The acquisition of the UFC was led by William Morris Endeavor-International Marketing Group, a sports and entertainment talent agency. WME purchased IMG in 2013 for $2.4 billion. WME has been an active investor in sports entities, forming a strategic partnership with Zumba Fitness in 2012, acquiring an agency representing e-sports players in 2015, and purchasing the fast growing Professional Bull Riders (PBR) in April 2015.

Silver Lake Partners is a private equity firm that owns a minority stake in WME-IMG and has invested in Dell, Go Daddy and sold a $1.9 billion controlling stake in Skype to Microsoft for $8.5 billion. Other investors include Kohlberg Kravis Roberts and MSD Capital (private investment firm of Michael Dell). The Fertitta brothers will no longer be involved in managing the league but will retain a small ownership stake. Dana White will remain UFC’s president with a new five-year deal which reportedly includes 9% of annual profits.

Mr. White will continue to balance the task of growing the league for its new owners while managing the volatility and compensation demands of the league’s top talent. Ronda Rousey has generated a lot of interest in the UFC outside of the male 18-34 demographic and she is one of the league’s most marketable assets despite her stunning loss at UFC 193 in November 2015. Rousey has landed several product endorsements and recent movie cameos. However, Ms. Rousey’s return to the “Octagon” may not happen until late 2016 or early 2017.

The league’s most recognizable men’s fighter, Conor McGregor, was scratched from last weekend’s UFC 200 card in April because of a dispute over participation in promotional events. McGregor responded with a two day retirement from the sport. UFC had to scramble in the days before last weekend’s UFC 200 as popular fighter Jon Jones was pulled from the main event after failing a pre-fight drug test. Mr. Jones’ status remains unclear and he could face a two-year suspension.

Despite the pre-event turmoil, UFC 200 set records for attendance and gate receipts in Las Vegas and early estimates suggest the pay-per-view buys will be one of the top three in league history. Mr. White shuffled the main card to feature bouts between Amanda Nunes and Miesha Tate and the return of former UFC fighter and current WWE star Brock Lesnar to face Mark Hunt. UFC 202 scheduled for August 20^th will feature the anticipated rematch of Mr. McGregor and Nate Diaz. In March, New York became the last state to sanction MMA fights and the UFC is looking to stage a late 2016 event in Madison Square Garden.

Looking ahead, the company will continue develop its OTT platform Fight Pass and distribution network through multiple platforms such as smart-TVs and device and video game systems. The UFC could double its annual cable rights revenue from $100 million to $200 million beginning in 2019. Although cable networks (most notably ESPN) have come under fire recently for subscriber losses, unbundling and ala carte cable packages, the Big Ten Conference recently negotiated a six-year media rights deal with Fox, ESPN and CBS that tripled the league’s television revenue.

The UFC deal provides lead investor WME-IMG closer ties to the league’s marketable stars for business opportunities outside the Octagon. It is assumed the new owners will push global expansion, especially into the Chinese market. Several of the rumored bidders for the UFC in recent months were backed by Chinese investment firms.

Tags: UFC Valuation Rivals the Dallas Cowboys, UFC Valuation, Dallas Cowboys Valuation

Brent Shockley

SENIOR MANAGER

bshockley@valuescopeinc.com

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Atlanta Falcons aim to revolutionize fan experience with lower concession prices

Atlanta Falcons to Lower Concession Prices

Atlanta Falcons To Lower Concession Prices In 2010, the Atlanta Falcons announced plans to construct a new retractable-roof, multi-purpose stadium to replace the Georgia Dome, the team’s current home field. Thus, in 2014, the Mercedes-Benz Stadium, which will be home to both the Falcons and Atlanta United FC of Major League Soccer (MLS), officially broke ground and is expected to cost a total of $1.4 billion. Considering the Mercedes-Benz brand name, the price point of tickets, and the cost of concessions, the overall cost of attendance would likely rank low on the affordability scale for most NFL fans. However, the Atlanta Falcons are seeking to change that perception and drive higher game attendance with a new, low-price concessions plan to be implemented at the stadium’s opening in 2017.

According to the announcement, all concession items will be priced at street value. Hot dogs will be priced at $2.00, 2.65 times lower the 2015 NFL stadium average of $5.29. Additionally, $2.00 soft drinks, much lower than the NFL’s average $4.79 20-ounce soft drink, will feature unlimited refills at self-serve stations to provide for easier access. Moreover, pretzels, Dasani bottled water, and popcorn will also be priced at $2.00. Slices of pizza, waffle fries, and bags of peanuts will run $3.00 each. The stadium will also feature food and beverage items from nationally recognized chain restaurants but at the same prices fans would pay at regular locations. Thus, depending on the items selected, the Falcons claim a family of four can eat for around $30.00.

Overall

Overall, considering Atlanta Falcons To Lower Concession Prices that concession prices only comprise a small percentage of an NFL team’s annual revenue, this revolutionary change in concession prices is unlikely to drastically hurt or help the organization’s bottom line. For example, the Indianapolis Colt’s Lucas Oil Stadium only generated $5.2 million in food and drink sales in 2013, compared to $226.4 million in share of national revenue that each team received from television revenue, national sponsorships, licensing, and merchandise sales.

This does not include the revenue generated from either ticket or local retail sales. Thus, from a financial valuation standpoint, this proposition makes sense, as it will likely drive ticket sales, which would offset the lower food and drink price points. This strategic move to improve the fan experience comes amid declining gate attendance in many venues across the NFL. The number of fans attending NFL games has fallen from 20.3 million in 2011 to 17.5 million in 2015. The Falcons saw a decline of 2.5% from the prior year.

“Fan-First”

This new “fan-first” concession pricing plan will be in effect at Falcons games, Atlanta United soccer games and other major sporting events in the new stadium, including the college football national championship game in January 2018 and the NCAA Men’s Final Four in April 2020. These prices may even remain during the 2019 or 2020 Super Bowl for which Atlanta is a finalist.

Atlanta Falcons Aim To Revolutionize Fan Experience With Lower Concession Prices

Brent Shockley

SENIOR MANAGER

bshockley@valuescopeinc.com

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Your boss hates March Madness….

March Madness Employee Productivity

Are you one of the more than 60 million Americans that filled out a March Madness tournament bracket at work this year? How about one of the 1.5 million employees streaming the NCAA Tournament online and on your company’s dollar? If you fall into either of these categories, you are a contributor to $1.9 billion dollars of productivity costs that business are expected to lose during March Madness this year.

This estimate was made by global outplacement firm Challenger, Gray & Christmas, Inc., is based on the number of working Americans who are likely to be caught up in March March Madness Employee Productivity Madness: the estimated time spent streaming games and filling out brackets; and average hourly earnings, which according to the Bureau of Labor and Statistics is at $24.78 in January of this year.

This estimate could actually be lower now that Kentucky and Michigan State have been knocked out of the race but either way many employees will still tune in.

With all of the potential dollars wasted on a lack of productivity during March Madness the question arises: should companies prohibit workplace pools and block access to streaming sites?

The CEO of Challenger, Gray & Christmas says that employers shouldn’t because March Madness is a national tradition and attempting to prevent your employees might actually do more harm than good in the form of employee morale and loyalty.

So now we’re curious, have you spent any time at work filling out a bracket or streaming a game online? Don’t worry, we won’t tell.

Have you spent any time on March Madness at work this year?

Martin Hanan

FOUNDER AND PRESIDENT

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Presidential Predictions 2016: Pick your Poison

Presidential Predictions 2016

Given today is “Super Tuesday,” we thought we’d opine on some of the statistics and predictions about various candidates making it to America’s top office.

According to British prognosticators wagering their own money, Hillary Clinton has a 53% chance of winning the general election.

However, Mr. Helmut Norpoth, a professor of political science at Stony Brook University, recently made headlines for his prediction that Donald Trump has a 97% chance of becoming president. Professor Norpoth’s model measures candidates’ performances in primaries and caucuses to gauge party unity and voter excitement and also focuses on certain patterns in electoral cycles. He claims that his model has correctly predicted every election (except one) for the previous 104 years (with obvious back testing).

Conversely, David Rothschild predicts that the Democratic candidate (Hillary Clinton) has a 64% chance of winning. Mr. Rothschild is an economist at Microsoft who makes his predictions by aggregating betting market data and polling. His previous research boasts successful predictions for 21 of the first 26 primary contests in 2012.

Whoever wins, it’s important that you understand the candidates’ key economic policy positions, whether it’s about income or estate taxes, foreign trade, or domestic government investment programs. If a candidate’s policies become law, they can have a significant impact on your personal financial outlook or business.

Presidential Predictions 2016: Pick Your Poison

Martin Hanan

FOUNDER AND PRESIDENT

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Super Bowl 50 Expected to Break Records and New Ground in Viewership

Our research suggests it will, but not for a few more years.

Streaming Super Bowl 50

Last year’s Super Bowl XLIX (49) between the Patriots and Seahawks posted the largest television audience in U.S. history with 114.4 million viewers, breaking the prior record from Super Bowl XLVIII (48) between the Broncos and Seahawks. Super Bowl 50 (without the roman numerals this year) is widely expected to set a new record, given the strong ratings for the conference championship games and rumors and speculation that it will be the final game of future hall of fame quarterback Peyton Manning. ValueScope estimates the final TV ratings will reach about 119 million, an increase of 4.0% over last year’s record setting mark. Over the last 15 Super Bowls, an annual increase of greater than 4% has only occurred three times (2006, 2008 and 2010).

Streaming Super Bowl 50

Super Bowl Audience

The projected Super Bowl audience is expected to be 2.4x the audience of the AFC/NFC championship games, which averaged 49.7 million people two weeks ago. So what factors draw in an additional 69.3 million people to the NFL for one Sunday? A recent pre-Super Bowl survey by the National Retail Federation (NRF) reported that only 34.7% of Americans that plan to watch the Super Bowl cite the game as their primary reason. 17.7% of potential U.S. viewers cited commercials.

The NRF estimates that nearly 184 million people plan to watch at least part of Super Bowl 50. 43.3 million Americans are planning to host a Super Bowl party for friends and/or family. Another 70 million Americans plan on attending one of those watch parties. The younger demographic cited particular interest in the entertainment unrelated to the game’s players and coaches. Lady Gaga is scheduled to sing the national anthem prior to kickoff and Coldplay, Beyoncé and Bruno Mars will perform at halftime.

Role of Streaming

The role of streaming will also increase for this year’s Super Bowl. The game has been available on PCs and tablets since 2012. However, Super Bowl 50 will mark the first time the game will be shown via streaming devices such as the Xbox One, Apple TV, Roku and Chromecast. Streaming coverage is also expected through Amazon Fire and to Verizon mobile customers.

The NFL and its media partners are trying to evolve with the younger demographic. CBS (this year’s Super Bowl broadcast network) reported triple digit growth in viewers and minutes for the AFC championship game over the prior year. According to Variety magazine, only 18 of 70+ advertisers chose to run commercials on both TV and online. This year, CBS mandated that all sponsors run their commercials on both media formats. A 30 second ad on TV is reportedly running $4.5 million to over $5 million for Super Bowl 50. The price for digital ads was expected to be much cheaper.

Super Bowl 50 Expected To Break Records And New Ground In Viewership

Brent Shockley

SENIOR MANAGER

bshockley@valuescopeinc.com