Wait, the Texans are a Top 10 Franchise …for Something Good?

Some may remember the episode of South Park where the four main characters encounter the gnomes that steal underpants. When asked why they stole the underpants, the gnomes replied that it was part of a 3-step master plan.

• Step 1: Collect Underpants
• Step 2:
• Step 3: Profit

Somehow, stealing all of these underpants would lead to riches and glory. Yet, we never do learn what that second step entailed. Sell them, ransom them until people paid to get them back, convert them into gold using gnome magic … who knows?

Somehow, the Houston Texans operation over the past few years feels like the Underwear Gnomes branched out into the sports business. Especially since the turn of the decade, the team holds a 11-38-1 record, and most of those games rate in the “unwatchable” category. Yet, the Texans find themselves in good “Step 3” shape for a “entertainment” business.

In a recent Forbes article, a couple of analysts looked at the operating income of various professional sports franchises across North America and Europe (if the Forbes article doesn’t load, then reference this article). Based on a three-year window (2020-2022 for all franchises except pro football, which the data stopped after the 2021 season), Forbes looked at what each team/franchise pocketed before taxes, interest, depreciation and amortization factors.

The franchise that brought in the most operating income over the period of this survey: the Dallas Cowboys at around $1.17B. Given that the franchise recently topped the charts as the most valuable sports franchise on the planet at $8B, a high operating income is not all that surprising. While they haven’t, uh, live up to the glory days of “America’s Team” this millennium, they do have a winning record over that timeframe, and the team tends to bring in the biggest TV ratings.

Yet, if you happened to review the rest of the list, there is something rather interesting that stands out. See if you can spot it:

1. Dallas Cowboys - $1.171B
2. New England Patriots - $623M
3. Tottenham Hotspur - $414M
4. New York Knicks - $404M
5. Manchester United - $403M
6. Houston Texans - $356M
7. Golden State Warriors - $348M
8. New York Giants - $333M
9. Los Angeles Lakers - $333M
10. Manchester City - $329M
11. Los Angeles Rams - $318M

Catch it? Yes, at the sixth position, coming in as the NFL franchise with the third highest operating income, it would be … the Houston Texans, at $356 million. Perhaps in one respect, that shouldn’t shock too many. The Texans recently valued at $4.7B as a franchise. If you look at the rest of the Top 11, the NFL claims nearly half of the slots. The massive TV contracts, advertising deals, merchandising, etc. give the NFL a significant financial advantage. Factor in that the NFL didn’t suffer the financial hits that other sports leagues, such as the NHL and MLB, during the height of the pandemic, and there exists little surprise that the NFL fared so well in these rankings.

For two Texas-based teams to be in the top-6 is probably not that surprising. Texas is perhaps the most football-mad state in the nation at all levels, thus, more fans will route more money towards the NFL teams. Dallas and Houston both rank in the top eight for media markets, opening the door to increased TV and advertising dollars. Also, Texas offered some of the least-restrictive COVID protocols in 2020 and 2021, allowing for more fans to attend games.

Yet, that the Texans rate so highly in profitability is also surprising. In the top 11 teams mentioned, the Texans possess the worst winning percentage. Generally, losing teams draw less fans, attention and money. Coming into the 2020 season, Texans fans possessed optimism, but as the team cratered, fan attention also cratered (see the drop in home attendance). The New York Giants weren’t much better record-wise, but being based in the New York media market greatly helped. The Knicks also benefit from the NY connection, but they do have an actual playoff run within this timeframe. Since 2020, the Patriots have only one playoff appearance, but a recent 20-year dynastic run and a massive media market greatly helped their financials.

All of the other Top 11 teams can at least claim some degree of on-field success(championships of some sort to Manchester United, LA Lakers, Golden State Warriors, Manchester City, LA Rams; Spurs in the running for UEFA Champions League appearances). Yet, the Texans do not have the advantage of recent on-field success, a long-established history of success, or the advantage of playing in a massive, massive media market. What gives?

If you look at the Top 25, you see that NFL franchises occupy many slots on this chart. In addition to some of the advantages mentioned above about TV deals, advertising, etc, the NFL possesses a strong salary cap system, which limits personnel expenditures, usually the biggest cost in a business. At least the Texans did not break the bank in player salaries. Perhaps on-field/court performance is not as big a determinant for profitability, as the Houston Rockets, bottom-dwellers along with the Texans since the start of the decade, check in at #23.

Not surprisingly, the McNairs can point to this and say they actually possess some incredible business acumen. Or, maybe, this is the sports finance example of the saying “Even a blind squirrel finds an acorn once in a while”. Remember that the NFL figures do not account for the 2022. For the Texans, this past season rated as perhaps one of the worst, and dullest, seasons in franchise history. Likely the Texans remain high on the list due to the built-in advantages the franchise already possesses. Still, continued poor performance will impact the bottom lines.

Perhaps the recent moves in the draft and free agency will reverse the trend of downward fan engagement. If that is the case, it would be a case of the McNairs showing awareness of more than just the bottom line. Based on the information in this article, the Texans could argue all is well and nothing needs changing. However, fans don’t care about the profitability of a franchise. Fans care if a franchise is winning and doing things that are actually worth spending their money on to care about. If the Texans can get back to winning and/or actually being interesting, so much the better.