Los Angeles Clippers Sold to Former Microsoft CEO

Donald Sterling, and the Sterling Family in general, has been the topic of discussion across all media outlets over this past month.  Hopefully, we are nearing the end of this freight train, as the sale of the Los Angeles Clippers by Donald and Rochelle Sterling to former Microsoft CEO, Steve Ballmer, was approved by the NBA last Friday.  The deal, which will oust the most infamous man in the NBA is worth a whopping $2 billion, making this sale the largest for any NBA franchise.  While many are pleased to see Sterling officially out of the league, the price tag for such a removal has caused much conversation.

Prior to the sale of the Clippers, the acquisition of the Milwaukee Bucks by New York investors, Marc Lasry and Wesley Edens, was the largest in the history of the NBA at $550 million.  For those non-sports fans, the Milwaukee Bucks have been notoriously irrelevant.  Why? Well, Milwaukee is a very small NBA market (Quiz Question: What state is Milwaukee in? bet you thought about it for longer than you should have), they lack superstar athletes and for the last four seasons they have failed to achieve a winning record.  Now, take a Clippers team that has been the annoying little brother to the Los Angeles Lakers and laughing stock of the entire NBA for the past thirty years and you can understand why a bid almost four times that of an acquisition that took place just a couple of weeks ago seems a bit excessive.

Mind you, Mr. Ballmer has been trying to purchase an NBA team for some time and, according to Forbes, he has an estimated net worth of $21 billion, so to him this deal neither hurts his pocket nor loses its luster.  Here’s why:  Ownership of any major sports team is a very exclusive club.  Out of the 92 franchises (comprised of the NFL, MLB, and NBA), only a spoonful have gone up for sale over the last decade.  A sports team is analogous to that of a bluechip stock; you usually hang on to them for an extended period of time, which is why we have these legendary families, like the Rooney’s and Buss’, who have owned franchises for decades.  Therefore, when a team is on the market, much attention and interest is drawn from the richest in the world.  I believe this situation with the Clippers drew much more appeal because of the given circumstances.  The Clippers are located in the massive, star-studded LA market, which brings tremendous upside.  Furthermore, the new owner (Ballmer) would be replacing not only the most hated man in the country but also an absolutely terrible owner.  Steve Ballmer immediately becomes the savior of a headless organization and his business acumen from running Microsoft is sure to point the Clippers in a more progressive direction.

Many people have criticized this acquisition because of how poorly structured some of the contracts within the Clippers organization are.  For example, the Clippers are merely tenants in the Staples Center, meaning they receive $0 for non-basketball revenue.  I, however, still perceive this as a smart move.  First and foremost, the Clippers were worth as much as anyone was willing to pay for them–more power to ya, Steve.  No one complained when Magic Johnson and company purchased a struggling Dodgers team for $2.3 billion, now look where they are.  Moreover, the Clippers local TV deal is set to expire after the 2015-2016 season.  Given the market and recent success the team has seen, I would expect this new deal to be more than double the previous, only adding more cash to Ballmer’s pocket.  Lastly, the real estate that the Clippers own could be redeveloped for better, more profitable commercial spaces.

I see this venture as a long-term one.  Of course Ballmer will have to break even, but think about the future valuation of the Clippers in thirty years.  If some of the more high profile sports property is sold in the mean time, such as the Lakers, Ballmer would definitely see an appreciation in his team’s value.  Besides, when do you really see the value of a team decline?

Maxwell

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