If you’re like me, you were upset by the news of Steve Ballmer’s purchasing of the Los Angeles Clippers.
Just when I was getting ready to buy a franchise for a reasonable amount, Ballmer goes and skews the market by paying $2 billion.
And here we all were thinking we could get a team for maybe $500,000,000 and change.
Given that the previous high for purchasing an NBA franchise (the Milwaukee Bucks) was $550 million, the $2 billion offer is widely hailed as a lunacy.
Maybe not. The L.A. media market and the arena situation surely inflate the value, but there’s more to it than that.
Pro sports franchises are finite commodities whose values do nothing but go through the roof. And when they do, owners then extort local politicians for the money to fix the roof.
And at first examination, it also seems to damage Seattle’s chances of landing a franchise to replace the Sonics, which were stolen in 2008.
The impact of removing Ballmer’s $20 billion bankroll from the group looking to return the NBA to Seattle can’t be minimized. But the enormity of the profit his bid means to the previous owner may have others considering ownership.
While the typical fan is aghast, I suspect the real money folks are viewing this from the perspective of Donald Sterling, who is taking Ballmer’s $2 billion to the bank.
To those heavily capitalized capitalists, this is a massive reinforcement to what they already knew: Team ownership is a long-term moneymaker where the reward is not in gate receipts
or suite leases, but in the accretion of franchise value.
Sterling’s overt acts of bigotry were long tolerated by the NBA, which got strangely militant on the issue once a secret tape from a mistress popped up.
The NBA forced him to divest, and his wife had him declared mentally incapacitated so she could handle the quick sale.
Mentally incapacitated like a fox.
Ballmer, the former CEO of Microsoft, quickly made the game-changing bid – which reportedly was won by a margin of $400 million.
Look at the numbers.
Sterling bought the team for $12.5 million 33 years ago. You can argue that’s a long time to have your money tied up, but when you do the math, the $1.87 billion in accreted value represents an average gain of more than $56 million a year.
Examine the history of the Seattle Sonics. Barry Ackerley bought them for $16 million and sold them for $200 million 18 years later.
Howard Schultz and his group paid Ackerley that $200 million in 2000, and fetched $350 million just six years later.
As for the Seahawks, Ken Behring bought them from the original owners for $80 million in 1988 and sold the team to Paul Allen for about $194 million nine years later.
Forbes recently valued the franchise at almost $1.1 billion.
Yes, there are heavy operating costs and losses often associated with them. Those are related to countless other factors.
But the fact is, these things do nothing but get more valuable, and generally within a short period make the purchase price seem laughably low.
Ballmer was part of a group ready to put up the dough to get the Sacramento Kings to relocate to Seattle last year.
Chris Hansen was the front man for the group, but Ballmer supplied considerable financial juice. The relocation of the team was voted down by the NBA Board of Governors.
And now Ballmer, obviously, is no longer adding his fiscal weight to the Seattle effort.
Critics deride Ballmer for bailing on the Seattle group. But this guy wanted an NBA team, and it wasn’t happening here. He bought the Clippers for the most obvious reason: Because he could.
Financial pages report that from the time he announced he was stepping down as Microsoft CEO, the value of his shares in the company have gone up by $2 billion.
Basically, the world told Ballmer he could stop working and be rewarded with a free NBA team as a result.
Let’s go back and see what Ballmer must have learned from the Sonics disenfranchisement:
If he had been involved when the Oklahoma City folks bought the franchise from Schultz’ group, Ballmer probably could have picked up the Sonics and personally funded a new arena in Seattle for much, much less than the $2 billion it cost him to just purchase the team a thousand miles away.
The message: Buy now, it’s only going to go up in value.Dave Boling: 253-597-8440 email@example.com @DaveBoling