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 When the National Basketball Association first hit Clippers owner
Donald Sterling with a lifetime ban, investment bankers estimated
the price of his team at around $1 billion. Instead, three groups,
teaming with billionaires and celebrities, bid up the price to a
record for a NBA team, double the initial estimate.
The eye-popping sale price has likely boosted the stock of other
teams around the NBA, said sports consultant Ed Desser, a former top
NBA TV executive, and could have a ripple effect.
"Sports franchises are one-of-a-kind trophy properties," Desser
said. "Every owner saw what just happened."
As evidence, Rich Tullo, an analyst at Albert Fried & Company LLC,
points to Madison Square Garden Co, which owns the NBA's New York
Knicks and the National Hockey League's New York Rangers.
About 738,000 shares of MSG changed hands within the first 55
minutes of trading the morning after the Clipper deal, surpassing
the 10-day average of about 618,000 shares. At mid-afternoon the
stock was up 3.2 percent at $54.77.
Tullo, who has an "overweight" recommendation on the stock, figures
much of that rise reflects a new valuation for the Knicks. (That
said, the Rangers may have helped the stock: On the evening the
Clippers deal was announced, the New Yorkers clinched a trip to the
NHL's Stanley Cup finals.)
LIKE FINE ART
Billionaires like Ballmer are willing to bid up the price of sports
franchises because the teams have become trophy assets, much like
fancy art and yachts, said Desser, the sports consultant.
Demand is outstripping supply. The major sports leagues have granted
few new expansion franchises recently, he says, creating bidding
wars among deep-pocketed buyers for those that come on the market.
Fortune estimated in April that there are a record 1,645
billionaires worldwide, with an aggregate net worth of $6.4
trillion. The magazine said 492 of them live in the United States.
"There just aren't enough teams out there for the billionaires who
want them," Desser said.
David Geffen, the entertainment mogul who led a competing group of
Clipper bidders that included TV icon Oprah Winfrey, had his eye on
buying the Clippers for years. But it was Ballmer, who left
Microsoft in February with a multibillion-dollar exit package, who
was willing to ante up the most.
Ballmer is not only very rich, he's also fanatical about basketball,
according to those who know him. Until recently he played pickup
games with Microsoft staffers at a gym near the software giant's
Redmond, Washington, campus.
In 2012, more than a dozen groups made initial bids for Major League
Baseball's Los Angeles Dodgers, which was expected to go for $1.5
billion. The winners, a group headed by executives of the Guggenheim
Partners money management firm and including basketball great Magic
Johnson, paid $2.15 billion, still the record for a sports
franchise.
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TV RIGHTS
One of the reasons Ballmer's deal is so breathtaking is that the
Knicks are worth about 50 percent more than the Clippers franchise,
Tullo said. That's because the New York team's parent company owns
its own cable TV network and Madison Square Garden, the arena in
which the team plays.
The Knicks, like the Clippers and Dodgers in LA, play in a major TV
market that allows them to charge hefty ticket prices and get
massive TV contracts.
But big-ticket sports purchases extend to smaller markets as well.
Until Ballmer's bid for the Clippers, the NBA record was set in
April when billionaire investment-firm executives Wes Edens and Marc
Lasry paid $550 million for the Milwaukee Bucks, a small market team
with the league's worst record.
A team's win-loss lost record is only one consideration for a new
owner, said sports consultant Chris Bevilacqua, who started the
college sports cable channel CSTV and now advises teams on TV
contracts.
Sports teams, he said, are under-exploited assets, whose high
profile in the United States make them popular overseas. Digital
distribution offers added revenues, he said.
Even so, Ballmer's massive investment is not likely to pay off
anytime soon, say investment bankers who worked on the deal. It's
unclear whether he can extract a huge new TV contract for the
Clippers, who currently get about $25 million a year from a deal
with Prime Ticket, a channel owned by Twenty-First Century Fox, that
expires after the 2016 season.
The Lakers signed a $3 billion, 20-year deal with Time Warner Cable
Inc in 2011, and the cable operator also has a $7 billion, 25-year
agreement with the Dodgers. But TWC, which shows the games on
regional sports channels, has had trouble enticing other cable and
satellite operators to carry the channels because of the fees it
charges.
Ultimately that may not matter much to Ballmer, who like many
billionaires is motivated most by the love of the game, Desser, the
former NBA TV executive, figures.
"It's awfully good to be an owner who's got enough money to not
worry about making his team's cash calls," he said.
(Additional reporting by Bill Rigby; Editing by Frank McGurty; and
Peter Galloway)
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