A little over 9 months ago Steve Ballmer announced that he was stepping down as C.E.O of Microsoft (NASDAQ: MSFT). His 33 years with Microsoft has made him into one of the richest people in the world with a net worth of around $20 billion. One thing Ballmer has always been interested in is becoming an owner of a NBA team, and he is almost there now with his $2 billion bid.
Ballmer has been unsuccessful in his efforts to become an NBA owner before. In 2008 Ballmer was a part of a group that was ready to purchase the SuperSonics and keep them in Seattle. This bid failed but Steve Ballmer would try again and teamed up with investor Chris Hansen to make another proposal in 2012 to bring the Sonics back. After that failed they made a successful offer to buy the Sacramento Kings and move them to Seattle, before the deal was ultimately rejected by NBA owners.
There are limited opportunities to buy professional sports franchises, so just over a month ago when NBA Commissioner Adam Silver banned Donald Sterling from the NBA for life people began scrambling to find funds to submit a bid.
Valuation of NBA teams
Forbes came out with a list of with its valuation of every single NBA team. The New York Knicks sat atop that list with a value of $1.4 billion. Only two other teams topped a billion with the Los Angeles Lakers and Chicago Bulls worth $1.35 and $1 billion respectively. All the way down at #13 on the list was the Clippers with a modest value of $575 million.
It could have been expected that the Clippers would sell for more than that with the Milwaukee Bucks selling for $550 million earlier this month despite a $405 million valuation on that Forbes list. But the $2 billion bid is above even the most optimistic price estimates.
Re-evaluating Professional Sports Franchises
It is possible that Ballmer, a huge basketball fan, may have overpaid just because he could afford it and wanted the team. But it is important to note that all of the other serious bids for the team were well over a $1 billion with the second highest offer coming in at $1.6 billion. This means that there is real value that hasn’t been recognized by current valuation techniques for professional sports teams.
Another major aspect of this steep price is that the Clippers do not own the place that they play. They are currently on a new 10-year lease with the Staples Center and therefore do not generate the revenue from their stadium.
It is hard to justify the Clippers sticker price with any financial measures, but what it could symbolize is professional sports franchises being the new preferred investment vehicle of the super rich. Any future sales of a professional sports team will show us if this trend will continue.
As of right now the bid still has to go through NBA approval as well as potential legal issues related to ownership of the Clippers.