By Geoff Baker
The Seattle Times
Published: May 30, 2014
A record $2 billion paid by Steve Ballmer for the Los Angeles Clippers is unlikely to lead to dramatic increases for future NBA franchises in Seattle and other markets.
Sports-valuation experts said Friday that while franchise prices could rise some, Ballmer’s purchase, the highest in NBA history and second-largest in North American sports, was driven by factors unlikely to be repeated in markets beyond Los Angeles. In fact, Don Erickson, president of Texas-based Erickson Partners, said the splurge appears driven mostly by Ballmer’s desire to own a team regardless of whether the final price makes sense.
“There’s no precedent at all for the kind of revenue multiples that he paid for the team,’’ said Erickson, whose company does franchise valuations in all sports.
Erickson said that, even anticipating a major television-revenue boost for the Clippers, Ballmer paid nearly double what the numbers suggest the team is worth. Erickson noted the third-place bid of $1.2 billion by Los Angeles investors Tony Ressler and Bruce Karsh was just more than half what Ballmer offered and more reflective of the team’s true value.
With the price inflated by a bidding war, Ballmer beat music mogul David Geffen’s second-place bid by $400 million — which is what teams were selling for a few years ago. And Erickson chalked it all up to ex-Microsoft CEO Ballmer having more free time, nearly-unlimited funds and a desire not to be outbid by deep-pocketed rivals.
“If I went out gambling and lost $20,000, that would bother me financially,’’ he said. “This is a guy who could go lose $2 billion and it won’t bother him financially. That’s the lens you should be looking through.’’
In other words, future owners are unlikely to have the desire or means to follow suit.
And that’s good news for would-be Seattle owner Chris Hansen, whose investment group already faces a challenge to replace Ballmer as it seeks an NBA team and permission to build a Sodo District arena. Hansen on Friday posted a message on his website congratulating Ballmer on his purchase.
“I would also like to assure Seattle fans that my remaining partners and I remain committed to bringing the NBA back to Seattle,’’ Hansen wrote. “The environmental review process for the Seattle arena is nearing completion and we will soon be in a strong position to attract a franchise back to the Emerald City.’’
Sports-valuation consultant Michael Rapkoch agreed the Clippers sale is more anomaly than trendsetter. Rapkoch said the recent $550 million sale of the Milwaukee Bucks is more indicative of where things are heading for Hansen and other potential NBA owners.
“The Bucks set what we can expect to see going forward,’’ said Rapkoch, whose Sports Value Consulting firm has worked on deals with a number of NBA teams. “They’re in a small market, a good team and a solid ownership. I think that has more of an impact on the value of teams than the Clippers do.’’
But that Bucks price was for an offer to keep the team right where it was.
ESPN reported Friday that Hansen and Ballmer offered in excess of $650 million for the Bucks, but were turned down because owner Herbert Kohl didn’t want them leaving the state. With a relocation fee, the report said, the final price would have been more than $800 million to move the Bucks to Seattle.
In other words, that’s now the starting price for Hansen’s group if the small-market Bucks really are the new NBA baseline. And assuming even a much smaller impact on future prices by the Clippers sale, it’s reasonable to assume Hansen’s group might have to spend $1 billion or more to land a team.
Both Rapkoch and Erickson agreed the key to future revenue boosts for the Clippers lies in a pending new regional sports network (RSN) television deal. The Clippers take in about $25 million annually from their deal with Fox Prime Ticket, which is up for renewal after the 2015-16 season.
Some analysts expect the new deal could quadruple that annual intake to an average of $100 million, especially with an anticipated bidding war looming between Fox and Time Warner. But that still wouldn’t be enough to justify a $2 billion price tag without other major revenue contributors kicking in.
Rapkoch also cautioned against teams banking too much on future RSN money. He points at the Los Angeles Dodgers — who set a North American record by selling for $2.1 billion two years ago off the anticipated strength of their local TV deal — and the problems they are having.
Time Warner guaranteed the Dodgers $8.5 billion over 25 years for marketing and distribution rights to a new team-owned RSN. But the Dodgers are now seen in only 30 percent of their TV market because rival cable and satellite distributors have refused to pay the higher carriage fees Time Warner is charging for their game broadcasts.
“I think the landscape in how we do media deals is going to completely change,’’ Rapkoch said.
Rapkoch still sees the Clippers getting a sizable TV-money boost, just maybe not enough to justify the price Ballmer paid — even in the nation’s second-largest market. Forbes had pegged the Clippers at $575 million in their latest valuations, which is nearly four times less than Ballmer paid.
And Rapkoch said that means, unlike the Bucks, the Clippers’ price isn’t the first thing to consider when placing realistic values on franchises in other markets.
“I think people are going to look at the Bucks and say – ‘OK, $550 million, $600 million, that’s our floor,’ ” Rapkoch said. “ ‘Where do we go from here?’ ’’
That’s something Hansen and his group will no doubt ponder as they seek Ballmer’s replacement.
Geoff Baker: 206-464-8286 or firstname.lastname@example.org