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Pistons may sell for well below market value

Aug 3, 2010, 11:16 AM EDT

Thumbnail image for pistons_logo.pngLocation, location, location. Oh, and timing.

Golden State just sold for well above its value as estimated by Forbes, in part because the San Francisco Bay Area is one of the wealthiest areas of the nation.

The Detroit Pistons are estimated to be worth $479 million and have turned more than $40 million in profit the last three seasons. It as well run a franchise as there is in the NBA, with a fantastic brand name.

Yet the sale price may be $100 million or more below that estimated value, according to a report in Forbes today.

But location and timing are critical factors to consider.  As it relates to location, the Detroit MSA faced a 15.4 unemployment rate as of June 2010 compared to the national 9.5 rate.  This would cause any potential investor to seriously question whether fans would continue to support the team at the level of avidity they have historically, especially given that the team is in major rebuilding mode and not likely to challenge the current Beasts of the East (Orlando, Boston, Miami) anytime soon.

Furthermore, in light of the climate of ‘guilt’ that surrounds corporate spending on sports sponsorships (especially in a city whose main industry has been the beneficiary of significant TARP money), a prospective buyer would be justifiably anxious over the likelihood of short term corporate support (e.g. buying luxury suites, paying for facility signage, etc…).

Karen Davidson also owns the Palace at Auburn Hills, where the Pistons play. The team and the building may be sold as a package.

Still buyers are leery. Any investor coming is has to be wary of the almost-certain lockout coming next fall — you will be getting no income from the team next fall (and have reduced expenses, but still). The economics of the NBA may be friendlier to owners on the other side of that lockout, but the down time has to be taken into consideration.

Still, Bill Davidson bought the Pistons in 1974 for $8 million (Forbes says that counting for inflation that is $28 million in today’s market). Even if the team only sells for $350 million that is a tidy little profit.

  1. MarketValue - Aug 3, 2010 at 11:59 AM

    The Pistons market value is what they sell for. The value the are selling less for is their “estimated value”. By definition the market price is what you will receive for something in the market. Since the Pistons aren’t selling to a lower bidder they are not selling for below market price.

  2. Angioplasty - Aug 3, 2010 at 5:43 PM

    Buyer beware. Value also depends on the lease deal and municipal tax perks. Here one owner holds the building and the team. How many nights can you book the Palace for other events in a depressed market and are their sweetheart tax deals offered by the City? Also, the team is not close to being competitive, given that the NBA has turned into a 2 division league, that is the powerhouses (Heat, Celts, Lakers) and the never-will-be’s (Pistons, Bucks, Wolves, Grizz, Blazers, Suns, Knicks, Nets, Clips, Warriors, Raps, Hornets, Bobcats, Cavs, etc.). The Gunds were smart and sold the Cavs after Lebron came on board (but before he jumped ship). Davidson would be smart to sell the whole package now and move on.

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