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Are the Clippers really worth $2 billion? Five things that drove up the price.

May 30, 2014, 12:11 PM EDT

Oklahoma City Thunder v Los Angeles Clippers - Game Six Getty Images

Any time you mentioned the Forbes Magazine NBA franchise valuations to some involved with the league, they scoffed at the numbers. They were seen as wildly inaccurate. (We in the media kept using them because outside of the occasional team sale there were no other good measures.)

Forbes estimated earlier this year that the Los Angeles Clippers were worth $575 million.

Thursday Shelly Sterling agreed to sell the Clippers to Steve Ballmer for $2 billion. (Whether that sale holds up legally remains to be seen.)

That sum raised a lot of eyebrows — are the Clippers really worth $2 billion? Everyone’s first reaction is that it seems high (and if the Clips are worth $2 billion, what are the Lakers worth?).

The easy capitalist answer is that a team is worth whatever someone is willing to pay for it. So, yes, that sense the Clippers are worth $2 billion.

But there are a series of factors that drove up the Clippers price to incredible heights.

• The team is in Los Angeles. L.A. is the second biggest media market in the United States with more than 13 million people in the metropolitan area. More importantly than that, the City of Angels has a whole lot of very rich people — Forbes estimates there are 30 billionaires in Los Angeles County alone, there are more than 200,000 millionaires — and those are the people that buy expensive seats near courtside. There are 14 Fortune 500 companies based in Los Angeles and countless more large corporations with offices there — the kind of companies that buy expensive luxury suites to impress clients. The bottom line is if you put a good product on the court you can sell the expensive seats that are the revenue fuel for professional sports teams in this era. Plus the Clippers have a string of 141 consecutive sell outs going. Yes, Los Angeles is a Lakers town first (that’s not changing soon) but there is more than enough market for a second team.

• New television deals are coming up. Right now the Clippers have a local television deal with Fox Sports West that pays them $20 million a season — which is less than teams like the Detroit Pistons and Cleveland Cavaliers make — but that deal is up after the 2016 season. Clippers broadcast rights are going to spark a bidding war as entities like Time Warner Cable are expected to try to poach the team while current rights holder Fox Sports desperately needs to keep the Clippers to have enough good content to justify the two regional sports network channels they have in Los Angeles (Fox Sports West and Fox Sports Prime Ticket). Fox lost the Lakers and Dodgers to gigantic Time Warner deals in recent years, they can’t afford to lose the Clippers, and the Clipper ownership will benefit from that. This isn’t going to be as big as the Lakers deal (Los Angeles is still a Lakers town) but it will be big.

Then there is the fact the NBA is in the process of negotiating a new national television deal that will be much bigger than the current deal (rights for sports broadcasting have been going through the roof in recent years because it’s must-watch programing — people don’t DVR games and fast forward through the commercials). Currently teams get $30 million a season in national television revenue, soon that number is going to make a big leap. It is rumored that as part of the new deal Fox Sports will enter the national broadcast picture (with TNT and ABC/ESPN) and broadcast at least a game a week (likely Saturday night). The national broadcast rights fees are divided up equally among the 30 teams, so a raise in revenue is coming.

• The lockout was good to the owners. Make no mistake about it, the NBA owners won big in the last lockout. (Some may say it wasn’t enough, but did you ever hear of a really rich person who said, “I’m making enough, I should distribute more of this money to my employees.” Exactly.) The players went from getting 57 percent of the league’s “basketball related income” (money from national television deals, merchandise sales, a percentage of ticket and concession revenues) down to 50 percent. That works out to an estimated $280,000 million a season. That’s nearly $10 million a season more per team going to the owners. With the more strict salary cap and other devises put in place, that CBA made the NBA a good investment for the rich, not just a toy.

• NBA franchise values are already skyrocketing. Since the new CBA went into effect and people who could afford it figured out the NBA was a good investment, the value of NBA franchises has gone through the roof. In 2010 (pre-lockout) Joe Lacob and Peter Guber set the record for money spent to buy a franchise at $450 million for the Golden State Warriors. Since then Vivek Ranadivé led a group that paid $534 million to buy the Sacramento Kings (and they are paying more to get a new stadium built). Just weeks ago hedge fund guys Marc Lasry and Wes Edens spent $550 million to buy the small market Milwaukee Bucks (and they are going to have to put up a lot of money for a new arena, too). Prices for NBA franchises have been going through the roof, and now here comes one on the market in one of the nation’s largest cities, and a team that has been run poorly for decades and has room for growth.

• The frenzied bidding process. We love to watch auctions because they are dramatic. People selling things like auctions because buyers get caught up in the competitive, exciting bidding process and spend more than they maybe should on the item up on the block. That would be the case here — this was a rushed, frenzied bidding process. There are a lot of one percenters who want to get into the NBA club and getting a bunch of them to bid against each other in a rushed process is a good way to get someone to overbid.

  1. tomshoe - May 30, 2014 at 12:15 PM

    They’re valuable because sports teams are one of the safest investments ever. The barrier to entry is pretty high, but you’re almost guaranteed to make a profit. Especially for big name teams.

    • bougin89 - May 30, 2014 at 12:20 PM

      Exactly.

      Plus whenever Ballmer(if the sale is approved and yada yada) decides to sell in lets say 15 years(to throw out a random number), the Clippers will be worth much more than $2 billion.

    • hwatt - May 30, 2014 at 12:34 PM

      yeah i guess it’s the revenue sharing. and those business buying up season tickets. it certainly has nothing to do with management competency.

    • nflcrimerankingscom - May 30, 2014 at 1:05 PM

      which is why an owner’s business competency is mostly uncorrelated with profit.

      You could easily have the teams owned by the cities and run just as well (ala Green Bay Packers).

      But we wouldn’t want others to share the rewards now would we?

    • stayhigh_247 - May 31, 2014 at 6:46 PM

      if the Clippers are worth more than the Lakers, Jimmy Buss needs to be shipped off somewhere now! Seriously? Is this bizarro world now? wtf?

  2. RavenzGunnerz - May 30, 2014 at 12:21 PM

    Now that the Clippers are worth 2bn and Lakers are worth 1.2bn. Can the Clippers buy the Lakers and ship them to Seattle?

  3. loubearkane - May 30, 2014 at 12:37 PM

    All the sudden Donald Sterling is ruled ‘mentally incapacitated’ , coincidence? I don’t think it is , before the deal will be finalized Sterling will file motion to have the sale delayed. If he’s ‘mentally incapacitated’ now odds are he will claim he was that way when the recordings were made. If this isn’t a HAIL MARY to save his team its a nice set up to filing a lawsuit with the NBA.

  4. timcast12 - May 30, 2014 at 12:40 PM

    Ship them to Seattle? Someone isn’t a smart person

  5. therealdave123 - May 30, 2014 at 1:02 PM

    $280,000 million a season? That has to be a misprint right?

    • capya - May 30, 2014 at 1:39 PM

      Income, not profit.

  6. chaseutley - May 30, 2014 at 1:14 PM

    The Clippers are likely worth twice what was paid, given proper management.

    • prokilla - May 30, 2014 at 6:59 PM

      You don’t know anything about bitness… Last year revenue was 128 millions and their Net operating income margin at 11.6 %. for a total of 14.84 millions profit. Now divide 2billions over 14.84 to get in how many years they’ll recoup their money( not interest calculation).
      This is just a belong to the Boy’s club purchase… not a financial one.

  7. rohlo - May 30, 2014 at 2:11 PM

    clippers being worth 2 billion is same thing as putting lipstick on a pig!!!!!!

    • 00maltliquor - May 31, 2014 at 2:38 AM

      Well then call Ballmer Kermit the frog then!

  8. scbaby2013 - May 30, 2014 at 3:31 PM

    Rohol – lol good one

  9. scbaby2013 - May 30, 2014 at 3:33 PM

    I hope clips never move anywhere. I’m tired of seeing nba teams move. I would rather the nba give Seattle an expansion team, call them the sonics. And give Seattle their nba history back.

  10. Kansachusetts - May 30, 2014 at 5:58 PM

    Two more things that drove up the price: Chris Paul and Doc Rivers.

  11. eugenesaxe1 - May 30, 2014 at 6:11 PM

    I’d love to see Duhlan put the Knicks on the open market:
    Knicks
    MSG
    MSG Network
    You’d see some real money start flying around then.

  12. jadaruler - May 30, 2014 at 8:11 PM

    NBC please outbid ABC for the NBA.

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