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$2 Billion for Clippers? In Time, It May Be a Steal for Steve Ballmer - New York Times

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Pro Basketball |$2 Billion for Clippers? In Time, It May Be a Steal for Steve Ballmer



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Pro Basketball |​​NYT Now





Steve Ballmer, left, and N.B.A. Commissioner Adam Silver at a Los Angeles Clippers playoff game on May 11. Noel Vasquez/GC Images









Men with vast fortunes who have bought professional teams as toys are not uncommon. Whether they considered the franchises sound investments is almost beside the point.


The latest major player in the business is Steve Ballmer, the former Microsoft chief executive, who agreed on Thursday to pay $2 billion for the Los Angeles Clippers — nearly four times as much as the previous record price for an N.B.A. franchise. (On Friday, the league said that in light of the sale, it would withdraw its pending charges against the current owner, Donald Sterling. )


Could the team possibly be worth that much, fans immediately wondered — or is Mr. Ballmer, whose net worth is estimated at $19 billion, simply indulgent?


In time, the $2 billion bid that seems shocking today may be viewed as a relative bargain.



Related Coverage




  • On Friday, Donald Sterling sued the league for $1 billion, saying it had violated antitrust laws and his constitutional rights. Legal experts said it was unlikely he would win.

    With Sale Pending, Vote on Sterling Is CanceledMAY 30, 2014





  • Steve Ballmer greeting the ex-N.B.A. star Bill Russell at a college game in January. Ballmer is estimated to be worth $20 billion.

    Steve Ballmer Said to Sign $2 Billion Deal to Buy ClippersMAY 30, 2014




  • It seems that Donald Sterling may want to sell, but he is also vowing to battle the accusations against him “to the bloody end,” his lawyer said.

    Clippers Draw Some High-Profile Offers MAY 28, 2014




There was a time when $10 million was considered an outrageous sum to buy the Yankees. It was 1973, the Bronx was crumbling, and George Steinbrenner’s purchase (for about $50 million in today’s dollars) made jaws drop. Jerry Jones’s $140 million outlay for the Dallas Cowboys in 1989 had the same effect, as did the 2012 sale of the Los Angeles Dodgers for $2.15 billion.


Mr. Ballmer, like Mr. Steinbrenner, Mr. Jones and others before him, may be betting that sports will continue to be a growth industry, bringing expanding revenues from broadcast rights, ticket sales and sponsorship deals.


“Everyone looking at this is looking at the future of the N.B.A. and the upcoming TV deals,” said Sal Galatioto, the president of Galatioto Sports Partners. He added, “It does significantly boost the price of large-market N.B.A. teams, and all N.B.A. teams.”


The Clippers are the 13th most valuable franchise in the N.B.A., according to calculations by Forbes, which estimated that the team generated $128 million in revenue last year. Nearly 40 percent of that came from fees for television rights — the driving force for major sports deals these days.


The deal for the Dodgers, for example, was largely predicated on the prospect that the new owners — investors from Guggenheim Partners — could set up a local sports network. They did that last year, in an $8 billion, 25-year arrangement with Time Warner Cable.


The Clippers’ local cable television contract, for $18 million a year, is nearing renewal, and projections suggest that the team could get as much as $60 million a year. Mr. Ballmer would also benefit from the N.B.A.'s next round of national television deals, which begins in the 2016-17 season. The teams are expected to receive substantially more than the $30 million a year each one currently gets.


The Clippers are a scarce asset, another factor that might have enticed Mr. Ballmer. Clubs in big-market cities like New York and Los Angeles, and cornerstone franchises like the New England Patriots and the Dallas Cowboys, generate significantly higher bids because there are so few available.


The Clippers are not a cornerstone team, but they are in Los Angeles. And after decades as a doormat, they are on the upswing, with stars like Chris Paul and Blake Griffin. Their more glamorous local rivals, the Lakers, are down.


Assuming his purchase is approved by the N.B.A., Mr. Ballmer, 58, is likely to enjoy significant personal financial benefits. Owning a team can create good will, in accounting terms, that can be used to offset taxable gains.


Given how low interest rates are, he could finance part of the purchase of the team relatively inexpensively, and he could later bring in minority shareholders to recoup some of his purchase.



Still, there are no guarantees that the Clippers will make a profit for Mr. Ballmer. Rob Tilliss, who runs Inner Circle Sports, which advised one of the other bidders, said that there were reasons to be optimistic about the Clippers’ financial outlook but that the $2 billion offer was based on wishful assumptions that would all have to come true for Mr. Ballmer to get his money back.


“If you believe in the growth of the league, you believe in the TV rights renewals and you want to be the big guy in L.A., it makes sense,” Mr. Tilliss said. “But I can’t make the economic argument for you.”


The bid was three and a half times the amount the team was recently valued at by Forbes. It was also 20 percent more than the next closest offer. Some analysts said Mr. Ballmer might have purposely submitted a bid that would far surpass those of the other contenders — including a group with Oprah Winfrey — so he could swiftly end the auction and win the support of Rochelle Sterling, who co-owns the Clippers with her husband.


Mr. Ballmer took a similar approach when he ran Microsoft, paying what some analysts thought were obscene amounts for companies. In 2011, for example, Microsoft paid $8.5 billion for Skype, more than tripling what eBay had paid for the company several years earlier.


The team Mr. Ballmer is hoping to buy has never made it past the second round of the N.B.A. playoffs and does not have its own arena, a significant financial handicap.


Mr. Ballmer made one previous attempt at buying an N.B.A. team. Last year, his bid to purchase the Sacramento Kings failed; he had planned to move them to Seattle. Now he stands to play the role of savior and could lobby from within the league to expand to Seattle.


“This comes on the heels of Ballmer going through a wretched fight for the Kings, and he’s leaving Microsoft and wondering about what to do next,” said Marc Ganis, who advises owners and potential owners. “Now he’ll be a hero for stepping up to take over a franchise that the nation wants taken away from Donald Sterling. He will ride in on his shiny steed.”



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