Billion to buy the Clippers.
First, the NBA is a shared monopoly, which allows team TISI -0.21% owners to charge
unusually high prices for the sale of their franchises as long as no other team
owner is looking to sell at the same time.
Second, no other NBA owner is actively seeking to sell his team right now,
which gives Donald Sterling a true monopoly over the market
for buying an NBA franchise.
Based on these factors, the stars purportedly have aligned for Donald
Sterling to have received an offer for the Clippers that is too good for even Montgomery
Burns to have refused.
Presuming today’s rumors are true, let’s put these numbers in perspective.
Sterling’s sale to Steve Ballmer would pay him 3.27 times more for
his franchise than the previous NBA high of $550 million that was paid to acquire
the Milwaukee Bucks back in April. This is not a slight premium
over past NBA team sales. It turns all past valuations on their head.
In addition, the rumored $1.8 Billion sale price for the Clippers represents
a value of 14.06 times the team’s annual revenues and 120 times the team’s
operating income based on values provided in a most recent FORBES report about NBA teams (the
report that listed the Clippers’ revenues at $128.0 million and their operating
income at $15.0 million).
Such ratios are astounding not only for many traditional businesses, but also
for most sports franchise sales.
While territory rights to the Los Angeles market would on one hand seem to
make the Clippers uniquely valuable, the fact that the Clippers share these NBA territory rights with the Lakersas well as compete to a limited extent against the NHL’s L.A. Kings should have seemingly offset some of the market
In addition, one would have expected the “goodwill” associated with the
purchase of the Clippers to have been little if any. Losing ways and
purportedly racist speech do not generally enhance of business’s brand equity.
Prior to Sterling’s racist rant, one could have reasonably expected the
Clippers franchise to have fetched Donald Sterling:
between $500 and $800 Million in an average sellers’ market.
$1.8 Billion? Perhaps, V. Stiviano truly is the best salesperson of all time.