Ballmer reportedly wins $2B bid to buy Clippers, entire sports world turns upside-down

Okay, hands up everybody who saw this coming:

Los Angeles Clippers owner Donald Sterling does not have the authority to stop a $2 billion sale of his team because he has been determined to be mentally unfit to make decisions related to the family trust, a person familiar with the situation told USA TODAY Sports.

The Sterling Family Trust owns the team, with Donald and his wife Shelly each owning a 50% share. The trust spells out provisions and procedures related to the mental capacity of the trustees, and Donald Sterling did not meet the standard in a determination by experts, giving his wife sole decision-making power for the trust, the person said.

Shelly Sterling reached a deal Thursday with former Microsoft CEO Steve Ballmer to sell the Clippers for a record $2 billion.

That’s pretty … I guess “crazy” would be an insensitive way of putting it, huh? Let’s go with “unexpected,” though that seems a bit understated if the denouement of this whole Clippers mess is that everyone involved gets to avoid messy lawsuits and ownership votes to eject Sterling because of a family trust’s private psychologist.

Easier to designate as madness, meanwhile, is that $2 billion sale price. (As yet unconfirmed, but reported by multiple sources.) As I discussed yesterday over at Sports on Earth, it was expected that the Clippers were going to sell for a record price, given escalating sports team values, their presence in the mammoth L.A. market, and the fact that for once they aren’t league doormats anymore. But consider that the previous record, set just last month, was $550 million for the Milwaukee Bucks; and that earlier this year Forbes estimated the Clippers to be worth just $575 million, with the NBA’s most valuable team, the New York Knicks, clocking in at just $1.4 billion; and that the only sports franchise ever to sell for $2 billion was the L.A. Dodgers in 2012, a team that plays in a more popular sport and earns more than double the Clippers’ annual revenues, a figure that will likely hold true even after the Clips renegotiate their TV deal in 2016; and you’ll be forgiven for wondering whether Ballmer shouldn’t have his head examined as well.

The leading theory for what the hell just happened is what you might call billionaire glut: Thanks to the U.S. economy’s increasing propensity for concentrating all its wealth in a tiny number of people, there are a heck of a lot more rich guys like Ballmer in the market for sports teams these days, and not an appreciably larger number of sports teams for sale. That imbalance of supply and demand drives prices through the roof, with would-be hoops magnates bidding each other into oblivion in order to find something to buy with their money. (It’s not too unlike the real estate market in places like Vancouver, where Asia’s one-percenters have created a housing bubble by buying up condos left and right simply as a place to park their money — though you could argue that owning an NBA team, even the Clippers, is more fun than an apartment in Vancouver.) It has to stop somewhere, and it could yet be that $2 billion for the Clippers will be seen as an outlier — even Nate Silver, in his regression-analysis-driven projections of the effects of billionaire glut, could only come up with a Clippers value of $580-950 million — but it does help indicate why sale prices seem so suddenly out of whack with actual team revenues: These are rich men’s toys, yes, but they’re exclusive toys, and there are a lot more rich men wanting to be the ones to find them under their Christmas tree.

The fact that it’s Ballmer who is Clippers owner-in-waiting, meanwhile, means that he’ll no longer be part of Chris Hansen’s proposed ownership group in Seattle, where he was the moneybags behind Hansen’s hey-kids-let’s-put-up-an-NBA-team enthusiasm. Hansen’s supporters are trying to put a happy face on this, but with no team, no deep-pocketed partner, and an arena deal that expires in 2017, things aren’t looking too rosy right now. Though maybe once the NBA sees what nutso prices those billionaires are willing to pay for teams, they’ll rethink expansion.


53 comments on “Ballmer reportedly wins $2B bid to buy Clippers, entire sports world turns upside-down

  1. Figure what Sterling wanted to net out of the deal, then work back with the capital gains tax. The early numbers were that some of the wannabes (Magic, Oprah, Geffen, Iovine) were wiling to pony up in the neighborhood of $1b.

    Once you take out what Sterling will pay in capital gain tax, he’ll pocket about $1.3 billion. So basically Ballmer is outbidding everyone else by $300M, then offered to pay the tax for Sterling in the price of the deal.

    I guess if your worth double-digit billions, then a few hundred million here and a few hundred million there isn’t actually real money yet. Apologies to Sen Dirksen.

    Also, possibly related: I find myself consuming less and less actual live sports (whether that’s televised live or in person live).

  2. Isn’t that the wrong comparison, since Sterling would have had to pay capital gains tax if he’d sold it for $1B to Oprah, too?

  3. Yes, he or Oprah or Larry Ellison has to pay taxes regardless (unless Sterling dies next week… Of course he’s still paying taxes, but then I think it’s on the premium over the fair market value of the asset, not the $12.5M he paid for it originally… at least that’s the number off the top of my head)

    Anyway, my reasoning is that Sterling wanted to make (net) at least $1B on the transaction (ego, an FU to the NBA, bitter old man, whatever the reason). What’s an extra $660M to Ballmer? He’ll be dead, too, one day and can’t take all his billions with him. And who knows when the next NBA team is up for sale.

    Not sure if the other groups would have wanted to overbid to get to the $1B-after-tax threshold, so Ballmer might have been bidding against himself but, as you alluded to, the way we’re stockpiling money in the hands of a few, Ballmer might double (the rest of) his net worth in the next 10 years anyway. So why not spend some of it now for the toy you really, really, really want?

  4. Also the optimist in me hopes this is a bit of a catalyst with regards to public money in arenas/stadia. Maybe after seeing this price of this deal cities will start saying, “Hey, you guys [owners] have a shit ton of money, and we’ve got crappy schools and crumbling infrastructure. So we’re no longer bending over backwards so you can increase the value of your plaything with everyone else’s tax dollars.”

    Maybe, but I doubt it.

  5. Somewhat related to this is the number of billionaires in the U.S. (around 500) and in China (around 200) – the number one and two countries on billionaires. Along with these stats, History Channel’s America’s Secrets “The Billionaire Agenda” recently mentioned they own sports teams, our political system, and most scrapped their way up into big money rather than inherited it. So why do they also pilfer from the public trough to build stadiums and get tax breaks – they should be taxed at the higher earned income rate, not capital gains when selling a team and pay the public back every dime plus interest. The show also mentioned the public needs to stand up to their shenanigans and demand explanations.

  6. I disagree with the idea that MLB is more popular than the NFL.

    You are of course correct that the Clippers have revenues that are far too low to justify this price. ESPN reported that they still have nine years on their Staples Center lease, but it makes me wonder if they’ll start exploring a move to another LA location. I just can’t see them getting a big boost in arena revenues with the Kings and Lakers there.

  7. “eject Sterling because of a family trust’s private psychologist.”

    Always like to see this happen to people who think they’re so smart in dodging taxes through trusts and corporations, and yet don’t like the consequences of that decision.

  8. @Ben Miller

    I really hope that happens. Darren Rovell was making fun of the Clipper lease at Staples as they get ZERO revenue from the suites. A move to another LA location would be great and no tax payers would get fleeced since the building already exists. It’s name….the Honda Center in Anaheim.

  9. Okay, Neil, admit it; I was one of the first to say it’d happen (via email).

  10. I think these prices are about location, location, location. $2B for the Clippers does not mean the Utah Jazz are worth $2B; it means that owning a franchise in the LA market is worth $2B, although the Lakers are probably worth even more.

    So what markets are worth this much?

    SF Bay Area, New York, Chicago, Boston, MAYBE Dallas and Miami… Certainly not Sacramento, Indianapolis, San Antonio.

    I’d bet Seattle is at least a $1.5B market.

    Looking back on it, the current owners of the Warriors basically got the deal of the century. I’m not saying their team is now worth $2B, but $1.5B? Sure. And give it 3 years, THEN it’ll be worth $2B. Meanwhile, the Kings will still be worth $500M. Ouch. Ranadive has to be kicking himself.

  11. In that case, shouldn’t the Dodgers be worth $3B, if not $4B? And the Yankees, say, $6B?

    I know there’s a cachet to owning a pro sports team, but this is ridiculous. Especially when, as was noted in another thread, you have people like Ricketts paying crazy money for teams and then complaining that they can’t earn enough to turn a profit.

  12. That’s what I was going to ask; whether this impacts the valuation of other teams in other sports or whether this is such a ridiculous outlier that it doesn’t reset the market. In that sense it would kind of be like A-Rod’s contract. It took years for the market to catch up with that.

  13. $2 billion in a crazy investment. But when you’ve got $20 billion and there’s little chance you’d ever eclipse a Bill Gates in charity giving, what’s throwing away most of $2 billion on a hobby (instead of hookers and coke, although I guess there’s still money left over for that too).

    This does give the NBA a pretty big stick to swing against expansion though… an absurd expansion $1B fee request seems slightly more reasonable.

  14. Its fascinating listening to talk radio here in Seattle- about how this will kill Seattle chances for an NBA return. And if only the local politicians would have ponied up the money for a new stadium, the Sonics would still be here rather than OKC! I have a hard time believing Hansen’s group can scam the pols for a hockey only stadium but that doesn’t mean they won’t try.

  15. It may well be “handy” for the Sterlings that their family trust staff psychologist (? and I thought quality control coaches were a step too far…) has decided that Mr. Sterling is not in a fit mental state to proceed and must be removed from the process.

    But it is important to remember that this doesn’t change the NBA’s effective control of the process one iota, regardless what the family trust’s documents and/or bylaws state. As the league has right of approval of any prospective owner, they control the process.

    re: Ballmer’s bid… one suspects that this has more to do with Ballmer’s outlandish personality than actual value. That said, people were shocked at the $2Bn bid for the Dodgers… until the Time-Warner TV deal was announced, at which point no-one was really shocked at all. Maybe Ballmer believes (or knows) he can acquire a lucrative tv deal as well. I’m not convinced that lease provisions or suite revenue deals ‘matter’ in the four or five largest tv markets in the country, given where TV rights fees are heading (at least in the short term).

  16. “But consider that the previous record, set just last month, was $550 million for the Milwaukee Bucks…”

    This all seems pretty implausible to me. I’m taking away an implication that if the Bucks owners could convince the league to let them move down the road to Chicago (which has only one team) then the value of the Bucks franchise would increase by at least $1B, since Chicago is a marginally smaller media market than LA but currently only has 1 team. This can’t possibly make any sense, right?

  17. David:

    It may well do that. However, it is not the first such outlandish bid for a sports franchise.

    The Toronto Maple Leaf’s parent company was recently sold for a little over $1bn, despite the fact that it’s most recent “prior” valuation by Forbes was close to half that number. I don’t know that that reset the market value of all NHL (or MLS or NBA) clubs, given the uniqueness of the market and revenue potential.

    Going back a few more years, Mark Cuban offered something like $180m for the Mavericks and was rebuffed. Not one to trifle, Cuban’s next offer was $260m as I recall. The owners did not have the courage to reject that big a bump, and Cuban became an NBA owner. But that did not, IIRC, reset all NBA franchise values at the time. It’s an outlier, which is what I would argue Ballmer’s reported bid for the Clippers (if accurate) is.

    As to what a “run of the mill” NBA franchise would sell for now I can’t guess. I had thought the recent sale price of the Warriors might be closer to the mark, but as others pointed out at the time that is a large market by NBA standards as well. The Bucks notional sale price does seem to be in line with the Warriors figure (roughly), but there were unusual conditions involved in that sale as well… it could be that there are no “run of the mill” sports franchises given their artificial scarcity.

  18. What’s most surprising about this is that if Ballmer is willing to spend two billion dollars he could get an NFL team in LA.That’s got to be more valuable than a basketball team. I assume he could buy an NFL team for one billion, and build a new stadium for around the same amount. (Is Ballmer a football fan? Does anyone around here know what sports he likes, aside from basketball?)

    There is a billionaire glut in this country. But it’s the millionaire glut that has led to the construction of so many new stadiums. New stadiums provide all the millionaires with private suites they want.

  19. @ Dave

    Given the issues circling the league, would you bet that amount of money the NFL will be at the same level of popularity/viability as it currently stands in 10 years?

    I wouldn’t.

  20. Ty: Yes, I would bet that kind of money that the NFL will be just as popular in 10 years. Which issues are you talking about? If you are talking about the prevalence of concussions, that might affect the number of kids who start playing the game. Families might discourage their kids from playing. But it won’t affect the popularity of the game as a spectator sport.

  21. Neil, the $2B offer resets SOME markets, and that’s all about TV rights. An NBA franchise that has access to the LA, SF Bay, New York and Chicago TV markets will inherently be worth more than one that has access only to the Salt Lake City, Sacramento and Indianapolis TV markets.

    The proof will be in the pudding, but just you wait and see the next TV deal the Warriors get. Not enough revenue to justify a $2B investment? Not true at all.

    In Sacramento, you should see the TV ads. Unbelievably hokey. Really, Folsom Lake Car Dealers, I don’t need a car.

    Someone please vouch for me here: There is no ad on TV worse than the ads for Sacramento Kia, VSP, Zoom Imaging Systems and Pizza Guys. And those are the bread-and-butter ads. That’s as good as it gets.

  22. Two more examples of “NOW how much are they worth?”: SF Giants and Santa Clara 49ers.

    They are thrilled that the Clippers are, apparently, worth $2B.

    I won’t even venture a guess as to the value of the 49ers. As much as I hated that stadium deal, I gotta admit, the 49ers will repay every single penny of it. There are just some areas of the country where “normal math” doesn’t apply.

    And, I emphasize that Sacramento is not one of those areas.

  23. Yeah, sure, $2B is an outrageous number. But is it out-of-line to pay 3x-4x the Milwaukee price to get LA? Dunno, maybe not.

  24. @John Bladen
    When Bell Canada and Rogers Communications teamed up to buy Maple Leafs Sports & Ent (MLSE) that included The Leafs, Toronto Raptors, Toronto FC, Toronto Marlies (AHL), Air Canada Centre, BMO field, various other real estate holdings, restaurants and TV networks. It was the whole enchilada. They bought it for about 1.3 billion in 2010.

    Recently, Forbes valued the Leafs as a stand-alone entity, with a price tag of 1 Billion. I think the last highest NHL team sale was the Montreal Canadiens + Bell Centre for about 575 million to Geoff Molson, around the same time. I could be wrong though.

  25. I’d much rather have racist Sterling as the owner for another 4 or 5 years til he dies than have Ballmer as owner for 40+ years.

    Good luck NBA, you think Mark Cuban is an arse?

  26. After reading some more about the situation with the Sterlings, I’m now of the opinion that the $2B represents the valuation of the Clippers + $ to make the Sterlings disappear in a hurry. Seems like there could be more sketchy stuff going on under the radar.

  27. >So we’re no longer bending over backwards so you can increase the value of your plaything with everyone else’s tax dollars.”

    Might be another decade before the public in the US really starts to catch on but judging by the rate at which cities are dropping out of bidding for the winter olympics, other parts of the world are wising up. Looks like the 2022 Winter Olympics is going to end up being a choice between Almaty, Kazakhstan and Beijing.

  28. Dave: Suites are actually more valuable to corporations than to individual millionaires, since they can use the business-entertainment deduction to get some of their money back. Though I guess there aren’t many millionaires who don’t own a corporation.

  29. Let’s add it up. Ballmer could have built a $500 million arena in seattle, than bought an NHL team, expansion or relocated for another $500 million. Thus, he would have another Billion to shop around for an NBA team…i’m sure for billion somebody would have sold. Or he could have bought an NFL team for a billion or so.

  30. @runner

    I think it has more to do with Ballmer being a big basketball fan. He didn’t want to spend money on hockey and an arena if there was no guarantee of an NBA team coming soon. In essence, he would’ve been left holding the bag. Yes, a billion would get the deal done for a lot of owners but the problem is that there just isn’t a lot of NBA teams up for sale and the ones that were for sale, were under the condition that the buyer keep them in the market. That’s why Ballmer and Hansen wanted so badly to get their hands on the Kings. The Maloofs not only didn’t care if the team stayed in the market, they were going out of their way to get it OUT of the market.

  31. Jon:

    Yes, there were other teams involved (BMO field is not MLSe owned and was not part of the sale). But the value of the Leafs alone as a brand (according to Forbes) leapt from $450m to nearly $1bn in an instant when the sale was completed.

    The $1.3bn sale price was not for 100 percent of the business. Larry Tanenbaum still holds about 20% of MLSe.

    It may sound odd when we are talking about NBA teams in the US going for 9 figures… but the value of the Raptors and TFC are not huge contributors to the MLSe brand. We can argue about how much the ACC is worth on the open market (it is the busiest venue in the country), but it would be significantly less than it’s construction cost ($260m, as I recall).

  32. Trueblood: I agree. One way to look at their original arena deal is that they are honest rich guys who didn’t want to rip off the Seattle taxpayers. Another is that they wanted to be the owner of the Sonics II so bad that they didn’t care what it cost.

    I’m in full agreement with the poster above who said “if the NBA thought Cuban was trouble…” It will be interesting to see Ballmer in an effective partnership with the other owners… sharing isn’t something he seems to do well…

  33. @John Bladden re: Ballmer-isms

    I just can’t stop smiling when I see youtube clips and Ballmer-stories like these every few years.
    http://features.blogs.fortune.cnn.com/2014/05/30/steve-ballmer-microsoft-crazy/

  34. Scott: I’d put my money on “never.” Unlike in MLB and the NBA, there are no local cable-rights riches to be had in L.A. for football, and anyone moving there would have to spend big on stadium construction.

  35. If you want an expansion team, building an arena from scratch with your own money seems like a very risky way to do it. Not just because there might not be a local market for your team or the league may decide it is happy with the current number of teams but because most of the other owners in the league want to exploit the public for as much money as possible in their arena and stadium deals. If someone builds one without screwing over the public, that sets a really bad example. If you want a team, the best thing to do would be to get the absolute worst public exploiting deal possible. The league would fall over itself to make it happen so they can use the numbers in the next round of building to negotiate the most lopsided deals for themselves. Professional sports ownership is a terrible place to be if you are actually interested in sports. Money and power though? It doesn’t get much better than that.

  36. Neil,

    Per wikipedia, the new NFL TV contract that start this year – 2014 – is worth $5.65 billion per year (including Direc-TV) which works out to $177 million per team. What are LA Dodgers annual TV revenues worth? What are LA Clippers annual TV revenues worth?

    Thanks.

  37. Yup, and NFL teams get that whether they play in L.A., Green Bay, or Ouagadougou. The *marginal* TV rights value of moving from Buffalo to L.A. is pretty damn near zero.

  38. @Scott Myers

    The Dodgers get between $150 and $200 million per season which is why they were sold for over $2 billion.

    The Clippers only get around $20 to $30 million but their deal is up in 2016 or 2017. They will be in line for somewhere in the $60 to $70 range although that still doesn’t justify a $2 billion franchise valuation. Again, I think that just has more to do with Ballmer wanting in badly.

    The suite revenue might not be as big a deal since he’ll be getting a lot of tv money but the fact that he gets ZERO in suite revenue from Staples is still pretty bad. I could definitely see Ballmer trying to buy control of Honda Center since he’d still be in the LA market or just building his own arena from scratch. Naming rights can still fetch big money in a market as big as LA so LA taxpayers wouldn’t have to worry about being fleeced. He build it with his own money just like Lacob is doing in SF.

  39. Lacob is the only game in town in SF, though, and only one of two games in the metro area (three if you count San Jose). L.A. has two major arenas already, before you even get to Anaheim. Not saying it couldn’t be done, but it wouldn’t be as obviously good a deal as SF, and even there I think Lacob is going to have trouble turning much of a profit on arena operations with that massive debt load.

  40. BFR: That’s probably true (re: the extra money for the Sterlings), but do you think it will work?

    Sterling might be of diminished capacity (at least when it is advantageous for his trust to think so), but an owner being forced to sell an asset he doesn’t want to sell can make some fairly significant damage/loss of revenue opportunity claims. I’m not saying they would necessarily hold up in court, but given the NBA’s desire to be fully rid of him asap, he probably doesn’t have to win… just stick around and keep reminding everyone that he’s “still here”.

    One hates to see deeply flawed people receive windfalls… but if I’m crafting Sterling’s demand sheet, it would include not only the full value of the franchise plus an amount to cover capital gains, but his share of the present network TV deals going forward (it’s money he would earn if the league wasn’t forcing him out, after all), and obviously his regional deal as well.

    It’s a sad comment on the world in which we live in, but Sterling may just have played this perfectly if what he really wanted was to be paid several times his franchise’s value with no questions asked. Is anyone sure that his “friend” didn’t set him up as a means to their shared gain? I wonder what’s happening with the family’s lawsuit against the ‘lady’ in question….

    Sometimes the media uses famous people, and sometimes they use it.

  41. Neil, LA will bring in a lot of Luxury suite revenue for NFL owners, but the stadium construction costs only work with 2 teams sharing one stadium.

    I still believe the Rams and Chargers move to LA but I’m not going to underestimate the stupidity of voters in STL or San Diego.

    $2 billion for the Clippers seems moronic but it’s Ballmer, no one in the world has been more successful riding coattails.

  42. Neil,
    I hope you are right about Ballmer not seeking public funding. His almost as rich fomer Microsoft colleague – Paul Allen – owner of the Seattle Seahawks – certainly is no stranger to getting public welfare for his stadium.

  43. @Neil

    You mentioned that LA has 2 major arenas before you even talk about Anaheim. What’s the 2nd one? Are you referring to the refurbished Forum?

  44. @John Bladen:
    “That’s probably true (re: the extra money for the Sterlings), but do you think it will work?”

    I would assume the Sterlings will take the money but puzzled as to what Ballmer would get out of this, unless it really is just an impulse buy.

  45. Trueblood: Right, the Forum. It may not be a competitor for sports, but it damn sure is for concerts, which are what the Warriors owners are counting on to make their SF arena pencil out. Another arena in L.A. would start glutting the market really fast — even the NYC area, with a much larger population, can only support three arenas (Brooklyn, MSG, Newark) from the way things are going with Nassau and the Meadowlands.

  46. Seattle is going to get something better than before, look forward to the Super Sonics returning with Griffin and Paul.

  47. @Neil

    Ok, I was actually using New York as a template of sorts. While NYC metro is more populated, the LA area is obviously the 2nd largest and largest by area. Both areas have arenas that have and historically have similar uses.

    Downtown/NBA/NHL building…………….. NY/MSG & LA/Staples
    NHL only………………………………………NY/Prudential Center & LA/Honda Center
    Former NHL/NBA now used for mostly concerts…..NY/Izod Center & LA/Forum
    Washed up, has been arena……………..NY/Nassau & LA/Sports Arena although LA’s has little to no use left

    Therefore, I was thinking that a new Ballmer building could play the role of Barclays Center only without booting people from their home even though it’s not for sale. Not sure where they would put it but there’s tons of land & development options. Still, I think Anaheim is the better option.

    What’s going on with IZOD. The New Jersey sports board seemed to think that it would be successful as a concert and family show place but I guess not.

    I thought Nassau had a solid future and that’s why the 2 groups were bidding on it. Is that not the case anymore?

  48. One thing to consider, which was posted on another site, is that AEG is rumored to also be for sale, which Ballmer might acquire as well. If so, it gives him control of the Staples Center, the LA Kings, and other properties. He could then divest some of the diversified holdings of AEG and recoup a fair amount of the purchase price of all holdings in an effort to dominate the LA sports market.

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