BAML Says Ballmer Has Overvalued the LA Clippers - Thoughts?

Some of you may have seen that a BAML deck related to the proposed sale of the LA Clippers to Steve Ballmer was made public yesterday as a result of the lawsuit questioning if Shelly Sterling is allowed to sell the team.

For those who haven't, I attached the deck here.

Some interesting quotes from the ESPN article:

Ballmer's $2 billion final bid is 12.1 times the expected 2014 revenues of the team... "No team in the history of sports has sold for six times total revenues, so that should give you an idea of how crazy this purchase price is," said a sports banker who was not involved in the transaction.

By using extremely generous projections, including a new local TV deal that Bank of America projects will go from $25 million to $125 million a year, and a 200 percent increase in the rights fees for a new NBA TV deal, which will begin in the 2016-17 season, an additional $160 million in annual revenue is added to the team in future years. Bank of America says the new national TV deal could bring $90 million each to teams in the league, up from the current $30 million. Including all these projections, the bank concludes that Ballmer's eventual $2 billion is still more than seven times the revenue multiple of the enterprise value of the team.

What are your thoughts?

Attachment Size
BAML LA Clippers Valuation Deck - July 2014.pdf 615.28 KB 615.28 KB
 

I feel like he's may be overpaying a little bit but we'll see that he paid a fair price. The NBA is getting bigger and richer everyday and this team has a lot of things going for it right now. Plus, I don't think Ballmer is looking to make significant money on this investment; these guys do it almost as a hobby -- every billionaire's dream is to own a sports team!

 

He definitely overpaid but he's just continuing doing what he did at msft. No doubt he's rich as hell but $2b is still a lot of dough. He's worth something like $15b so it's a decent chunk of his net worth. I'm sure some of it's financed but I'd bet he has to pg it.

I just don't understand why anyone would so wildly overpay. You don't see billionaires buying other toys for more than twice their worth. "Hey I love your 300 ft yacht and I know I can buy one for $50MM but let me just give you $120MM because you're an old racist with dementia."

 

One thing to consider is these don't exactly come up for sale very often. And when they do, you're probably not going to get a major-market team. It may be overpaying by a lot of metrics, but if you wanted a major market, west coast team, then you probably would plunk down a more cash to get the deal done.

You only get to go on this ride once - having an additional 2 billion when he dies in 30 years won't help him very much.

 

Does it really matter?

Unless you keep it for many years and sell it on, I don't think any sports team is really going to be that profitable. For most/all it's simply something to take an interest in and if you like the sport then it's a no brainer when you're that rich.

 

The upcoming TV deal makes a big difference for the future earnings of the teams. With the new revenue teams like Chicago, Lakers and Houston could see more than $100 million a year in profit. And with the Clippers actually being good and in the 2nd best market it wouldn't be out the question that they can be close to that mark in 3-5 years. Cuban was losing about $8 mil a year until a few years ago now he is in the black close to the $10 million range. I guess what they say in sports is true winning does cure all.

"When you expect things to happen - strangely enough - they do happen." - JP Morgan
 

That's worth 10% of Ballmer's net worth. This blows my mind, don't ask. To be honest, I didn't expect to see Ballmer's name in any article for a little while after he resigned. Well, he says he loves basketball so I hope he's not going to mess around with his new team like he did with Microsoft.

 

The Clippers don't even have their own stadium, and I believe this is without a TV deal as well (I may be wrong about that part). You never know though; Ballmer was willing to overpay for this franchise that's been the laughingstock of the NBA up until they became relevant a couple years back, so he might move the team to a city that's willing to pay for a stadium.

 

was listening to espn... forbes valued them at 1/4 of this in ~january?! obviously things have changed since then but still, way off. also the bucks recently sold for a measly ~500mm, good buy for whoever snapped them up. also can't find the quote but Cuban said every team in the nba is worth at least... 1mm? can't remember

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He's not in the clear yet. He'll most likely own the team but Sterling apparently was diagnosed with Alzheimer's earlier this month and he plans on suing the NBA for a billion dollars in damages. This could draw out for a bit and I hope it doesn't get ugly. Something tells me it'll be quick but there's always the chance for something to go wrong.

 
ValueBanker14:

He's not in the clear yet. He'll most likely own the team but Sterling apparently was diagnosed with Alzheimer's earlier this month and he plans on suing the NBA for a billion dollars in damages. This could draw out for a bit and I hope it doesn't get ugly. Something tells me it'll be quick but there's always the chance for something to go wrong.

Yeah I just saw that on ESPN as I was eating dinner. The part of the agreement with the NBA was that he would not sue them if he wanted to sell the team. This is the first time I'm hearing about his having Alzheimer's though. He's definitely overpaying for this team, but then again, as jojome said, it's a dick-measuring contest. And I have this gut feeling that Ballmer will be moving the team.

 

I remember watching an interview with a billionaire. He said if you had 3 billion dollars and you bought the nicest houses, cars, etc.. you would still have 2.9 billion. I think Steve was bored and probably wants a legacy passed onto his kids. Also, another way to measure your dick against other billionaires lol.

 

If the Clippers are worth $2billion, How much are the Lakers and Knicks? $3.5 billion? Isn't that more than Manchester United, the Yankees, and the Cowboys?

"Better to remain silent and be thought a fool than to speak out and remove all doubt." --Abraham Lincoln
 

I know a few team owners on a social level and while I fully admit it could be one of the coolest toys ever, for the most part it's an ego and "look how big my dick is" thing. Imagine when all of your other rich buddies talk about the cars, houses and planes that they own and you get to say I own the Giants. You basically just ripped out and slapped your John Holmes size shvantz on the table.

I have no idea how one values a pro team other than what the next guy is going to pay for it, but it seems like Balmer grossly overpaid. Does a team get a premium if the seller is a racist octogenarian? Buying the second team in a town where one of the great sports franchises is located just seems like a bad buy.

 

Makes Madison Square Garden (MSG) a buy $4bn for the Knicks, the Rangers and the venue (plus the air space is worth a bit too)...

You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake son.
 

What is the proposed deal structure? If Ballmer is only putting down a small percentage of equity and finance the rest with bank loan then $2b would probably not seem too outlandish and might be considered as a sort of positive leverage, given the negative real rate environment we are in. In any case, I see the inflated valuation of the Clippers as just another sign of the assets bubble we are in.

Too late for second-guessing Too late to go back to sleep.
 

The whole valuation is mostly driven on the next TV deal. If the deal ends up better than expectations, world-wide NBA growth continues, and the Clippers are able to stay in the top 10 for the next 10 years, then it should be a great purchase.

I think the talent the team has sometimes gets underplayed during valuations, too. Griffin could be locked up for another 10 years, Paul for another 8-10, and DeAndre Jordan is becoming more of a force each year. The allure of LA helps attract talent, but the core talent on the team helps more. A lot of things would have to go wrong for this franchise to not be worth $5bln+ in 10 years.

 
OpsDude:

It's worth how much the next guy is willing to buy it, it's not going to be tied to any realistic valuation. There will always be billionaires who want sports teams in tier-1 American cities for vanity reasons. The global economy is is going to impact future valuations more than any TV deals.

So by your logic, barring an apocalypse or permanent recession, its a good buy.
 

Its a good buy, but probably won't increase in value at the same rate as it has since it was purchased. I would watch the demographics of the fan base to gauge long term growth. If the NBA can hold its African-American fan base and increase the Hispanic fan base it will really do well in the next 20-30 years.

"Everybody needs money. That's why they call it money." - Mickey Bergman - Heist (2001)
 

I'll let others talk about the valuation, but from purely a sports perspective, I like it a lot.

I'm of the belief that an owner's priority is to build his/her team into a contender as soon as possible. If you put a good product out on the floor (or ice or field), then the profits will follow. Fans will want to see your team play and will buy tickets and merchandise. The opposite approach, where all you care about is the bottom line regardless of winning, won't do much to endear you to anyone (Sterling's Clips in the 90's and early 2000's really were an embarassment to the league) even though you are in the black. With this Clippers team, none of that is really a problem.

The roster is built to contend for a championship. Great starting 5 (yes, even JJ Redick). Good bench (Glen Davis and Hedu Turkoglu need to go, though, and Jamal Crawford is overpaid even though he is the Sixth Man of the Year...). Best coach in the league not named Gregg Popovich. This team would be in the Western Conference Finals right now if they weren't completely screwed by the refs at the end of Game 5 of their 2nd round series against the Thunder.

There is no rebuilding that needs to be done with the Clippers unlike what usually has to happen when a new owner comes in (lol Bucks). This team is relevant, and not just because Don Sterling made some incendiary comments.

 

Sterling should have faced boycotts by the public and the NBA should not have taken action. People should have refused to watch games and root for a team owned by someone who does "not want them coming to his games". The NBA's fine and forced sale is also supposed to be some sort of punishment, but saving the man hundreds of millions in capital gains taxes through a forced sale and avoiding the economic cost of a boycott is hardly a punishment.

Sterling said some terrible, hurtful comments. He also didn't expect them to be made public and actually hurt people. He should not be punished for this beyond people realizing that he does not like black people, and people not doing business with him.

This whole situation is totally fucked up. Especially the NBA's response. Sterling deserved to only be punished by the public, and the NBA's "punishment" is actually a mercy.

Also if Sterling deserves to lose a team for private comments about him not liking black people, what should happen to a syndicated radio host for running around saying that Obama is a Kenyan Marxist who hates white people over the the public airwaves? The NBA is a private organization, but so is Clear Channel Communications.

 
IlliniProgrammer:

Sterling should have faced boycotts by the public and the NBA should not have taken action. People should have refused to watch games and root for a team owned by someone who does "not want them coming to his games". The NBA's fine and forced sale is also supposed to be some sort of punishment, but saving the man hundreds of millions in capital gains taxes through a forced sale and avoiding the economic cost of a boycott is hardly a punishment.

Sterling said some terrible, hurtful comments. He also didn't expect them to be made public and actually hurt people. He should not be punished for this beyond people realizing that he does not like black people, and people not doing business with him.

This whole situation is totally fucked up. Especially the NBA's response. Sterling deserved to only be punished by the public, and the NBA's "punishment" is actually a mercy.

Also if Sterling deserves to lose a team for private comments about him not liking black people, what should happen to a syndicated radio host for running around saying that Obama is a Kenyan Marxist who hates white people over the the public airwaves? The NBA is a private organization, but so is Clear Channel Communications.

This is so wrong on so many levels. Seriously, what a retarded comment.
  1. NBA shouldn't of taken action? Let's make a poll. I bet 90% of America disagrees with you. It's the leagues job to maintain the integrity of the league, especially the ownership group. Each franchise is represented by the owner and Donald Sterling was BY FAR the worst on a reputational basis. Stern failed to deal with him and Adam made up for it within his first 9 months.

  2. We live in a world where nothing is private. Try running for office and then a video of you being a drunken, coked out asshole surfaces from 1985. Same thing applies as being an owner / CEO / influential person of a big company. Its basically a morality clause. And everything the league is doing is within the constitution, so your point on him not being punished is even more retarded.

  3. He will be punished by the public anyways. He's radioactive in LA right now. I don't think his parties are going to be quite what they were. Sure, he can buy some friends with his $2bln, but who couldn't? He's 82, he's the most liquid he'll ever be, and he has no time or anyone to spend it with.

  4. Your radio analogy is retarded. First of all, extremes get thrown around by each party on public airwaves. Who cares? Second of all, DS made those comments when the company he owns is majority African-American. Literally 80% of his employees are black. He basically called his business a plantation.

Sorry dude, the NBA wasn't letting the integrity of the league and the playoffs get ruined by some racist white prick. They handled it perfectly.

 
Best Response

Look, I'm just happy Sterling cut a deal with the league to make this a forced sale and save him $400 million in capital gains taxes. That was clearly worth the $2 million fine. The commissioner did him a huge favor.

He's 82, he's a billionaire, his life expectancy is probably another 20 years. This will all blow over for him and the NBA either did him a huge mercy or they cut some sort of back room deal (my suspicion).

He was probably going to have to sell anyways just to deal with estate issues (not sure how many heirs want to own a sports team and pay estate tax on $2 billion in inheritance for the privilege), the comments did not help in his desire to keep owning the team, selling is probably the right financial move for him here. And being able to call it a forced sale allows him to avoid hundreds of millions in capital gains taxes.

If you say something in the privacy of your own home, people and even companies and organizations have a right to associate with, buy from, or vote for whom they wish, but you should not be "punished" for saying something that didn't have any intent to harm anyone. In this case, I don't think Sterling is being "punished" by the league. They are simply disassociating from him and he is paying the NBA a $2 million fee to avoid 23.8% capital gains tax on the "forced sale". This "punishment" is a win-win for everyone, except the IRS.

I do think they handled everything perfectly, but I would not call this a punishment. I would call it a very friendly divorce. Sterling is making a sale a rational individual would want to make anyways, and the NBA commissioner kindly saved him anywhere from $200-500 million in capital gains taxes for a $2 million fee.

 

It's a franchise, and any franchise has the authority to "disenfranchise" the team. Nuclear option is to say the Clippers aren't even an NBA team anymore. The forced sale is a better deal than abolishing the Clippers as an NBA entity.

And even if it's said in private, when the comments were made public, it posed a material threat to the business viability of the NBA. Regardless of how it got out, what you can only deal with are realities. And the reality is that if the NBA wants to stay a viable entity and protect its business interest it has to get rid of Sterling. This isn't about civil rights; this is about business.

P.S. I am a longtime Clippers season ticket holder.

 

I'm not an expert on the valuation here but from a sports fan perspective and a layman's perspective, this is a good buy imo. Even if the NBA can't continue growing at the pace it has, it's done a great job of marketing its teams, key players (ex: Blake Griffin) and expanding internationally. The Western Conference is a tough place to win with the dominance of the Spurs and the brilliance of the Kevin Durant & Westbrook but this team has a lot of potential.

Blake showed an amazing amount of improvement this year, CP3 is a great point guard, DeAndre continues to improve and is a great rebounding presence, and now they're picking up pieces that'll make them even tougher to beat next year. Not to mention, I have a lot of trust in Doc's management and leadership of the team. I'm sure they'll come back even stronger next year.

Personally, I still see room for growth for the NBA and I think the Clippers will be one of the beneficiaries of the growth and we'll continue to see CP3 and Blake grow as superstars on and off the court. It'll be interesting to see who buys the team. I've heard that Grant Hill and Yao Ming might come together to make a bid.

 

In the short to medium term, I think sports franchises will only increase in value as they are in excellent bargaining positions with the networks, and thus will get larger deals and increased revenue. When you think about it, live sports is pretty much the only thing that allows the networks to charge the high prices for their bundled packages the way they do it today. People are fine (perhaps prefer) getting movies, series etc. from Netflix and the likes, and with the rapidly dumping prices of smart TVs their use is only going to get more widespread. The only thing that you cannot get at the same quality and convenience somewhere other than the networks is live sports. Live sports is then bundled with all the other crap and the networks can charge the customers a premium. Obviously this should all be factored in to the price but on a high level I see a positive trend for sports franchises.

In the long term, it will be interesting to see the role tech will play in sports. Live sports is pretty much the same as it was 30 years ago. Someone is going to disrupt the industry in a way that has happened to all other media industries, and it will be interesting to see how that will affect valuations for sports franchises.

 

Clippers are a great team with lots of relatively young pieces with some playoff experience going into next year. Paul needs to really prove that he's one of the best pgs in the league and show up in those big moments unlike this year. Sharing one of the biggest markets with the Lakers (and gradually stealing a lot of that market) is no doubt going to be a profitable business down the road for whoever becomes owner. Can't wait to see how it turns out with so many potential buyers (Yao and the Chinese investors, Grant Hill, bids from Seattle, and a bunch of other big names out there) and also all the drama with the Sterling family.

 

This whole damn thing is overblown. Look at what the guy does not what he says. If he was really a racist he wouldn't have hired a black coach and made him the highest paid in the league.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
heister:

This whole damn thing is overblown. Look at what the guy does not what he says. If he was really a racist he wouldn't have hired a black coach and made him the highest paid in the league.

In one if his lawsuits (this for sexual harassment) his company hired 74 whites, 6 Hispanics,and 30 Asians (26 of which were women), and zero blacks. He said he hired the Asian women because "they don't complain". The guy is racist and sexist, his actions are irrelevant, his racism was on full display on that tape and is just one incidence in a history of garbage by this guy. He probably hired a black coach to be his house slave that keeps all the field slaves in check. He paid Elgin Baylor crap money (a good 1/5th of what other gms made) and talked about wanting a plantation style system with a highly paid white coach that handled lowly paid "southern" black players. His racism isn't in question here, whether he should lose his business for it is the only thing debatable.

 

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