National Basketball Association

Experts puzzle over $2-billion bid for Clippers

Published Jun. 2, 2014 11:57 p.m. ET

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Steve Ballmer's $2-billion offer for the Los Angeles Clippers -- nearly four times the record sale for an NBA team -- has experts puzzling over how the former Microsoft chief plans to make any money on the deal.

But Ballmer, with a net worth estimated at about $20 billion, may have little need for profit. The eye-popping bid from the world's 34th richest man underscores the explosion in tech wealth and the nonchalance with which billionaires chase trophy brands.

"This reflects an enormously wealthy person buying a toy," said Lawrence Mishel, president of the Economic Policy Institute, a Washington think tank. "It's not a financial investment."

If it were, the prospects for near-term profitability are at best questionable, according to experts in valuing sports franchises. Some observers believe the scarcity of available professional sports franchises makes almost any deal a good bet for the long term. But others see no financial justification.

"When I try to make sense of it economically, I can't," said Andrew Zimbalist, a sports economist at Smith College. "You might be able to justify a price that's maybe half of that, but you can't justify $2 billion."

The sky-high offer grew out of a sudden and rushed bidding war for the team. Ballmer's winning bid beat a $1.6-billion offer from entertainment moguls David Geffen and Oprah Winfrey, who partnered with principals of Dodgers owner Guggenheim Partners and others. Another offer, at $1.2 billion, came from a team of Los Angeles investors led by Tony Ressler and Bruce Karsh and former basketball star Grant Hill.

Even the jilted suitors, who were not given a chance to match Ballmer's higher offer, seemed stunned by the $2-billion number.

"I just can't understand what exactly Ballmer was thinking when he decided to pay this price, but it's fair to say he was determined to own it," said one of the bidders, who spoke on the condition of anonymity because he was not authorized to comment on behalf of his investment group. "It did not make financial sense based on where the team is today."

All three bids were far higher than any previous estimates of the Clippers' value or the highest price ever paid for an NBA team -- the $550-million sale price for the Milwaukee Bucks this month.

The Clippers were purchased in 1981 by current owner Donald Sterling for $12.5 million. Although the real estate billionaire had no intention of selling the team, it came into play after last month's public airing of tapes in which he chastised a female friend for socializing with black people.

This week's auction was led by Sterling's wife, and Clippers co-owner, Shelly Sterling, in an apparent attempt to complete a sale before a meeting Tuesday at which NBA owners were scheduled to vote on whether to strip the Sterlings of ownership. The NBA announced Friday that the meeting had been canceled because of the deal with Ballmer.

Donald Sterling has not publicly agreed to the deal. The embattled billionaire has said, through representatives, that he will never relinquish control of the team.

In the days following the release of Sterling's remarks, a widely reported Forbes estimate valued the Clippers at $575 million.

Joe Maloof, whose family once owned the Houston Rockets and sold the Sacramento Kings last year, agreed that Ballmer is overpaying. And yet he insisted the bid is a smart move.

"These teams are rare gems," Maloof said. "Owning a sports franchise in today's world is a very secure investment. They always appreciate in value."

One sports investment banker said that, if projected increases in television revenues are extended well into the future, the Ballmer offer doesn't look so crazy.

"This price will be eminently rational and reasonable based on what is expected in changes to the broadcast deals, both locally and nationally," said John Moag, chief executive of Moag & Co.

For many billionaires, the prestige of owning a major sports team is worth more than dollars in the bank, as one of Sterling's lawyers told a Times reporter Thursday. Bobby Samini, a lawyer for Sterling, said his client "could not care less" about the money.

Even if the winning bid had been $10 billion, "it wouldn't change his life in any way," Samini said, standing in the driveway of Sterling's Beverly Hills home.

Money may not be the principal concern for Ballmer, either. The 58-year-old has already tried to buy an NBA team. He bid for the Maloof family's Kings, but was rebuffed by the NBA because he intended to move the team to Seattle.

Ballmer has made clear he intends to keep the Clippers in L.A.

The basketball enthusiast -- who was photographed sitting next to NBA Commissioner Adam Silver at a Clippers game this month -- zeroed in on the Sterling-owned franchise once the auction was announced.

The bidding war illustrates tech moguls' growing interest in sports franchises -- particularly NBA teams.

Ballmer was iced out on his Kings bid last year to Vivek Ranadive, the founder and CEO of computing company TIBCO Software.

Robert Pera, chief executive of a wireless technology manufacturer and a former engineer at Apple, bought the Memphis Grizzlies. And Microsoft co-founder Paul Allen owns the Portland Trail Blazers and the Seattle Seahawks football team.

Ballmer's chance of recouping his investment in the Clippers will largely depend on future national and local television rights to the team.

Fox-owned Prime Ticket is the current rights holders for Clippers games, and has two years left on a contract that is said to be worth $25 million per season -- a figure much lower than deals for other local teams.

Time Warner Cable is paying about $150 million per season for Lakers games.

And last year, the cable company outbid Prime Ticket for rights to distribute the Dodger-owned channel SportsNet LA. Time Warner agreed to pay the Dodgers $8.35 billion over 25 years, according to a valuation by the Dodgers and Major League Baseball.

Time Warner Cable has struggled to find distributors for SportsNet LA because of its high price.

Corporate sponsorship drives revenue, too, but the Clippers earn less than many other teams. An NBA internal report, a copy of which was obtained by The Times, said the Clippers had $18.3 million in sponsorship revenues in the 2013-14 season -- ranking 16th in the NBA.

Sterling himself put the value of the Clippers at under $300 million during a 2009 deposition in a Justice Department federal housing discrimination lawsuit.

Sterling, answering questions about a balance sheet for the Sterling Family Trust, through which he and Shelly co-own the Clippers franchise, said he thought that figure might even be too high.

"It was an estimate," he testified. "I don't know if the Clippers are worth $300 million. I think less. All the teams are for sale, and they're borrowing money now. And people aren't buying the tickets."

Moag noted the irony that the public broadcast of Sterling's controversial remarks may have driven up the price exponentially. The scandal gave his sports franchise national prominence and sudden cachet.

"If Donald Sterling had put this team up for sale six months ago, before he ran his mouth, this team would have gotten $700 [million] to $750 [million]," he said. "This team has gotten a lot of attention, and literally overnight it changed this team's brand."

Times staff writers Joe Flint, Nathan Fenno and James Rainey contributed to this story.

--Charles Fleming, Walter Hamilton, Andrea Chang