UPDATED at 2PM | Steve Ballmer has agreed to pay $2 billion for the Los Angeles Clippers. That’s not a Windows error message.
The former chief executive of Microsoft (MSFT) signed an agreement with Shelly Sterling on Thursday to buy the team. “I will be honored to have my name submitted to the NBA Board of Governors for approval as the next owner of the Los Angeles Clippers,” Ballmer said in a e-mailed statement. “I love basketball. And I intend to do everything in my power to ensure that the Clippers continue to win—and win big—in Los Angeles.”
There are still some major caveats before the winning begins. Donald Sterling, the team’s controlling owner, has not signed the agreement. Shelly, his wife, signed “on behalf of the family trust” that owns the team, according to a source familiar with the situation. The agreement between Ballmer and Sterling, the source says, will be submitted to the NBA for approval without Donald’s signature.
ESPN (DIS) has also reported that Donald “was found by experts to be mentally incapacitated,” allowing Shelly to negotiate the deal without his consent. NBA spokesman Mike Bass says in an email that Shelly advised the NBA last night about the agreement with Ballmer. The league, he says, awaits “the submission of necessary documentation from Mrs. Sterling” and has yet to change it plan for owners to meet on June 3 to discuss the situation and vote on the termination of the Sterlings ownership.
In any case, Ballmer stands ready to wire $2 billion to the Sterlings—minus maybe some debt against the team—in what would be the highest price ever paid for an NBA team. Earlier this year the Milwaukee Bucks sold for $550 million, which was the record at the time. If the deal goes through, Ballmer will be getting a team in the second-largest TV market in the country with both local and national TV contracts set to expire at the end of the 2015-16 season. But most of the factors behind the the record price won’t be found on any financial prospectus.
Ballmer is one of the few people on earth with billions of dollars at his disposal. And the Clippers are one of two NBA franchises in Los Angeles and the only one currently on the market. Ballmer has a fortune of $18.9 billion, according to the Bloomberg Billionaires Index, making him the world’s 39th richest person. Unlike the other bidders for the team, Ballmer did not include partners on his offer.
He also happens to be a basketball fan. In his Microsoft days, Ballmer played in a weekly Wednesday morning pickup game.
Ballmer has tried before to get an NBA team. He was part of group that bid $650 million to buy the Sacramento Kings last year and move the team to Seattle. That bid lost to a group lead by software entrepreneur Vivek Ranadive. Ballmer, it appears, was determined not to lose out again. He beat by a wide margin the $1.2 billion bid for the Clippers from former NBA All-Star Grant Hill and a group of financiers.
Ballmer is also probably hoping that the huge price tag will convince Donald Sterling to drop any resistance—a little extra leverage that comes thanks to the NBA’s stern actions against the scorned owner. It’s a solid guess that Shelly Sterling will spend her weekend trying to convince Donald to sign off on a sale, although a finding that he is “mentally incapacitated” would throw anything he does now into question.
Still, Donald Sterling may not care about the big number. He is already plenty rich and has a long history of litigiousness. He is also 80-years-old and reportedly suffering from prostate cancer, and he might care more about ego bruises and legacy concerns.
Ballmer’s offer signals a definitive break between franchise values and balance sheets. Forbes puts the Clippers annual operating income at $15 million. A $2 billion price makes for a price to earning ratio of over 100. Wealth of Ballmer’s scale allows a person to ignore such things.
Sports teams are often compared to yachts, luxury cars, or beachfront property— the playthings of rich people. Another way to think of them is as fine art: each team is one of a kind. The pleasure comes from being close and sharing that rare access with friends. The financial return comes when you get out—although Ballmer will be hard pressed to match Donald Sterling’s 15,900 percent return on his original investment of $12.5 million in the Clippers in 1981.