Barbarians Arrive at L.A. Clippers Gate With NBA Value Days Over

Grant Hill and Ares Capital Management Chairman Tony Ressler spent the afternoon of May 26 at the Malibu, California, home of Shelly Sterling, who had something lots of rich folks wanted: the Los Angeles Clippers.

Sterling, the team’s co-owner and wife of banned managing partner Donald Sterling, the day before had entertained former Microsoft Corp. Chief Executive Officer Steve Ballmer, whose $2 billion offer topped an auction that included a bid group composed of music executive David Geffen, Oracle Corp. CEO Larry Ellison and Oprah Winfrey.

“It was equivalent to Barbarians at the Gate,” said Hill, a Duke University-educated former National Basketball Association player, referencing the 1990 book that detailed the frenzy surrounding the takeover of RJR Nabisco.

The $2 billion price tag obliterated the NBA record, set earlier this month when Avenue Capital’s Marc Lasry and Fortress Investment Group LLC co-founder Wes Edens paid $550 million for the Milwaukee Bucks.

Ballmer, who unsuccessfully tried to buy the Sacramento Kings and move the team to Seattle, has a net worth of $19 billion, which according to the Bloomberg Billionaire Index makes him the 39th richest person in the world.

Forbes earlier this year valued the Clippers at $575 million, 13th in the 30-team league.

“The days of buying something that’s undervalued are long gone,” said former Indiana Pacers General Manager and Minnesota Timberwolves President David Kahn, who earlier this month predicted a sale price of more than $2 billion for the Clippers. “Until there’s some sort of correction. And there may never be one. This is all about live television.”

Media Rights

Media rights was a big reason why Guggenheim Partners, which was part of the Geffen-Ellison-led bid group for the Clippers, paid a U.S. sports league record $2.15 billion for baseball’s Los Angeles Dodgers. The club started a regional sports network, which it owns, and signed a 25-year, $8.35 billion contract with Time Warner Cable.

Ballmer, meantime, can expect a windfall in both national and local television revenue. The league’s broadcast contracts with Walt Disney Co.’s ABC and ESPN and Turner’s TNT expire after the 2015-16 season. The NBA receives about $930 million annually in those agreements. Kahn said the number could triple as basketball’s DVR-proof postseason dominates one-quarter of the calendar year.

Locally, the Clippers’ broadcast contract expires in 2016, too. Fox needs the team for its Prime Ticket, which lost the Lakers and Dodgers. The Dodgers, meantime, might want to add the Clippers as winter programming, similar to what the Yankees’ YES Network did when it added basketball’s Brooklyn Nets.

‘Frothy’ Market

Mike Principe, chief executive officer of sports representation and marketing company the Legacy Agency, said the market for pro sports teams feels “frothy.”

“The Clippers feels overvalued at this price,” he said. “But as media rights continue to increase and sports become more and more relevant to advertisers in creating a value proposition, then it may very well continue for some time.”

Ballmer’s purchase must still be approved by the NBA, which had set a June 3 hearing when owners at the urging of Commissioner Adam Silver would have voted on whether to strip Sterling of the team and sell it in the wake of his racist remarks that became public. He would join Microsoft co-founder Paul Allen as an NBA owner.

NBA spokesman Mike Bass said in a statement yesterday that the hearing will remain as scheduled pending submission of necessary documents from Shelly Sterling.

“Commissioner Silver has consistently said the preferred outcome to the Clippers proceeding would be a voluntary sale of the team,” he said.

Ballmer’s Upside

Television consultant Lee Berke said “there is upside” for Ballmer, whose best chance at generating significant revenue comes from the media opportunities of owning an asset in the second-biggest U.S. media market.

Unlike the Dodgers sale, which included the team’s stadium and surrounding land, the Clippers don’t own their home arena, Staples Center, which they share with the Lakers.

“What are you going to do to move the needle? It has to be media,” Berke said, noting that there should be enough competition for Clippers rights for Ballmer to extract equity in the media component.

“He’s going into a competitive marketplace with three very strong, well-pocketed contenders,” Berke said. “There is upside.”

Escalating Values

Sal Galatioto agrees, noting that almost all of the so-called experts poked fun at how much Guggenheim Partners paid for the Dodgers.

“I don’t believe he overpaid,” said Galatioto, whose Galatioto Sports Parters has sold NBA teams, including the Golden State Warriors, Kings, Phoenix Suns and Philadelphia 76ers. “Every time I sell something, and I think I’ve gotten a tremendous price, five years later it sells for a lot more.”

That said, Chuck Baker, who heads sports mergers and acquisitions as a partner in DLA Piper’s Global Sports, Media and Entertainment practice, called the Clippers sale price “staggering,” and said there’s “a little bit of a bubble effect.”

“This is a rare asset that had tremendous publicity,” he said. “It was a rushed sale, and it’s L.A.”

Hill’s Patriots

As for Hill, he recalled a time in 1986 when his father, former Dallas Cowboys running back Calvin Hill, was going to buy the New England Patriots for about $60 million.

“The money guy backed out because he thought it was overvalued,” said Hill, whose group that also included Oaktree Capital’s Bruce Karsh offered $1.2 billion for the Clippers. “Every time he saw my dad after that he would say, ‘It’s the biggest mistake I ever made.’”

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