Racism Pays: Clippers Can Fetch $2 Billion
Now that it’s become a fait accompli that Donald Sterling can no longer own the Los Angeles Clippers, many have been throwing around numbers to determine the team's sales price, from Forbes’s $575 million valuation to predictions that a buyer could break the bank at $1 billion.
That’s still much, much too low.
The National Basketball Association will soon be offering its owners a foolproof business model, similar to that enjoyed by the National Football League, thanks to: (1) a new national TV deal beginning in 2017, which will, at a minimum, double thanks to the NBA’s DVR-proof postseason dominating one-quarter of the calendar year; (2) the recent collective bargaining agreement lowering player costs to about 50 percent of overall league revenue; (3) the ability to mine revenue from other parts of the world.
Because of these factors, all of which are superior to Major League Baseball's situation, it wouldn’t surprise me to see the Clippers surpass the $2.115 billion paid for the Los Angeles Dodgers. (Like the Dodgers at the time of their transaction, the Clippers are just a few years away from a new local television contract.)
But there’s another factor at work that is rarely discussed: In the ever-widening world of sports, the number of willing buyers now outflank the number of willing sellers by a landslide margin, a revolutionary economic change that will push prices for sports teams, as with Manhattan penthouses and Picassos, to astonishing heights for the foreseeable future -- especially those teams in places where rich people like to live during the basketball season.
In 1985, the year before Ronald Reagan instituted the policies that heavily reduced the personal taxes on the very richest Americans, there were 13 U.S. billionaires. By last year, Forbes calculated, there were 442.
Yes, there have been other factors at work in propelling the tidal wave of billionaires: the technology explosion, the flattening of the world, the deregulation of Wall Street, private equity, the proliferation and sophistication of hedge funds, etc.. But those factors are not as significant as the real driver: the tax policies of the last three decades have spawned an enormous number of ultra-high-net-worth individuals with the capability of buying not just one but several super-luxury items, give or take a divorce: South Beach mansion, French Riviera villa, Gulfstream jet, sports team.
Meanwhile, the number of pro sports teams has failed to keep pace with the boom in wealth. In 1985, there were 97 teams in major league sports: 28 in the NFL, 28 in MLB, 23 in the NBA and 23 in the National Hockey League. Today there are 122 teams, an increase of 26 percent over three decades. There are four more teams in the NFL and baseball, seven more in the NBA and nine more in the NHL, the weakest of the four established pro sports leagues.
And this only considers the 442 billionaires in the U.S., at last count by Forbes. We are not including the many ultrawealthy Americans who have the ability to write a check for $100-million-plus, still enough in most instances for a controlling stake in an NBA, NHL or MLB team, provided you syndicate the rest of the purchase, as has become common. Neither Joe Lacob nor Peter Guber, who led the purchase of the Golden State Warriors in 2010, is on the Forbes list.
And, that’s only the half of it. Actually, the less than half of it: For while there are fewer than 500 billionaires in the U.S., there are 1,000 more or so throughout the world. Now that Mikhail Prokhorov paved the way with his purchase of the then-New Jersey Nets, now ensconced in the Borscht Belt of Brooklyn, you should assume that another of the 110 Russian billionaires is, as you read this, eyeing a sports team purchase -- assuming he hasn’t bought something else already, as Roman Abramovich did with powerhouse Chelsea of the English Premier League.
Remember, as in real estate, location matters (even though every NBA owner, even those in small markets, will happily experience a bump in valuation from this sale). An NBA team hasn’t come on the market in Los Angeles in more than three decades, and until the last two weeks, there was the likelihood that none would change hands for the foreseeable future. This will be the Sale of the Century for the NBA, with many potential buyers, from Century City to Moscow and beyond.
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