Steve Ballmer's $2 billion Clippers buy is part of an NBA price boom

Steve Ballmer bid $2 billion to buy the Los Angeles Clippers, beating out generous offers from several other suitors. Steve Ballmer's Clippers buy comes at a time when NBA teams are becoming the must-have accessories for the nation's billionaires. 

By , Staff writer

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    Then-Microsoft CEO Steve Ballmer, left, shakes hands with former NBA players Bill Russell, right, and 'Downtown' Freddie Brown as Omar Lee looks on during an NCAA college basketball game between Washington and Oregon State in Seattle in January. Shelly Sterling has reached an agreement to sell the Los Angeles Clippers to Ballmer for $2 billion.
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Well, that didn’t take long.

The NBA’s search for a new owner for the Los Angeles Clippers wrapped up Thursday night, when former Microsoft CEO Steve Ballmer signed papers to buy the team for a record-breaking $2 billion. The sale was carried out by Shelley Sterling (former owner Donald Sterling’s wife) who was said she was acting on behalf of the Sterling family trust, which owns the team.

"I am delighted that we are selling the team to Steve, who will be a terrific owner," Mrs. Sterling said in a statement announcing the deal. "We have worked for 33 years to build the Clippers into a premiere NBA franchise. I am confident that Steve will take the team to new levels of success."

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The NBA was eager to get the Sterlings out of the league after recordings surfaced of Donald Sterling making inflammatory remarks about African Americans, including Magic Johnson, and the fracas that followed. Convenient, then, that NBA teams are currently like coveted, hard-to-find Christmas toys for the country’s billionaires. Though bidding opened for the Clippers just last week, multiple buyers were willing to put up serious cash for the team. Ballmer’s $2 billion bid was the highest, but a group led by music producer David Geffen put in a $1.6 billion offer, and another led by investors Tony Ressler and Bruce Karsh offered $1.2 billion, according to ESPN. 

In January, Forbes valued the Clippers at just $575 million.

“I think this number came out ahead of even what the most optimistic [predictions] were suggesting,” says Victor Matheson, a sports economist and professor at The College of the Holy Cross in Worcester, Mass. “That said, no one thought it would be close to their Forbes valuation.”

Such bids would have seemed wildly opulent just a few short years ago. In 2010, the Golden State Warriors sold for a measly $450 million, despite being located just outside of San Francisco, a major city. Michael Jordan bought his hometown Charlotte Bobcats for just $275 million the same year. But in the period since, several factors have contributed to the NBA franchise price boom.

For one, media deals for NBA teams and the league at large have ballooned in value and are expected to move higher. Last year, the Clippers' Staples Center arena-mates, the Los Angeles Lakers, signed a 20-year deal with Time Warner Cable worth 3.6 billion. The NBA’s broadcast deals with the TNT and ESPN networks are also set to expire soon, and analysts think a new deal could approach the $2 billion mark. The Warriors are now estimated to be worth nearly double their purchase price just four years later.

Furthermore, NBA ownership of even lousy small-market teams became immediately more profitable in 2011, when a new collective bargaining agreement decreased player’s shares of league revenues from 57 percent to 50 percent, and profits were distributed more evenly among franchises.

The Clippers’ $2 billion purchase price is the most ever paid for a North American sports franchise, in part because it is far from a lousy small market team. The Clippers have turned into a championship contender over the past few seasons, with superstars Chris Paul and Blake Griffin helping bust the Lakers’ decades-long monopoly on Los Angeles basketball fans. The dreary Milwaukee Bucks selling for $550 million in April foreshadowed an astonishing Clippers bid.

Another factor: The NBA has been very successful at globalization, unlike the NFL. A huge proportion of the league’s players come from overseas, driving popularity in Europe and Asia.

But the major factor driving up franchise prices isn’t that they’re decent investments; it’s that owning one is the ultimate status symbol. Ballmer buying the Clippers “Gives him something that none of his billionaire buddies have,” Mr. Matheson notes. “The Clippers are like a Van Gogh painting. There aren’t a lot of them and billionaires compete with each other to get them … and these are a lot more fun than a painting."

That might explain why there are so many repeat-bidders for teams. Ballmer was part of a group that tried to buy the Sacramento Kings and move them to Seattle last year; Oracle founder Larry Ellison was one of the Warriors bidders and headed up one of the early investment groups vying for the Clippers.

He’ll have to try another day, because now, barring any legal trouble, Ballmer has paid more than him to “meet everyone in the NBA, which is kind of fun,” Matheson says. 

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