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$ 2 Billion NBA Clippers deal takes sports business to the next level

Ongoing fan loyalty and fan interest make sports teams more valuable.
Ongoing fan loyalty and fan interest make sports teams more valuable.
Photo by Stephen Dunn/Getty Images

The recent record $2 billion bid for the Los Angeles Clippers NBA Team answered one of the most important questions in sports business. The question is whether the double digit increases in asset values for sports franchises would come to an end anytime soon. The answer is simply “NO.” The $ 2 billion bid for the Los Angeles Clippers is nearly four times the $550 million amount paid for the NBA Milwaukee Bucks earlier this year. While the syndicate which purchased the Los Angeles Dodgers in 2012 also paid approximately $ 2 billion, that amount included the purchase of the team and Dodgers’ Stadium, one of the most valuable pieces of real estate near downtown Los Angeles. A partial sale of the parking lot for development of a multi-level parking structure and mixed use development would be worth hundreds of millions of dollars.

Sales prices for National Hockey League teams mirror the large price increases in franchise values in Major League Baseball and the National Basketball Association. According to Forbes.com, the average asset value of NHL teams this season is $443 million. That represents a giant forty-six percent increase from the previous season.

All these large increases in sports business asset values reflect trends that are likely to continue for several more years:

  • Large increase in the number of qualified buyers. Very few individuals have $2 billion to purchase a sports team. But the number who do has grown significantly. According to Forbes Magazine, over 270 individual Americans have over $ 2 billion. They can pool their resources together with other billionaires to buy major league franchises and can join private syndicates like the Guggenheim Partners syndicate which purchased the Los Angeles Dodgers. Lines of credit from private banking specialists can increase the total number of qualified buyers for each major league franchise on the market to several thousand potential bidders.
  • More sports business finance choices. Private banking specialists from top tier banks like US Trust and Citibank who can help to arrange loans to purchase sports teams are part of a larger trend. PNC Bank has both a sports and entertainment lending group that provides receivables based financing and an equipment leasing group with sports expertise to help provide additional financing.
  • Globalization of popular sports. This has been most visible in soccer, which used to be dominated by regional leagues whose teams rarely recruited outside their own country. The UEFA Champions League has made professional soccer popular worldwide and been matched with global recruiting. This year, Major League Baseball opened the 2014 season with a highly publicized series in Sydney, Australia. This proved an effective way to reach the large audience of baseball fans in Japan. Later this year, the NFL will play three games in London, the largest city in Europe.
  • Anchor status for premium cable channels. Cable television is a $ 60 billion a year business in the U.S. Popular sports teams and sports events have proven to be the most effective way to build audiences and maintain their loyalty. In a landmark deal valued at $7.75 billion for ten three week broadcasts, NBC Universal agreed to pay a quarter-billion per weeks for exclusive rights to broadcast the Olympics in the U.S. market. This content is so popular that it helped boost first quarter 2014 earnings by thirty percent.
  • Valuable sponsorships. Many sports team sponsorships offer sponsors an advantage they cannot get from sponsoring a short run of a movie, concert or other entertainment event. That is ongoing fan loyalty and fan interest. This continues at a high level through seasons that last half-a-year and is well maintained by off-season activities such as player personal appearances and training camps. Social media makes this fan engagement even more valuable.