Ranadive’s acquisition now seems to be a steal.
By Deepak Chitnis
WASHINGTON, DC: In the wake of the controversially racist remarks made by Los Angeles Clippers owner Donald Sterling in April, which forced the National Basketball Association (NBA) to call on the 29 other team owners to vote Sterling out of the league, former Microsoft CEO Steve Ballmer purchased the embattled team last week for a tidy sum of $2 billion.
The path to get to the purchase was wrought with complications and potential entanglements, some of which still have yet to play out in full. But the general consensus, both within the league and outside of it, is that Ballmer made a smart acquisition. And the fact that he paid $2 billion, easily the most that an NBA team has ever been bought for, has analysts questioning what other teams are really worth.
About a year ago, Indian American entrepreneur Vivek Ranadive co-purchased the neighboring Sacramento Kings for $535 million. At the time, the number was fairly high, especially since the Kings play in a small market and that the only comparable deal at the time was the sale of the Golden State Warriors (based in Oakland) for $450 million.
But now that the Clippers, which were estimated to be sold for about one billion dollars, have sold for twice that much, the every team owner and outside appraiser is looking at the 29 other NBA franchises from a new perspective. If the Clippers, which have never been a leading NBA franchise, can sell for that much, how much are all these other teams really worth now?
In January of this year, Forbes Magazine ran an analytic piece that ranked all the NBA franchises based on their estimated valuations. The Los Angeles Clippers ranked #13, with a team value of $575 million. Donald Sterling bought the team in 1981 for an incredible $12 million. Ranadive’s Kings team was ranked not far behind, at #16. The team was valued at $550 million, just a step above what Ranadive paid for it less than a year earlier.
But the highest-ranked team was the New York Knicks, and even they were only valued at an estimated $1.4 billion. The NBA’s other Los Angeles-based team, the Lakers, were #2 with $1.35 billion. The Chicago Bulls came in at #3 with $1 billion, making these three teams that only ones worth one billion dollars or higher; in fact, they’re the only three teams that were valued at anything higher than $900 million.
The Miami Heat, the most dominant team in the NBA over the last four years, were ranked relatively low at #7 and $770 million. Mark Cuban’s team, the Dallas Mavericks, were #8 with $765 million. Relatively small-market teams like the Brooklyn Nets (#4, $875 million), Golden State Warriors (#9, $750 million), and the San Antonio Spurs (#10, $660 million) also made the top 10. Judging by those numbers, the Kings could very well be worth at least $1.5 billion now.
In an interview last year, Ranadive said he thought the Kings could be worth billions in the next 10 years – apparently, he may have reached that figure already. The Kings possibly being worth that much, if true, is made even more remarkable for the fact that the Kings were in jeopardy of being moved to Seattle not too long ago, due to low attendance numbers and other factors.
It is, however, likely a stretch to consider that the Kings could be worth $1 billion, let alone much more than that. In terms of all-star players, they have none, with their closest player to a marquee name being Rudy Gay. Having just secured the eighth spot in the upcoming NBA Draft, their prospects don’t look terribly enticing, either. And the Kings, despite having one championship to their name (in 1951), the team won’t be a legitimate title contender for at least a few years.
Did Ballmer overpay for the Clippers, which have no championships to their name but are a solid contender and have one of the most star-studded lineups in the league? Almost certainly, but that’s not necessarily a bad thing. Purchases like this are a long-term investment, and rumors of Oprah Winfrey and other high-profile buyers were in the air. With the Clippers on the up-and-up, Ballmer will almost certainly see a profit when he decides to sell the team down the road.
But the Kings, having just been bought one year ago, are in no danger of being sold anytime soon. Ranadive has a long-term plan in place to increase the team’s profile domestically and abroad, particularly in India, and to build the team into a championship-caliber team with key offseason acquisitions.
“Owning a sports franchise in today’s world is a very secure investment,” former Houston Rockets owner Joe Maloof told the Los Angeles Times. “They always appreciate in value.” These things don’t necessarily mean the team is worth $2 billion, but it’s certainly worth more than $550 million. And that means that Ranadive made a fantastic deal last year, perhaps even got a steal, and could profit in the hundreds of millions even if he sells the team by 2020.
In the meantime, let’s just see if the Kings can make it to the playoffs in a competitive Western Conference, and if Ballmer has what it takes to shepherd his new $2 billion purchase to its first NBA title – next season.