Los Angeles Clippers sale: why the team fetched an eye-popping $2 billion

Former Microsoft CEO Steve Ballmer won the bidding for a team that for decades was considered a laughingstock in sports. Now, however, the financial calculus for the Los Angeles Clippers is changing.

In a $2 billion twist to the NBA saga of a lovelorn racist rant that brought a lifetime ban and a likely forced divestiture, former Microsoft CEO Steve Ballmer has outbid a who’s who list of billionaires to purchase the Los Angeles Clippers from the Sterling Family Trust.

On Thursday, Shelly Sterling, the separated wife of embattled Clippers owner Donald Sterling, asserted control of the family trust that owns the National Basketball Association franchise and announced that Mr. Ballmer, one of the world’s richest individuals, had won the team with his $2 billion bid.

“I am delighted that we are selling the team to Steve, who will be a terrific owner," Mrs. Sterling said in statement Thursday evening. “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.”

It’s a startling figure for the franchise, which, despite its current star-filled roster and championship-caliber coach, was for decades considered a laughingstock and one of the worst-run teams in sports under the ownership of Mr. Sterling. The NBA’s longest-tenured owner was banned for life and fined $2.5 million by the league after he was heard telling his young mistress, who recorded the conversation, not to bring black people to Clippers games.

The potential $2 billion sale would dwarf the record $550 million purchase of the Milwaukee Bucks last month, which had followed the then-record $534 million paid for the Sacramento Kings last year. According to reports, Ballmer beat out a $1.6 billion offer by a group of investors headed by media moguls David Geffen and Oprah Winfrey, as well as a $1.2 billion bid by a group of Los Angeles billionaires who partnered with former NBA star Grant Hill.

So what gives in what Forbes is calling “the basketball bubble”? Why have billionaires been pushing NBA franchises to such windmill-dunking heights?

Indeed, the once-perpetually-hapless Clippers share both a market and an arena with the “show time” Lakers, which have appeared in 31 NBA finals, hoisting the championship trophy 16 times. The Clippers have won only a total of 23 playoff games, with more than half of them coming in the past three years.

“One of the reasons the Clippers have become such a hot ticket is because, compared to the Lakers, they've always had reasonably priced seats that have helped their everyman fan base,” wrote Bill Plaschke, Los Angeles Times columnist and ESPN commentator. “How much will Ballmer have to raise those prices? He's worth $20 billion, but here's guessing that for all the sympathetic love showered on the team in the wake of Sterling's remarks, Ballmer isn't buying it as a charity.”

After the owners’ lockout of players in 2011, the NBA’s economic landscape has shifted dramatically, observers say. Owners got the players to accept a 10-year deal that gives them 51 percent of league revenues, down from 57 percent in the previous collective bargaining agreement. This amounts to nearly $3 billion in savings for owners over the length of deal – which either side can opt out of in 2017 – driving franchise values higher.

Moreover, Los Angeles remains the second-largest sports market in America – and is still without a headline-stealing NFL franchise.

“It is a unique situation,” Forbes columnist Kurt Badenhausen told The Washington Post. “The auction process drives it up. You also have the second-biggest market in the US where a basketball franchise has not come up on the market for more than 30 years. The longest-tenured ownership in the NBA are in Los Angeles – the Clippers and the Lakers. You have a lot of people who have been interested in buying a team in Los Angeles for a long time, and it might be their only chance.”

Still, unlike baseball’s L.A. Dodgers, which set the record for the highest price ever paid for a North American sports franchise in a 2012 sale of $2.15 billion, the Clippers must pay rent for their arena, where they also get no revenues from luxury boxes and concessions. The Dodgers sale included a stadium and a share of the lucrative parking lots surrounding it.  

But observers say that both the NBA and Clippers are set for a TV windfall, again fueled by competitive bidding. The Clippers’ current television deal with Fox’s Prime Ticket, which will expire in 2016, is reportedly worth $20 million a year, but experts believe the team can ink $60 million to $75 million after that.

The NBA itself is poised to sign a new TV deal after its current deal also expires in 2016. It is the only league not locked into a long-term deal through 2020, and experts believe it can double the nearly $1 billion that its current television partners, ESPN/ABC and TNT, are now paying. “Bidding is expected to be fierce for one of the remaining DVR-proof properties on TV,” Mr. Badenhausen writes.

Yet the Sterling saga may be far from over. This week the embattled owner promised to “fight to the bloody end” to keep his team and reputation, according to his attorney. He also “disavowed” permitting his wife, in writing, to broker a sale of the team, owned by the family trust that gives her a 50 percent stake.

On Thursday, however, news organizations reported that the family trust had already given Mrs. Sterling sole control of the team after it judged the octogenarian owner to be mentally incapacitated. Even if the NBA approves the sale to Ballmer – which is expected, since he was already vetted by the league when he attempted to buy the Sacramento Kings last year – a legal battle could drag on for months or longer.

“I love basketball. And I intend to do everything in my power to ensure that the Clippers continue to win – and win big – in Los Angeles,” Ballmer said in statement Thursday. “L.A. is one of the world’s great cities – a city that embraces inclusiveness, in exactly the same way that the NBA and I embrace inclusiveness. I am confident that the Clippers will in the coming years become an even bigger part of the community.”