Billion-dollar sale of Los Angeles Clippers returns investment on Sacramento Kings owners’ risky gamble
The NBA is on the cusp of another record sale for one of its 30 franchises. The Los Angeles Clippers are reportedly on their way to being sold to former Microsoft CEO Steve Ballmer for roughly $2 billion.
It’s an astronomical cost, an unthinkable price and an unfathomable value for a team that’s been more laughingstock than contender for the last three decades.
That sound familiar?
Not long ago, the same thing was said about the sale of the Sacramento Kings. After an uphill battle to keep the team in the capital city, the franchise was finally sold last spring at an enterprise value of $535 million. That the sale of a small-market team like the Kings shattered the previous record set by the Warriors’ sale of $450 million boggled the minds of many.
But here we are, a year removed from that gargantuan sale. In retrospect, $535 million for an NBA franchise doesn’t sound so colossal. In fact, it sounds like a bargain.
The Kings’ new owners don’t fashion themselves as followers. Instead, Vivek Ranadivé and his group of investors want themselves to be seen as trendsetters. They paid no mind to those who questioned whether their purchase of the Kings was prudent and made a calculated, high-risk investment.
In the process, they set a new standard for franchise values around the league. Six small-market teams have been sold over the last 10 years. Before the sale of the Kings, the average going-price of a small market franchise was approximately $341.8 million. Barely two years removed from the last NBA lockout, the Kings sale raised the enterprise value of small-market teams by approximately 56 percent. Thanks to Ranadivé, the bottom floor of the league’s exclusive club was raised.
What a difference a year makes. Ranadivé and his partners have no doubt already seen a substantial return on their investment and they haven’t even scratched the surface of their grand plans of NBA 3.0. A new, state-of-the-art arena is still two years away and India’s market potential has yet to be tapped. The Kings have big dreams of rejuvenating the city of Sacramento through their new home venue and have aspirations of becoming the de facto team of the second most-populous country in the world.
Ballmer’s reasoning for paying an exorbitant amount for the Clippers doesn’t stray far from Ranadivé’s reasoning for buying the Kings. Like Ballmer, Ranadivé and his partners bought in at the price they did because of their belief in themselves and what their franchise could achieve under their leadership.
“In the sense you could say my aspirations for the Clippers on court are matched by my sense of how to think of these things financially,” Ballmer said in an interview with the L.A. Times discussing his purchasing agreement for the Clippers. “When you buy a tech company, you don’t say what is it? You say, what can we turn it into? And that’s a financial statement and product statement because mostly you buy little companies and say how do we take that and make it something big?”
In an interview with Forbes back in February, Ranadivé was asked what he thought the Kings could be worth in the next 10 years. The Kings majority owner made a bold prediction, stating that he thinks the Kings could be worth somewhere in the billions in the future. If the sale of the Clippers is any indication, that might actually happen sooner than he thought.