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5 years ago, NBA owners were eager to sell. What changed?
Five years ago, NBA teams were getting sold left and right. Now, none are on the market. We explain what changed and forecast the challenges on the horizon for Adam Silver.
In 2010 and 2011, six NBA teams were sold. Since then, six more franchises have changed hands. Together, that represents 40 percent of the league. Yet, it does not appear a single NBA franchise is currently up for sale.
Is the NBA simply stable now? Or are there other elements at play?
Why there were so many sales in 2010 and 2011
The global economic crisis seemed to spur on at least a couple of the earlier sales in the 2010-11 sale boom, and at least one post-2012. That worldwide recession appears to have made luxuries like NBA franchises more like movable liabilities than must-have assets.
Bruce Ratner apparently sold the Nets to Mikhail Prokhorov under some level of financial duress at he attempted to get his Atlantic Yards development in Brooklyn done. Bob Johnson is the only NBA franchise owner in history believed to have sold for no profit — he unloaded the Hornets on Michael Jordan in 2010 as the team floundered. The NBA itself famously took the now-Pelicans off George Shinn’s hands in 2010, fearing collapse of the market and missed payroll. The Maloofs, who suffered mightily due to Las Vegas’ particularly acute downturn circa 2008, held onto the Kings until 2013, but eventually solid for liquidity.
None of these franchise owners, with the potential exception of Shinn and possibly the Maloofs, were at risk of suffering so mightily during the economic crisis that they could have lost their teams to creditors. But the NBA teams represented unnecessary burdens in their portfolios.
Two more sales stemmed from the deaths of longtime franchise owners: Bill Davidson in Detroit and Abe Pollin in Washington, D.C. Their wives elected to sell the NBA teams. Tom Gores ended up with the steal of the century in getting the Pistons and some real estate interests for $325 million in 2011. Ted Leonsis took the reins of the Wizards a year prior.
The two other teams sold in 2010 and 2011 appeared to be your standard sports franchise sales: owners of weak teams decided it wasn’t fun anymore. The Warriors sold in 2010 for a then-record $450 million. The Sixers were sold by Comcast-Spectator in the summer of 2011 for a much lower price.
Ah, the summer of 2011. The elephant in the room.
How the lockout affected team sales
The 2011 NBA lockout cost just 16 regular season games in the end, but the stakes were extraordinarily high. The league claimed half the teams were losing money and no internal revenue sharing could help make every team profitable. Fearing a fully lost season and a loss at the bargaining table, the union folded in November and gave up roughly $300 million per year in players’ salaries. On paper, the second that deal was signed, every NBA team should have been able at least to break even while staying competitive in terms of payroll. Most teams should have been able to mint money.
But the new profit security found in the labor deal didn’t show up in franchise sale prices right away. The league finally found a local buyer in New Orleans for the now-Pelicans, and sold the team to Tom Benson at only a very minor profit. Robert Pera, a young Silicon Valley tycoon, won the Grizzlies for a modest $350 million — somewhat higher than what you’d expect based on market size and recent sales, but nothing extraordinary.
Then the economic reality of the new labor deal and the new TV revenue paradigm set in, and all hell broke loose.
The new reality
In early 2013, Chris Hansen, a man desperate to get a team back to Seattle, threw half a billion dollars at the increasingly desperate Maloofs. Vivek Ranadive somehow figured that he could make those numbers work in Sacramento, and won the NBA’s support. That $535 million purchase price set a new NBA record.
A year later, that record fell when Herb Kohl sold the Bucks for $550 million to out-of-town financiers. Those billionaires, Marc Lasry and Wes Edens, had no ties to Milwaukee but had determined that an NBA franchise based in Wisconsin was worth every penny ... plus a $100 million commitment for a new arena (presuming the public would kick in a big chunk, as well).
Later in 2014, TMZ blew up Donald Sterling’s decades-long anti-stewardship of the L.A. Clippers by revealing him a scumbag racist (despite just about everyone who pays attention already knows him to be a scumbag racist). After the league (pushed by players, the media and perhaps most importantly, sponsors) ejected Sterling from the exclusive NBA club, his estranged wife agreed to sell the team to Steve Ballmer for a new record price: $2 billion.
That $2 billion price drew lots of attention, and it was higher than anyone expected. But some of us saw the value for Ballmer at that insane price. This is where things were inevitably headed.
A couple of months later, the NBA announced its new TV broadcast deal. Instead of each team earning $30 million a year from ESPN/ABC and Turner, each franchise would get about $86 million per year on average. Under the labor deal, players would take half. That’s still an extra $28 million for each team, with no extra expenses required. Just off the new national TV deal. The national deal increased 180 percent as live sports became the hottest property on television and broadcasters fought hard to win them.
That war continues to play out on local networks, where the bulk of each team’s games are shown. Many teams have elected to invest in their own regional sports networks to fully capitalize on the new TV paradigm.
As if to prove the Clippers’ sale was no fluke, the Hawks sold for almost $900 million in 2015 to a group led by Tony Ressler, who missed out on the Clippers. Four years prior, Alex Meruelo, a California developer and pizza chain owner, agreed to purchase a majority stake in the club for $350 million, but pulled out during the NBA's financial vetting process. Four years and some modest success later, the franchise was worth at least double that price. Who’s next?
Sales have slowed to a trickle. After just one sale in 2015, it does not appear a franchise will change hands in 2016, and realistically no franchises even appear to be on the market.
The Pelicans’ situation is unstable due to ongoing, bitter battles over Tom Benson’s estate. One presumes that this situation will come to a head at some point, and either Benson or whoever ends up with the Pelicans will try to cash in and sell the team. (It always felt like Benson was doing the NBA and New Orleans a favor by buying the team in the first place.)
Prokhorov had made noises about selling the Nets in the past few years as his NBA tenure hadn’t been as successful as he’d promised. Yet, he’s since disowned that wanderlust and seems to be sticking around.
The Timberwolves have softly been on the market for seemingly ages, but this year Glen Taylor unloaded just minority shares of the club to remain at the helm. It would appear he’ll sell the team — perhaps to one of these minority-stake owners — at some point, but not necessarily soon.
And then we have the two longest-tenured owners in the league: Herb Simon in Indiana and the Lakers’ Buss family. Simon is 81 years old and none of his 10 children appear to be involved in the basketball franchise. Meanwhile, two Buss siblings are in the midst of a Cold War for the operation of the team, with a potential open skirmish a year or two away.
These things tend to end with lawsuits; a lawsuit could very well lead to a Frank McCourt-like divestment. Which could lead to a $3 billion sale. Or $4 billion. (Would you be shocked if the Lakers sold for $5 billion?) What this new stability means for the NBA
Stability is healthy. The Shinn and Maloof situations were dangerous for the league, even if both ended up fine thanks to the guiding hand of David Stern. One unintended benefit of the booming prices is that only the most wealthy purchasers can afford to get in. It’s much more difficult to build a billion-dollar house of cards than a $300 million house of cards.
But all is not perfect. The arena boondoggle lives on, and was a driving factor in Sacramento and Milwaukee. It will become a huge deal when there’s movement in New Orleans, and I fear that our friends in southern Louisiana stand to lose their NBA franchise to a poacher once the Bensons sell the team. Remember that Shinn couldn’t find a local buyer, and that Stern had to give Benson a very good deal and play on his local pride to get him to buy in.
With the continued economic and humanitarian troubles that face Louisiana, imagining anyone — private or public — investing in a new arena for a new owner seems hopelessly naive. If an out-of-towner from Seattle, Kansas City, Vancouver, St. Louis or San Jose comes calling with a billion dollars, it’s hard to imagine this unfolding well for the Bayou faithful.
The league should also be concerned about the loosening bond of the NBA family and what that means for decision-making in moments of crisis, like a potential 2017 lockout. New Money rules the Board of Governors now, not the familiar old faces who watched the league grow from tape-delayed finals games to $6 billion of annual revenue. There isn’t a single individual owner who bought their team in the 1970s (the late Jerry Buss bought in 1979), and only four owners who arrived in the 1980s.
Eighteen of the 30 current team owners entered the league in 2000 or later. With these massive investments come massive expectations. The NBA has met them so far. But Adam Silver and his team have to be concerned the hot streak will end at some point. Will the stability last when things aren’t so golden?
Source: SB Nation