Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy? | TigerDroppings.com

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euphemus
Member since Mar 2014
138 posts

Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


quote:

Valuing the Clippers

With that long lead in, we are in position to value a sports franchise, and in keeping with the news story that initiated this article, I will try to value the Los Angeles Clippers. In doing this valuation, I will make a couple of simplifying assumptions, which you are welcome to change. Given the risk discussion in the last section, I will attach a cost of capital of 7.50% for investing in the Clippers, at about 25th percentile of all US firms. I will also assume that once I reassess the numbers for the Clippers, given my expectations of changes (in TV contracts, revenues and costs), the cash flows will grow at roughly 2.5% a year in perpetuity. Finally, I will assume that with the NBA's protection from competition in place, the Clippers will be able to generate a 25% return on capital on their investments (which will allow them to generate the 2.5% growth with a 10% reinvestment rate).



In this table, I value the Clippers, first using their 2012 numbers (which I know are too low), next using the median revenues and EBITDA margin for an NBA team, then giving the the revenues and margins of their more lucrative neighbor in the city (Los Angeles Lakers), and finally with a combination (best-best) of the league's highest revenues (which belong to the Lakers), the best pre-player expense margins in the business (Knicks) and the lowest payroll of any team in the sport (the Utah Jazz). Even with this improbable mix, the value that I estimate for the Clippers is $1.61 billion, well below the $2 billion paid by Mr. Ballmer. You are welcome to download the spreadsheet, which has in it the key numbers, by team, for all NBA teams and do your own assessment.

Blog: Aswath Damodaran







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lynxcat
Rutgers Fan
Member since Jan 2008
14405 posts

re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


Expensive toy. It makes him part of a small group of people in the world that own a pro franchise.

Pro teams only come up for sale every so often, especially ones in big markets. Ballmer isn't getting any younger and he is worth $20 BILLION.

Relatively speaking, buying the Clippers was not a super expensive purchase for the guy. He can hold on to it forever and the prices of sports franchises (goodwill predominantly) will continue to grow well after he dies.

In short, he has the money so why not? He needed to spend at least ~1.7BN to outbid the next closest guy and a few extra hundred million made sure he secured it.






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kywildcatfanone
Kentucky Fan
Wildcat Country!
Member since Oct 2012
17246 posts

re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


quote:

Expensive toy. It makes him part of a small group of people in the world that own a pro franchise.

Pro teams only come up for sale every so often, especially ones in big markets. Ballmer isn't getting any younger and he is worth $20 BILLION.

Relatively speaking, buying the Clippers was not a super expensive purchase for the guy. He can hold on to it forever and the prices of sports franchises (goodwill predominantly) will continue to grow well after he dies.

In short, he has the money so why not? He needed to spend at least ~1.7BN to outbid the next closest guy and a few extra hundred million made sure he secured it.


I agree with all of this.






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GaryMyMan
USA Fan
Lower Garden District
Member since May 2007
10687 posts

re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


I don't know enough to argue the point, but I have read that a new TV deal with Fox Sports West is imminent - since they lost the Lakers & Dodgers - that will pay him lots more per year than Sterling was getting.

One fascinating aspect of this whole thing is: If the Clippers are "worth" $2BB, what are the Knicks worth? The Yankees? Wonder what the owners of those teams are doing with their new-found collateral.






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Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
15305 posts

re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


Expensive toy that he hopes will buy him goodwill from the public. Ballmer walks in the shadows of Bill Gates and Paul Allen as far as personal esteem from residents of the Seattle region. Buying the Clippers and relocating them to Seattle will earn him lots of goodwill from the Seattle area residents.





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ThisWayChad
LSU Fan
Member since Nov 2009
1890 posts

re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


quote:

Expensive toy.


Certainly not a great estate planning move. A 60 year old man just set the value of an estate asset at $2 billion.






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LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
892 posts

re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


Expensive toy with a chance at investment gain. And while he might not make a lot of gain off of this investment directly, it may perhaps open up other ventures to him.

I've also read where eventually he wants to bring in minority partners, so his cost will end up being less.






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Hawkeye95
Iowa Fan
Member since Dec 2013
3251 posts

re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


its a toy. it will likely be a good investment over the long haul, if he can hang onto it for 20 years and move it to seattle.

but he wants to be an "owner" and I can't blame him, looks like a lot of fun. And the dude is fricking rich. he can afford it.






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MikeD
LSU Fan
Baton Rouge
Member since Jan 2004
1393 posts

re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


Heard a theory that he could buy the Staples Center, which would improve a bad lease for them. Or could buy the LA Kings and Staples Center, then start a TV network.

I think it is a combo of both.






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barry
Cincinnati Fan
Location, Location, Location
Member since Aug 2006
38088 posts
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re: Ballmer's bid for the Clippers: Investment, Trade or Expensive Toy?


Conventional valuation doesn't apply

There are 32 business you can buy. That has a vert HIGH chance of not changing anytime soon. Hell there is more chance of contraction than expansion.

A franchise comes on the market maybe once every 2 years. A franchise in a major metropolitan area, every decade or two. If you want a franchise of this location, you pay whatever it takes.






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