Sports Bubble – Franchise values in basketball

Go Lean Commentary

BBall2The foregoing news article highlights a topical issue in the world of sports, basketball in particular: the blatant racism of basketball team owner by octogenarian Donald Sterling. The sports league, the NBA, expelled him from the league and has announced that it is moving forward with the forced sale of the Los Angeles Clippers to former Microsoft CEO Steve Ballmer for $2 Billion.

There are many lessons to learn/apply from this Donald Sterling / LA Clippers drama. Lessons such as:

  • There are more important things than money – the sports world rallied in support of the campaign to divorce the antagonist, Donald Sterling, from his team ownership.
  • Money covers a multitude of sins – the indication is that Mr. Sterling’s conduct was unbecoming for a long time before this episode.
  • Sports are immune to economic cycles – team values continue to rise despite depressed asset values during the Great Recession.
  • Sports are not immune to economic realities – there is a real possibility of a bubble due to the absence of economic fundamentals of some teams; there is still the need for technocratic efficiency.
  • Technology in broadcasting is transforming the sports industry – since DVR programming neutralizes the exposure to advertising, live sports broadcasts stand out as an exception: reliable audience. This thereby increases league/team values.
  • Institutional racism is real – the generation that practiced segregation is still alive and wields power, like 80-year-old Donald Sterling.
  • Attitudes in sports can mold society – the public sympathized with Black personnel having to work for an owner with racist views towards Black people; the NBA was forced to act quickly to expel Sterling from the league, with national concurrence.
  • The business of sports can shape a community’s economic landscape – the new value assessment of the Clippers has now elevated all the sport franchises in Los Angeles and related cities; now all connected properties and neighborhoods have appreciated in value as well.

The book, Go Lean … Caribbean, serves as a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU). This subject of blatant racism in sports ownership is in scope for the CU as this technocratic agency will assume responsibility for regional sports administration. The roadmap has the prime directives to elevate the Caribbean’s:

(1) economy,

(2) security apparatus, and

(3) governing engines.

The Economist Magazine (Posted & Retrieved 05/31/2014) –
FOR all Donald Sterling’s well-known faults—the owner of the Los Angeles Clippers basketball team seems to have comfortably secured a role as the face of racism in America—no one has ever accused him of being a bad businessman. Although most of his fortune came from real estate, he is now on the brink of closing out what is probably the most profitable investment in the history of professional sports. The other 29 team owners of the National Basketball Association (NBA) are set to hold a vote on June 3rd to terminate his control of the Clippers, in response to a tape of his offensive remarks about blacks that was leaked to the media. But the league’s commissioner, Adam Silver, had let it be known that he would prefer a voluntary sale to happen first—managed by Mr. Sterling’s estranged wife Rochelle, since Mr. Silver had already banned Mr. Sterling for life and thus prevented him from exercising control over the team.

On May 29th the commissioner’s wish was granted, when Ms. Sterling announced that Steve Ballmer the former head of Microsoft, had agreed to buy the Clippers for the eye-popping sum of $2 billion. Although the Los Angeles Dodgers baseball team went for a slightly higher $2.15 billion in 2012, that deal included valuable real-estate assets as well, whereas the Clippers are essentially being sold on their own. The previous record price for an NBA club was just $550m, set by the Milwaukee Bucks earlier this year, and Forbes magazine valued the Clippers at a mere $575m in January. Mr. Ballmer’s bid comfortably exceeded the reported $1.6 billion offered by a group led by David Geffen, a media executive.

BBall1Mr. Sterling has not yet announced whether he will try to block the sale. Since he bought the team for a piddling $12.5m in 1981 and lives in the high-tax state of California, the deal would cost him an estimated $662m in capital-gains taxes. Moreover, his lawyer has demanded that the league retract its accusations against Mr. Sterling, though an after-tax profit of $1.326 billion might help him to swallow his pride. It is not yet clear whether Mr. Sterling could hold up the deal if he wants to. His representatives insist that no sale can proceed without his signature. But the family trust that formally owns the club has declared the 80-year-old Mr Sterling mentally incapacitated—an opinion shared by many viewers of his ill-advised interview with Anderson Cooper on CNN—in order to give his wife sole authority over the franchise. Mr Sterling has a well-earned reputation for litigiousness, and would surely challenge any sale by Ms Sterling against his will in court. However, that would cause the league to re-initiate termination proceedings against him.

The NBA will also still have to approve Mr. Ballmer, but that is expected to be a mere formality. Paul Allen, another Microsoft billionaire, already owns the Portland Trail Blazers, and the league vetted Mr. Ballmer when he made a failed bid for the Sacramento Kings. Mr. Silver will be eager to remove a pariah from the league as quickly and quietly as possible, and to avoid the prospect of a long court battle with Mr. Sterling. And the commissioner surely wants to lock in the lofty sale price, which sets a new valuation bar for every other franchise.

Mr Ballmer is yet to speak publicly about his financial calculus, except to assure the NBA that he would not seek to move the Clippers to Seattle, as he hoped to do with the Kings. (He told the Wall Street Journal that relocating the club out of America’s second-biggest market would be “value destructive”.) Microsoft shareholders who despaired at his string of high-priced acquisitions for the company can at least take solace that he is no thriftier with his own money: the Clippers will cost an estimated 10% of his net worth.

To be sure, there are strong arguments for a ten-figure price for the team. Sports franchise values have been soaring in recent years, thanks to record-setting rights deals from television networks desperate for DVR-proof programming. Both the NBA’s national contract and the Clippers’ local one are set to expire in the coming years, leaving the team doubly well-positioned to cash in. And following an acrimonious lockout in 2011, the league’s current collective-bargaining agreement sharply cut the share of its revenues that gets paid out in salaries, which made clubs far more profitable. Low interest rates are driving up prices for all assets, and the combination of rising inequality and greater international interest in basketball has increased the number of billionaires willing to splurge on an NBA team.

Moreover, the Clippers currently find themselves in an unfamiliar spot as the best basketball team in Los Angeles, and indeed all of California. The Lakers, their far better-loved crosstown rivals, are suffering through a difficult rebuilding phase, whereas the Clippers finished with the league’s third-best record this year. No one would blink an eye if the Lakers sold for $2 billion, and in theory there’s no reason why the team’s electrifying “Lob City” offence featuring Chris Paul and Blake Griffin could not supplant the slumping Lakers for Angelenos’ affections.

On the other hand, brand loyalty matters as much or more in sports as the on-field product. In 2009 the Chicago Cubs, baseball’s iconic lovable losers, sold for $845m despite putrid overall economic conditions, because they were the more popular club in a big two-team market. As measured by Facebook likes, there is not a single postal code in which the Clippers are even one-fifth as popular as the Lakers, and the Lakers are the preferred club in pretty much every part of the United States that lacks a nearby team save the Southeast. The Lakers’ local television deal pays them $180m a year; the Clippers are expected to fetch 60% less for their next contract. Mr. Sterling’s 33 years of penny-pinching mismanagement have left a stain on the franchise that no number of Paul-to-Griffin windmill alley-oops can erase. When Jack Nicholson attends a Clippers game, it’s news; when he goes to see the Lakers, it’s just normal.

The great unknown is whether the going rate for televised sports rates is sustainable. Cable carriers like Time Warner have already begun offering cheaper packages that exclude expensive sports channels, and John McCain, a senator from Arizona and former presidential candidate, has introduced a bill that would “unbundle” cable television and let viewers choose the channels they want a la carte. Both approaches would reduce the “sports tax” that non-fans currently pay to subsidise fans via their cable bills. Technological advances or piracy could also disrupt the current lucrative delivery model, as they have with so many other types of media.

Buying a team for a billion or two is essentially a bet on the sports-media status quo continuing for at least another decade. It may well be a bubble. But it has already lasted for far longer than the naysayers ever thought possible.

The Go Lean … Caribbean roadmap commences with a Declaration of Interdependence. In Verse XXXI (Page 14) it pronounces specific dynamics of sports:

Whereas sports have been a source of great pride for the Caribbean region, the economic returns from these ventures have not been evenly distributed as in other societies. The Federation must therefore facilitate the eco-systems and vertical industries of sports as a business, recreation, national pastime and even sports tourism.

The foregoing news article is sourced from the Economist Magazine. Therefore this perspective is from a macro-economic vantage point, which is apropos for this roadmap, as this book posits that the right economic, financial and investment landscape can impact Caribbean society, forging sport franchises and facilitating growth in value and appreciation. The CU envisions being the landlord of sports leagues at CU fairgrounds – operating as Self-Governing Entities. Today in the Caribbean however, there is not much of a sports eco-system beyond the High School level. This roadmap envisions collegiate and professional sports manifestations, as a tool/technique to empower society.

The roadmap specifically elevates the region through a series of community ethos, strategies, tactics, implementations and advocacies to foster the business of sports in the Caribbean region:

Economic Systems Influence Choices and Incentives Page 21
Community Ethos – Anti-Bullying and Mitigation Page 23
Anecdote – Hail, Hail, the Champs: Miami Heat! Page 42
Tactical – Confederating a non-sovereign union Page 63
Tactical – Separation of Powers–Sports Administration Page 81
Implementation – Assemble Existing Regional Entities Page 96
Implementation – Consolidating Regional Spectrum Page 101
Implementation – Steps for Self-Governing Entities Page 105
Implementation – Reasons to Repatriate Page 118
Planning – Ways to Make the Caribbean   Better to Play Page 151
Advocacy – Ways to Improve Communications Page 156
Advocacy –   Ways to Promote Fairgrounds Page 193
Advocacy –   Impact Media/Broadcast/Hollywood Roles Page 201
Advocacy –   Ways to Improve Sports Page 218

Now is the time for all of the Caribbean, athletes and non-athletes alike to lean-in for the empowerments described in the book Go Lean … Caribbean. The benefits are too alluring, an improved, economically viable sports world; and a better place to live, work and play.

The Go Lean roadmap is not about basketball. But basketball is among the games people play; and play can be a great source of leisure and economics. The world is now watching the tropical region for basketball dominance. This is because the Miami Heat will now play for the NBA championship, starting this week Thursday (June 5, 2014) in their 4th straight NBA Finals. The roadmap posits that the Miami Heat relates to the Caribbean since its base is in Miami, Florida; a metropolitan area that possesses the largest pocket of Caribbean Diaspora. So in many ways, the Miami Heat is the “home team” of the Caribbean. Go Heat!

Download Go Lean … Caribbean – now!


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