Ballmer Overpaid For The Clippers

[forgetful]

Totally discounting the increased value of the franchise.

I talk about that in the next paragraph.  Right now, if he sold the franchise tomorrow, he couldn't get close to $2 Billion.  He's already in the hole and the yearly income is less than his most obvious alternative investment.

[Tugg Speedman]

I talk about that in the next paragraph.  Right now, if he sold the franchise tomorrow, he couldn't get close to $2 Billion.  He's already in the hole and the yearly income is less than his most obvious alternative investment.

+1

The next highest bid was $1.5 billion.  That's when he would get if he was to sell the team tomorrow.  So he starts 25% in the hole.

[Coleman]

+1

The next highest bid was $1.5 billion.  That's when he would get if he was to sell the team tomorrow.  So he starts 25% in the hole.

I didn't hear him say he was selling it tomorrow.


You could say the winner of any auction is "in the hole" because  the next closest bidder would pay him less.

[SoCalEagle]

I talk about that in the next paragraph.  Right now, if he sold the franchise tomorrow, he couldn't get close to $2 Billion.  He's already in the hole and the yearly income is less than his most obvious alternative investment.

Dude's got $20B in the bank. Gotta spend it on something. What do you earn it for if you never spend it?

[Tugg Speedman]

I didn't hear him say he was selling it tomorrow.

You could say the winner of any auction is "in the hole" because  the next closest bidder would pay him less.

it is true all auction winners start in the hole.  Most are barely in the hole as the best losing bid is a lot closer to the selling price than 25%.

[Tugg Speedman]

Dude's got $20B in the bank. Gotta spend it on something. What do you earn it for if you never spend it?

Not in the bank, Microsoft stock.

He exchanged 2 billion of MSFT for the clippers.

[brandx]

+1

The next highest bid was $1.5 billion.  That's when he would get if he was to sell the team tomorrow.  So he starts 25% in the hole.

Next highest bid was $1.6B

[Tugg Speedman]

Next highest bid was $1.6B

Then he is 20% in the hole, not 25%

[keefe]

Not in the bank, Microsoft stock.

He exchanged 2 billion of MSFT for the clippers.

I think he can afford it. Our lead designer on an IT project I'm involved in reported to Ballmer at MS. Dave spoke with Ballmer after the announcement and the bottom line is that Ballmer is bored out of his mind and this is the next great challenge. Ballmer is also not convinced the deal is going through anytime soon, if at all.

[brandx]

I think he can afford it. Our lead designer on an IT project I'm involved in reported to Ballmer at MS. Dave spoke with Ballmer after the announcement and the bottom line is that Ballmer is bored out of his mind and this is the next great challenge. Ballmer is also not convinced the deal is going through anytime soon, if at all.

+1

Heisenberg looks at this deal as a normal investment - but these are vanity investments (see Mark Cuban). If he was looking to maximize his return, he would have headed in another direction.

[Chicos' Buzz Scandal Countdown]

Sorry but why is it that Forbes' valuation is the gold standard here?

I always understood the value of something to be that which the market bears. If SB think he'll get $2B of value out of it, cool. Guess other people don't.

A franchise like this is worth more than just its utility in finances. How much utility does a diamond with a G versus D color have? Its value is just what the market will bear.

[Tugg Speedman]

+1

Heisenberg looks at this deal as a normal investment - but these are vanity investments (see Mark Cuban). If he was looking to maximize his return, he would have headed in another direction.

Sports franchises are like impressionist art or old Ferraris, they are worth whatever someone wants to pay for them, or the greater fool theory.

As such traditional analysis says Ballmer grotesquely overpaid.  He probably knows this and does not care. 

[Tugg Speedman]

+1

Heisenberg looks at this deal as a normal investment - but these are vanity investments (see Mark Cuban). If he was looking to maximize his return, he would have headed in another direction.

Sports franchises are like impressionist art or old Ferraris, they are worth whatever someone wants to pay for them, or the greater fool theory.

As such traditional analysis says Ballmer grotesquely overpaid.  He probably knows this and does not care. 

[Silkk the Shaka]

Sorry but why is it that Forbes' valuation is the gold standard here?

I always understood the value of something to be that which the market bears. If SB think he'll get $2B of value out of it, cool. Guess other people don't.

A franchise like this is worth more than just its utility in finances. How much utility does a diamond with a G versus D color have? Its value is just what the market will bear.

That's the market value of something, whatever the most recent market price is/was. The intrinsic dollar value of something is the sum of the discounted future after-tax cash flows one expects to receive from it. This brings a lot of assumptions along with it (timing of cash flows, amount of future cash flows, rate at which the flows are discounted, timing and amount of expected exit price, etc.). If it's purely dollar value one is looking at, the $2 billion price tag brings some pretty aggressive assumptions along with it and is likely unjustified. However, to your point, this brings more to Ballmer (or any other billionaire looking to make a vanity purchase) than just the cash flow it will generate. Ego, prestige, white knight status, hobby, etc. all play into it as well.

[keefe]

He clearly wanted a basketball team and way overpaid to have it.  He could likely have gotten it for 30% less.

From what I am told he put in a bid that ensured victory. Look at the track record of MS M&A and this has always been Ballmer's approach to building the corporate portfolio.

But the bottom line is that Ballmer is a huge hoops nut and is currently bored silly. This acquisition slakes many thirsts for a man who can easily afford this purchase. And make no mistake: Ballmer has always envied Allen's ownership of the Blazers and the Hawks. Ballmer never viewed this acquisition in financial terms as it has nothing to do with return.

[StillAWarrior]

Sports franchises are like impressionist art or old Ferraris, they are worth whatever someone wants to pay for them, or the greater fool theory.

As such traditional analysis says Ballmer grotesquely overpaid.  He probably knows this and does not care. 

You can say that again.

[WellsstreetWanderer]

The 2 Billion dollars will put a lot of separation between the Sterlings and people of color.

[MU82]

It doesn't matter if Ballmer overpaid for the Clippers any more than if he overpaid for a Ferrari or a mansion or a private island.

It is "play money" for him.

2 billion bucks to Ballmer is like a nickel to me or you. In fact, we might miss the nickel more than he'd miss the 2 billion.

Something is worth exactly what somebody is willing to pay for it.

Ipso fatso, the Clippers are worth 2 billion bongo bux.

[HouWarrior]

This was a good deal. This deal had many hairs on it, all of which were cured by the $2B paid:

1) Timing:

Bidders had, at most, a one week window, to: a) put out a big enough bid to chase off the other bidders; b) get a consensual sale put together; and c) to avoid a legal morass/delay(see below)...so the figure had to have a wow factor to it.

2) Who can sell?

Ms. Sterling  was already relying on iffy legal authority, to totally bind seller consisting of : a)Donald's letter agreement giving her the right to negotiate a sale ( unclear if it included a right to conclude a sale and actually convey all interests, including Donald's,to a buyer); and b) a non judicial finding of 2 psychiatrists that Donald was non compis mentis, and relying on that to unilaterally remove Donald as a/the Trustee of the Sterling family trust, with Ms Sterling jumping in as Trustee. On Tuesday, the NBA governors vote was due to confirm Donald's ouster, and the NBA planned to take over the sole legal authority to negotiate and sell the team-- I doubt the NBA was totally confident in its rights to force and to control this forced sale. Only a private quick and binding sale before such actions would avoid this legal morass.

3)Donald's ability/plans to fight/ litigate

Donald's response to the Tuesday NBA hearing and pending actions was to fight the jurisdiction and right of the NBA to force him out and to take control of the sale. His filed suit included injunctive claims, preserving the status quo, and to get a court order preventing any sale, and holding up a sale in the courts...potentially, for years. Regardless of Donald winning or losing, it would have put a sale in limbo for an extended period, while the franchise, NBA brand and their PR battle damaged more than just value of this franchise - the entire sport and fanbase could blow up(NBA fear). Donald had delay/stall leverage here, regardless of the outcome.

4) The NBA/Ballmer $2B solution

a)Sterlings, as a family, faced a huge cap gains tax bill...a bid which grossed up to cover this tax hit would be attractive to all Seller parties, and promote the needed speed of the deal.
b)For all of the above, the NBA did not want to pull the Tuesday trigger, as the legal battles would delay any NBA controlled deal, and the PR nightmare would extend to years...it desperately needed a quick solution.
c)The NBA liked Ballmer of all the bidder options. His prior pursuit of teams had resulted in new arena deals in Sac. and Milw. being included in the closed deals, and his deep pockets /sole ownership assured them of a one man big bucks solution. Such also allowed this one man to go to Ms. Sterling directly in a one hour face to face meeting to establish the personal trust needed, quickly, for this deal to go.
d) The $2B price included a KEY sweetener : i)popular to the NBA (facing Donald's suit), and  ii)attractive to Ballmer, who also needed to assure the authority to sell issues of Ms. Sterling , and Donald litigation did not derail him (remember-- Ballmer was thwarted in a drawn out bidding war for Sacramento). The key sweetener from Seller was that there was full indemnification by Seller and the sale price proceeds of $2B to protect NBA and Buyer on all claims against them, including coming from Donald. This meant Donald would be, in substance, suing against his own money and interests...you have just cutoff Donald's litigation at the pass. Checkmate, Donald.

Well played NBA and Ballmer.

I dont see the $2B paid as a published franchise value vs amount paid issue, at all.

Rather this was a very sane logical and necessary sum paid to get a deal done,  to simultaneously and quickly resolve huge and expensive issues that had to be cured. All but Donald  should be congratulated for positive contributions. Maybe you could even congratulate Donald.. the timing and his leverages got his taxes paid, and handsomely paid him quicker and better than his suit could ever have done.

Ponder all of the above, and I think the $2B was well spent.

Factor in that : i) the Clips are due a huge revenue boost on their impending local rights deal, ii) that few other franchises are likely up for sale soon,iii)  the new CBA structure actually gives the owners annual operating profits, and that iv) the NBA and other owners are forever grateful for the Ballmer solution...this was a good deal, worth the $2B paid.

There isnt much not to like how the extra $$ paid made very very good sense.

[ChicosBailBonds]

Why Mr. Ballmer may not be able to monetize things

http://www.usatoday.com/story/sports/ncaaf/sec/2014/05/31/sec-network-espn-comcast-direct-tv/9812745/

[HouWarrior]

Team ownership or partnership with a sports network such as Comcast or Fox sports in a company providing local TV coverage of the team games remains viable and potentially lucrative, including for the Los Angeles Clippers and Mr. Ballmer.

The article you linked refers to the Houston situation as an example of the failure of a local sports network deal, but such is a unique anomaly and is not instructive for other teams. The failure of the Houston partnership between the Houston Astros, Houston Rockets and Comcast should totally be laid at the feet of the Houston Astros ownership. When Jim Crane bought the Astros from Drayton McLane, almost 50% of the $650 million purchase price was attributed to the valuation pegged to the Astros network ownership share. This valuation was premised, however, on projected carriage rights fees from satellite providers, but the carriage fee rights had not yet been formally reduced to any contract or agreement, so the amounts were merely projections. Crane paid full price, including for the projected valuation. After closing, it was clear that the satellite providers were not going to pay the projected rates. Although the Rockets were amenable to lowering the rates to ensure carriage by all of the satellite providers, Jim Crane had painted himself into a corner on his inflated purchase of the club and he would not permit the Rockets or Comcast to agree to lower carriage rights fees in order to obtain full broadcast by satellite providers. Many perceive that Crane does not have deep pockets and he was tapped out in paying the purchase price, so he foolishly tried to force the exorbitant projected carriage rights fee rates on his partners, but none of the satellite providers would go a long with his efforts.

As a result, less than 40% of Houston homes have had access to Houston Rockets and Astros games, and the Comcast partnership entity was forced to a bankruptcy to try and hold the group together and work things out. Even in the bankruptcy, however, Crane has refused to budge and instead has filed a fraud/rescission  lawsuit against Drayton McLane claiming that he paid way too much money for the team and that he was assured all of these projections are real instead of merely projections. Crane will lose and this partnership will be dissolved with the rights eventually revesting with the Rockets and Houston Astros. It is really an anomaly and not any reason for any teams going forward to avoid pursuit of their own local TV rights network deals; they just have to be aware of the challenges and potential discounts they need to give satellite providers in order to obtain full market penetration. Given the hugely lucrative Lakers deal, and the upcoming expiration of the Clippers super cheap deal, by comparison, Ballmer will do better on the next deal… not Laker type $$, but assuredly better than the current deal.
LOL. Contrary to you satellite providers and your perceptions of leverage, you can muck it up and make it less lucrative – but you can't prevent Ballmer from monetizing and profiting from a more lucrative local TV network deal or partnership.

[ChicosBailBonds]

Team ownership or partnership with a sports network such as Comcast or Fox sports in a company providing local TV coverage of the team games remains viable and potentially lucrative, including for the Los Angeles Clippers and Mr. Ballmer.

The article you linked refers to the Houston situation as an example of the failure of a local sports network deal, but such is a unique anomaly and is not instructive for other teams. The failure of the Houston partnership between the Houston Astros, Houston Rockets and Comcast should totally be laid at the feet of the Houston Astros ownership. When Jim Crane bought the Astros from Drayton McLane, almost 50% of the $650 million purchase price was attributed to the valuation pegged to the Astros network ownership share. This valuation was premised, however, on projected carriage rights fees from satellite providers, but the carriage fee rights had not yet been formally reduced to any contract or agreement, so the amounts were merely projections. Crane paid full price, including for the projected valuation. After closing, it was clear that the satellite providers were not going to pay the projected rates. Although the Rockets were amenable to lowering the rates to ensure carriage by all of the satellite providers, Jim Crane had painted himself into a corner on his inflated purchase of the club and he would not permit the Rockets or Comcast to agree to lower carriage rights fees in order to obtain full broadcast by satellite providers. Many perceive that Crane does not have deep pockets and he was tapped out in paying the purchase price, so he foolishly tried to force the exorbitant projected carriage rights fee rates on his partners, but none of the satellite providers would go a long with his efforts.

As a result, less than 40% of Houston homes have had access to Houston Rockets and Astros games, and the Comcast partnership entity was forced to a bankruptcy to try and hold the group together and work things out. Even in the bankruptcy, however, Crane has refused to budge and instead has filed a fraud/rescission  lawsuit against Drayton McLane claiming that he paid way too much money for the team and that he was assured all of these projections are real instead of merely projections. Crane will lose and this partnership will be dissolved with the rights eventually revesting with the Rockets and Houston Astros. It is really an anomaly and not any reason for any teams going forward to avoid pursuit of their own local TV rights network deals; they just have to be aware of the challenges and potential discounts they need to give satellite providers in order to obtain full market penetration. Given the hugely lucrative Lakers deal, and the upcoming expiration of the Clippers super cheap deal, by comparison, Ballmer will do better on the next deal… not Laker type $$, but assuredly better than the current deal.
LOL. Contrary to you satellite providers and your perceptions of leverage, you can muck it up and make it less lucrative – but you can't prevent Ballmer from monetizing and profiting from a more lucrative local TV network deal or partnership.

Well, I would look right here in So. Cal to show that the problem is much bigger than just Houston.