Ballmer Overpaid For The Clippers

[Tugg Speedman]

Steve Ballmer's career is all about grotesquely overpaying for this and then choking on them.

This is why he is the FORMER head of Microsoft



Did Steve Ballmer Overbid for the Clippers? Of Course He Overbid

http://blogs.wsj.com/moneybeat/2014/05/30/did-steve-ballmer-overbid-for-the-clippers-of-course-he-overbid/?KEYWORDS=ballmer

Of course Steve Ballmer overbid for the Clippers. Why would you expect anything different?

News this morning is that Mr. Ballmer, the former CEO of MicrosoftMSFT +1.20%, offered $2 billion to buy the LA Clippers from Donald Sterling, in as bizarre a fire-sale auction as you’ll ever see. Mr. Ballmer outbid – by hundreds of millions – other high-profile suitors, including a group comprising David Geffen, Oprah Winfrey, and Steve Jobs‘ widow, Laurene Powell Jobs, and a group that included former baller Grant Hill. It’s not even clear if Donald Sterling, who bought the team for $12.5 million in 1981 and owns it along with his wife, is going to sell or not; his lawyers says he’s going to oppose a sale.

For Clippers fans, Ballmer for Sterling is a trade they’ll take any day of the week. But we’re MoneyBeat, not the Daily Fix, so what we want to analyze is the deal.

Mr. Ballmer bid $2 billion for a franchise Forbes estimated was worth $575 million. That’s roughly a 248% premium, and nearly quadruple the $550 million the Milwaukee Bucks fetched in April, the previous record deal for an NBA franchise. It’s also not far off the $2.15 billion the cross-city Dodgers went for in 2012, a record price for a franchise in any sport.

The Clippers have made 10 playoff appearances in their 44-year history. They have never been to even the conference finals, to say nothing of the NBA finals.

For anybody else, $2 billion for the Clippers may seem unreasonable, but Mr. Ballmer, who ran Microsoft from 2000 to 2014, has a history of overpaying for (generally underperforming) assets. The last big one he pulled off was so contentious within the boardroom, it drove employee #30 out of the company. And of course who could forget the $44.6 billion large he offered for YahooYHOO -1.07%?

Let’s take a look at some of the more notable deals of the Ballmer era:


aQuantive. In August 2007, Microsoft acquired aQuantive, a online ad agency, for $6.3 billion cash, and 85% premium. At the time, it was Microsoft’s largest deal. “This deal takes our advertising business to a new level,” the company’s COO, Kevin Johnson, said at the time. How’d it work out? Microsoft took a $6.2 billion write-off on the business in 2012. “The acquisition did not accelerate growth to the degree anticipated,” the company said.

Skype. In May 2011, Microsoft acquired Skype for $8.5 billion in an unsolicited bid “even though there were no signs of other serious bidders,” as we wrote at the time. The price tag was three times what the company had gone for just 18 months prior, as the company was scrambling to catch up in the mobile and Internet markets. How’d it work out? Microsoft doesn’t break out Skype revenue, so it’s hard to really know. But the service is popular, and they just unveiled a gee-whiz “Star Trek” like universal translator service.

Nokia. In September 2013, Microsoft acquired Nokia’s handset business, for $7.2 billion in cash. “It’s a bold step into the future – a win-win for employees, shareholders and consumers,” Mr. Ballmer said at the time. How’d it work out? You could argue, if you like, that it’s too soon to say; the deal closed only in April. But Microsoft controls less than 4% of the U.S. smartphone market. Moreover, whether it’s a win-win for employees, shareholders, and consumers, it was a definite loser for Mr. Ballmer: the Nokia deal was apparently the deal-breaker for him, and the internal fight over it led to his ouster.

Yahoo. Of all the deals Microsoft did do, it’s the one that it didn’t do that may be the most instructive. In February 2008, Microsoft offered $44.6 billion for Yahoo, a 62% premium to the company’s stock, in an attempt to merge two struggling search businesses. It was a huge deal in the high-tech world, and it was a huge, public, messy battle that Microsoft eventually lost in one way, and won in another. Yahoo ultimately rejected the deal, although angry shareholder would later boot founder Jerry Yang over it. Yahoo’s stock, which was in the $30 range when the deal was announced, would soon sink into the single digits, and would languish in the teens range for years after.

Not exactly a sterling record, no pun intended, and we didn’t even mention Microsoft’s stock, which went from $58 when Mr. Ballmer took over in 2000 to $40 and change today.

[GGGG]

While its clear that he overpaid for stuff at Microsoft, that article certainly doesn't make much of a case for why he overpaid for the Clippers.  Past, on-court performance isn't relevant here.

Financially, how has Ballmer overpaid?  I have been hearing that people "overpaid" for sports franchises for a couple decades now, but that has rarely proven to be the case considering for how much they are eventually sold. 

Is this deal different?  I have no idea.  But at least make a case based on the financials - not what he did in his previous job.

[ThatDude]

Ballmer wanted to buy the bucks and move them to seattle

[Tugg Speedman]

While its clear that he overpaid for stuff at Microsoft, that article certainly doesn't make much of a case for why he overpaid for the Clippers.  Past, on-court performance isn't relevant here.

Financially, how has Ballmer overpaid?  I have been hearing that people "overpaid" for sports franchises for a couple decades now, but that has rarely proven to be the case considering for how much they are eventually sold. 

Is this deal different?  I have no idea.  But at least make a case based on the financials - not what he did in his previous job.

Forbes had the Clippers valued at $575 million.  Ballmer paid 347% of this valuation

Forbes had the Bucks valued at $405 million, Lasry and Eden paid $550 million, 36% over this valuation

No one has ever paid this big a premium over Forbes valuation.

But you're right, they are all made up numbers.  Sterling should have held tight and Ballmer would have paid $4 billion.

[LAZER]

Forbes had the Clippers valued at $575 million.  Ballmer paid 347% of this valuation

Forbes had the Bucks valued at $405 million, Lasry and Eden paid $550 million, 36% over this valuation

No one has ever paid this big a premium over Forbes valuation.

But you're right, they are all made up numbers.  Sterling should have held tight and Ballmer would have paid $4 billion.

Do you remember what the Dodgers value at when they went for $2B? Or what the Dolphins were when they went for $1.1B?

[Tugg Speedman]

Do you remember what the Dodgers value at when they went for $2B? Or what the Dolphins were when they went for $1.1B?

Dolphins valuation was $947 million in 2007

http://www.forbes.com/lists/2007/30/biz_07nfl_Miami-Dolphins_303017.html

Sold for $1.1 billion in 2008, 17% permium



Dodgers were valued $800 million in 2011

http://www.forbes.com/lists/2011/33/baseball-valuations-11_Los-Angeles-Dodgers_338671.html

Sold for $2 billion in 2013, 250% premium



At a 347% premium over Forbes valuation, Ballmer stands alone as a poor judge of value.

[Coleman]

The $575 million valuation Forbes put out is ridiculously low for an NBA team in the LA market.

Ballmer might have overpaid, but not by 347%. The Clippers are easily worth more than a $billion.


The bottom line is in the free market where supply and demand are the ultimate determinations of value, an item, even a professional sports team, is worth what someone is willing to pay.

Its impossible to say right now if Ballmer is overpaying. If he sells the Clippers in 20 years (he's only 58) for $3 billion, which is entirely possible, this will have been an amazing investment. Look at the trajectory of prices for NBA franchises over the past 10 years.

[brandx]

Steve Ballmer's career is all about grotesquely overpaying for this and then choking on them.

This is why he is the FORMER head of Microsoft

Did Steve Ballmer Overbid for the Clippers? Of Course He Overbid

Of course Steve Ballmer overbid for the Clippers. Why would you expect anything different?

Terrible CEO. Under his leadership MS annual revenue only went up from $25 Billion to $70 Billion even as they paid out BILLIONS in dividends. Even though he took over at the height of the bubble. Even though they were mire in an anti-trust lawsuit as well as many class-action suits.

And as to one example, Skype was an outstanding acquisition helping in MS's transition to cloud computing.

Not to say he hasn't made mistakes, which he has, but he has overseen tremendous annual growth as well.

Did he overpay for the Clippers? I don't know that you can ever overpay for a money tree. There were certainly plenty of other potential buyers out there who thought a price in the same ballpark was reasonable.

[brandx]

The bottom line is in the free market where supply and demand are the ultimate determinations of value, an item, even a professional sports team, is worth what someone is willing to pay.

To quote Homer, "winner, winner, chicken dinner".

[LAZER]

Enlighten me

Ha I was genuinely asking...I'm curious to know.

I'm wondering if this will become the new trend with sports teams as the owners aren't necessarily looking for the same returns as a typical business.

[LAZER]

Dolphins valuation was $947 million in 2007

http://www.forbes.com/lists/2007/30/biz_07nfl_Miami-Dolphins_303017.html

Sold for $1.1 billion in 2008, 17% permium



Dodgers were valued $800 million in 2011

http://www.forbes.com/lists/2011/33/baseball-valuations-11_Los-Angeles-Dodgers_338671.html

Sold for $2 billion in 2013, 250% premium



At a 347% premium over Forbes valuation, Ballmer stands alone as a poor judge of value.

Stands alone?  I'd put a 250% and 347% premium in the same ballpark.

[GGGG]

Ha I was genuinely asking...I'm curious to know.

I'm wondering if this will become the new trend with sports teams as the owners aren't necessarily looking for the same returns as a typical business.

Well, Sterling made a 16% annualized return on the Clippers - not including any dividends he (or whatever legally owns the team) received.  

[Tugg Speedman]

The $575 million valuation Forbes put out is ridiculously low for an NBA team in the LA market.

Ballmer might have overpaid, but not by 347%. The Clippers are easily worth more than a $billion.

You're defending made up numbers by making up your own set of numbers.  

If Ballmer sells the team in 10 years for $3 billion, it will have proven to be a terrible investment.  The gauge is not getting more than you paid.  Ballmer could have put $2 billion in the stock market (S&P fund), will his sale of the Clippers outpace that?  Only then will it be a good "investment."

[Tugg Speedman]

Stands alone?  I'd put a 250% and 347% premium in the same ballpark.

When it is not your money, of course!

[Coleman]

You're defending made up numbers by making up your own set of numbers.  

If Ballmer sells the team in 10 years for $3 billion, it will have proven to be a terrible investment.  The gauge is not getting more than you paid.  Ballmer could have put $2 billion in the stock market (S&P fund), will his sale of the Clippers outpace that?  Only then will it be a good "investment."

It is not a made up number. 2 billion is what he paid (aka what the "market valuation" was), and based on the trajectory of NBA team sales, it is entirely possible, perhaps even likely, they he will fetch 3 billion or more in a decade or two.

[GGGG]

You're defending made up numbers by making up your own set of numbers.  

If Ballmer sells the team in 10 years for $3 billion, it will have proven to be a terrible investment.  

If no dividends are paid, etc. then you are talking about a 4% or so return.  That isn't "terrible," especially if he earns some intrinsic value with owning a basketball team that he can't get from a S&P Index Fund.

[LAZER]

Well, Sterling made a 16% annualized return on the Clippers - not including any dividends he (or whatever legally owns the team) received.  

There is definitely money to be made, I meant that sports teams are bought for more entertainment value than actual income/investments.

[Coleman]

You're defending made up numbers by making up your own set of numbers.  

If Ballmer sells the team in 10 years for $3 billion, it will have proven to be a terrible investment.  The gauge is not getting more than you paid.  Ballmer could have put $2 billion in the stock market (S&P fund), will his sale of the Clippers outpace that?  Only then will it be a good "investment."

And that's not including all the profit he makes while he owns the team.

I doubt the S&P500 would top that.

[Coleman]

At this point in his life, Steve Ballmer doesn't have to make another god damn penny until the day he dies.

I'm guessing there are other reasons for him wanting to own the Clippers than pure profit motive.

[ChicosBailBonds]

Berg, all it takes is one....that's what I told you guys a month ago.  All it takes is one, and there are many people with so much cake they don't know what to do with it.  This allows them to be in an exclusive club.

The only thing that makes me chuckle is that they think they can monetize this because the major lever to do that is television and it ain't happening anymore.  Some of these guys don't want to learn.

They averaged a 1.28 rating this last year in arguably the best year in Clippers history.  The Lakers, in arguably their worst year since being in Los Angeles got a 2.7 average rating.

If they think the television guys are going to turn around and throw billions at them to help justify the expenditure, they may want to look at the landscape.  If they think they are going down another route to monetize, like online $$$....they're going to be in for an even ruder awakening, much like WWE right now is getting blown out of the water trying that route.   But hey, some people want to keep pounding their head into the wall...if you have a lot of money, guess it doesn't hurt as much.

[brandx]

They averaged a 1.28 rating this last year in arguably the best year in Clippers history.  The Lakers, in arguably their worst year since being in Los Angeles got a 2.7 average rating.

If they think the television guys are going to turn around and throw billions at them to help justify the expenditure, they may want to look at the landscape.  If they think they are going down another route to monetize, like online $$$....they're going to be in for an even ruder awakening, much like WWE right now is getting blown out of the water trying that route.   But hey, some people want to keep pounding their head into the wall...if you have a lot of money, guess it doesn't hurt as much.

It's not fair to compare the ratings of an historically bad team to one of the 2 premier franchises over the last 30 years. After a few years where the Clip are a better team than the Lakers, we'll see what happens.

The online thing will definitely happen. The model hasn't exactly been figured out yet, but with the change to mobile computing, it will be figured out sooner rather than later.

As to what I think is your main point, I think I agree - we may be getting to to the limit with the Sports Rights bubble.

[ChicosBailBonds]

It's not fair to compare the ratings of an historically bad team to one of the 2 premier franchises over the last 30 years. After a few years where the Clip are a better team than the Lakers, we'll see what happens.

The online thing will definitely happen. The model hasn't exactly been figured out yet, but with the change to mobile computing, it will be figured out sooner rather than later.

As to what I think is your main point, I think I agree - we may be getting to to the limit with the Sports Rights bubble.

It will not happen in the sense of delivering the money, not anytime for a LONG time.  The sports teams are riding high on $$$$$ because people who don't give a rip about sports have to pay for it.  The biggest oh $hit moment for the sports world is going to be when they don't get that money anymore from folks that don't want to pay for it, and then they have to rely just on the hard core fans.  They CANNOT make up that money via online, unless the online folks are going to pay 300%, 400%, 500% what the sports guys got from everyone else. 

Don't confuse my comments with the technology, I'm talking about the ability to get money from people that don't want your product, which is what the sports leagues and teams have been living on forever and what scares the $hit out of them with how the Dodgers, Pac 12, CSN Houston and others are no longer just getting what they thought they could get.  What scares them more, people aren't leaving in droves from those tv distributors that have called their bluff.  You also have the contractual protections built into place by those that do carry them.

I'll be in my retirement in Idaho or Eastern Oregon when it all happens, and I'm not that old.

[brandx]

It will not happen in the sense of delivering the money, not anytime for a LONG time.  The sports teams are riding high on $$$$$ because people who don't give a rip about sports have to pay for it.  The biggest oh $hit moment for the sports world is going to be when they don't get that money anymore from folks that don't want to pay for it, and then they have to rely just on the hard core fans.  They CANNOT make up that money via online, unless the online folks are going to pay 300%, 400%, 500% what the sports guys got from everyone else. 

Don't confuse my comments with the technology, I'm talking about the ability to get money from people that don't want your product, which is what the sports leagues and teams have been living on forever and what scares the $hit out of them with how the Dodgers, Pac 12, CSN Houston and others are no longer just getting what they thought they could get.  What scares them more, people aren't leaving in droves from those tv distributors that have called their bluff.  You also have the contractual protections built into place by those that do carry them.

I'll be in my retirement in Idaho or Eastern Oregon when it all happens, and I'm not that old.

I don't have the numbers to know if it is happening. But it surprises me how many people on this board (who are true sports fans) have gone away from cable or satellite.

I realize most of us are stuck. I will be getting rid of phone and premium channels this summer, but I am not ready to cut the cord for sports yet. What hurts is that I travel at least a couple months a year, so much of the money I am paying is wasted.

[forgetful]

If no dividends are paid, etc. then you are talking about a 4% or so return.  That isn't "terrible," especially if he earns some intrinsic value with owning a basketball team that he can't get from a S&P Index Fund.

The Clippers made $15 million last year in profit.  At that rate, it would take him 133 years to recoup his investment.  That is a poor investment any way you look at it.

By trading out $2 Billion in Microsoft stock, he is giving up $60 million a year in dividends alone.  I figure over the next decade microsoft stock outperforms the value of the Clippers.

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

[brandx]

The Clippers made $15 million last year in profit.  At that rate, it would take him 133 years to recoup his investment.  That is a poor investment any way you look at it.

By trading out $2 Billion in Microsoft stock, he is giving up $60 million a year in dividends alone.  I figure over the next decade microsoft stock outperforms the value of the Clippers.

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

Totally discounting the increased value of the franchise.