The Cost Of A Franchise

Pat Obrochta

Steve Ballmer bought the Los Angeles Clippers last year for $2,000,000,000
Steve Ballmer bought the Los Angeles Clippers last year for $2,000,000,000

In May of 2014, the Los Angeles Clippers made headlines across the nation due to a change of ownership. In the shadows of the off-court issues of former owner Donald Sterling was the fact that Microsoft CEO Steve Ballmer was paying $2 billion dollars for the franchise. Compared to the Milwaukee Bucks, who sold for $550 Million only a few months before the Clippers sale was finalized, it was a heavy investment that made many stare in disbelief, especially the other groups bidding, whose bids were $600 million and $800 million short respectfully.

So what makes owning a professional team so enticing to buy, or even worth $2 billion?

The first and most obvious reason is the return on the investment. Let’s take a look the Clippers’ finances. According to Forbes, the overall revenue for the team was approximately $146 million dollars for the 2013-2014 season. While this is nowhere near the amount Mr. Ballmer had to pay to own his team, it should also be noted that the total revenue for the Clippers has steadily been increasing since 2006. Should Ballmer own the team for 14 years, which 12 of the 30 current NBA team owners have reached, his team will have fully paid for itself made even if the revenue stayed stagnant over that time. Overall, if Ballmer is planning on being a long-term owner à la Jerry Reinsdorf of the Bulls (29 years), he will have made an amazing return on his investment.

One other point to consider for the price is the resale value a team can sell for. Forbes currently lists the Clippers at $1.6 Billion dollars, so if he were to just sell the franchise after going through all the trouble to get it, he would expect to lose about 20% of what he paid. Keep in mind though that this is an astounding 178% increase in value from the previous year. With the NBA receiving a new TV contract worth over $2 billion, the Clippers becoming a consistently successful team, and marketable names like Blake Griffin and Chris Paul, Ballmer might be able to sell the Clippers in a few years for over the $2 billion he paid if he does want to sell it.

The stadiums that belong to the owners are part of their city's culture
The stadiums that belong to the owners are part of their city’s culture

Outside of the financial factors that come from owning a franchise, there lies one more important factor that is added to the cost of a franchise, and that is the novelty. There are currently only 122 possible teams to own in the four major United States’ sports (MLB, NBA, NHL, and NFL), and teams do not go for sale often. Owning a team can be a unique way for a wealthy fan to show pride for his team. It is a one-of-a-kind commodity that a billionaire can boast about to his millionaire friends. It is a piece of a city’s culture, and the price for keeping this is definitely reflected in the $2 billion dollar price tag. Once Ballmer wrote the check, he then owned a little bit of Los Angeles.

So some people may be wondering how they can become the next lucky owner. Unfortunately, there does not appear to be a team on the market right now. The Los Angeles Clippers (2014), Dodgers (2012), Buffalo Bills (2014), and Arizona Coyotes (2013) were the last teams sold in each league. Who knows though, maybe in a few years, if you happen to have a few billion dollars to spend, you could own a piece of a city.

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