Vivek Ranadive and his partners set an NBA record last year when they bought the Sacramento Kings in a deal worth nearly $535 million. Experts questioned whether Ranadive’s group had gone overboard – paying an astounding sum for a small-market franchise that hadn’t produced a winning record since 2006.
Barely a year later, Ranadive’s purchase is looking like a bargain. Thanks in no small part to the whopping sales price announced for the Los Angeles Clippers last week, the Kings could be worth $700 million or more, according to estimates by Tony Tavares of ProEminent Sports LLC, a sports-franchise brokerage business based in Reno.
Steve Ballmer’s deal for the Clippers “certainly ratchets things up,” Tavares said. “It has a bootstrapping effect.”
As for the Kings’ value, he said, “My estimate is it’s run up by a minimum couple hundred (million dollars) in a short period of time.” A former president of hockey’s Dallas Stars and Anaheim Ducks, Tavares worked on the sale of a minority stake in the Kings last year after the developer who owned the shares went bankrupt.
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Other experts said the Clippers purchase was a unique situation that no doubt will elevate the value of other franchises, but not hugely. The Kings are “probably worth a little bit more,” said Charles Baker, a New York sports lawyer who has been involved in franchise transactions. He said escalating NBA television revenues are contributing to higher valuations, too.
Ranadive declined to comment for this story through a team spokeswoman. But he has clearly seen the Kings purchase as a deal with a tremendous upside. In an interview with Forbes magazine earlier this year, he predicted that all NBA franchises eventually “will be worth billions.”
A member of the Maloof family, which sold the Kings to Ranadive’s group, said it has no second thoughts about unloading the team last year.
“It was absolutely a fair deal; no regrets,” said former Kings co-owner George Maloof. “It worked out for everybody.”
Maloof said the sale of the Kings helped trigger the current run-up in franchise values and that the Ballmer deal for the Clippers takes that trend “to the next level.”
Ballmer was also the driving force behind the Kings’ unprecedented sale price. The former Microsoft Corp. chief executive teamed with hedge-fund manager Chris Hansen in an effort to buy out the Maloofs’ controlling interest at a $525 million valuation, with the idea of moving the Kings to Seattle. As Ranadive’s group stepped in and countered their offer, Ballmer and Hansen raised their bid twice, with their final offer setting a $625 million valuation.
The NBA vetoed the move to Seattle in May 2013, which effectively canceled the sale to Hansen and Ballmer. The Maloofs accepted the Ranadive bid a day later, agreeing to sell their 65 percent stake in a deal that valued the entire franchise at almost $535 million.
Ranadive’s final bid for the Kings, on the surface, was $90 million below Hansen and Ballmer’s. But the cash payout to the Maloofs was only about $5 million less, because of various wrinkles in the Seattle offer. Among other things, the Maloofs had agreed with Hansen and Ballmer to earmark a portion of the proceeds to help pay the NBA’s franchise-relocation fee, which was no longer needed when the Kings stayed put.
Regardless of the complexities involved in the deal, Ranadive’s purchase made a stir in the sports world. The $535 million valuation easily surpassed the previous record of $450 million paid for the big-market Golden State Warriors in 2010.
“A lot of people were surprised,” Tavares said.
The idea that Ranadive overpaid for the Kings formed the basis of a taxpayers’ lawsuit challenging the city’s plan to contribute a $255 million subsidy to the team’s new arena at Downtown Plaza. The taxpayers claim the city gave the Kings a “secret subsidy,” over and above the public sum of $255 million, to compensate the new owners for spending so much on the team itself.
The city has denied the allegation and the lawsuit was thrown out of court last month. However, the plaintiffs were given the right to amend their case. The Kings are contributing $222 million to the new arena, in addition to the $36 million they have spent buying the arena site.
Assessing franchise values is an inexact science. Before the bidding war erupted for the Kings, the franchise was valued at $300 million by Forbes, which makes annual estimates of pro sports teams’ worth.
Pegging the value of teams is difficult because investors pursue sports for reasons that often go beyond business, including vanity and the love of the game. Even if a purchase doesn’t pan out in terms of year-to-year financial results, owners can count on making a profit when they sell because the teams usually appreciate in value. As a result, investors tend to bid up prices beyond what analysts expect.
The richer the bidder, the more they can pay. Forbes pegs Ballmer’s net worth at $20 billion – 10 times what he is paying for the Clippers.
The NBA’s growing popularity is pumping up values. In April, the lowly Milwaukee Bucks, who play in the nation’s 34th-largest television market, were sold for $550 million, or about $15 million more than the Kings. Sacramento is the 20th-largest TV market.
Baker, a partner at the DLA Piper law firm in New York, said the price for the Clippers was inflated by the Donald Sterling scandal, which forced the disgraced owner to sell. Whoever bought the Clippers would be able to claim “white knight” status for whisking the Clippers away from Sterling after his racist remarks surfaced in late April, Baker said.
“I think this is an outlier,” Baker said.
David Carter, a sports-business expert at the University of Southern California, agreed.
“I think Sacramento’s going to benefit from this, but I think you you have to be cautious,” he said.
Other factors contributed to the Clippers’ eye-popping price. Baker noted that the Clippers will be able to negotiate a lucrative new television deal after the 2015-16 season, at the same time the NBA is signing new network deals. The combined effect will be a big surge in revenue.
The Kings will share in the more generous network TV deal, too, as all NBA teams receive an equal distribution from leaguewide broadcast contracts. The team will also likely benefit from a new, expanded contract with its main regional broadcast partner, Comcast SportsNet. Comcast pledged to increase its payments to the Kings once the team committed to a new arena that would cement the team’s long-term status in Sacramento.
But experts said the Kings won’t be able to generate nearly as much in regional TV revenue as the Clippers, who play in the second-largest media market in the country.