Why an NFL franchise isn’t worth more than the $2 billion Clippers
By Phil Daniels
After former Microsoft CEO Steve Ballmer purchased the Los Angeles Clippers for $2 billion last week, it did not take long for armchair faux billionaires to begin critiquing the sale.
Many individuals curiously argued that the Clippers are not worth $2 billion, and as a result that Ballmer tremendously overpaid. But even a layperson’s understanding of the concepts of “price” and “value” reveals that Ballmer did not overpay.
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When selling a product, a rational seller will price out the product for the highest amount possible, and an equally rational buyer will purchase the product for no more than is necessary to ensure the highest bid over a rival bidder.
In a blind auction atmosphere—such as the one in which the Clippers were sold—with rival bidders reportedly submitting secret bids greater than $1.5 billion each, it was hardly nonsensical for Ballmer to place a $2 billion bid as a means of attempting to ensure victory.
And with regard to whether the Clippers are actually “worth” $2 billion, when you factor in an annual stream of multi-million dollar income, plus the growing international importance of the National Basketball Association, plus the likelihood of the NBA existing in perpetuity, plus evolving profits from burgeoning multimedia revenue streams that have not even been sufficiently leveraged yet, plus the demonstrated inflation of professional sports franchises, and finally plus the psychic benefits of owning a professional basketball franchise, $2 billion does not seem like all that much money—so long as you can afford the initial investment.
Sometime after proverbially beating the dead horse that is the Clippers being or not being worth $2 billion, these financial commentators began to slightly modify the narrative.
Their argument was essentially that if billionaires were willing to overpay by about a billion dollars for the historically abysmal Clippers, what would they be willing to pay for an NFL franchise? $3 billion? $4 billion? Are the Dallas Cowboys worth upwards of $10 billion?
To be sure, I understand the supposed logic being utilized here, but such a thought process is at best myopic and at worst machismo fueled irrational tackle football elitism.
The NFL is the most popular professional sports league in the United States—that much is true. But in today’s global economy, sports franchise valuations cannot be constrained to an ethnocentric bubble. Soccer is the most popular sport on planet Earth. Then cricket. And then basketball, with the global popularity and demonstrated international revenue streams of the NBA itself poised to place basketball as the unequivocal second most popular sport in the world in the coming months.
Where is football on that list? Below field hockey, tennis, volleyball, table tennis, and baseball. Every country has their violent athletic pastime. The Irish have Gaelic football. The Australians have Aussie rules football. And we Americans have American football—more so a regional delicacy than an international staple like basketball.
If the realities of globalization frighten you and neo-isolationism is more your metaphorical cup of tea, consider the recent sale prices of NFL franchises. In 2011, Shahid Khan purchased the lowly Jacksonville Jaguars for $760 million. Then in 2012, Jimmy Haslam bought the equally laughable Cleveland Browns for a reported $1.05 billion.
Would an expansion NFL franchise in Los Angeles sell for significantly more than that? Absolutely. But the notion that NFL teams have historically been as evidenced by sale significantly worth more valuable than NBA franchises is just incorrect.
Ever since 2011, as billionaires have continued to more sophisticatedly comprehend the present and future value of NBA franchises, the sale price of NBA teams has continued to increase dramatically. In October of 2011, a group of investors led by Joshua Harris purchased the Philadelphia 76ers for $280 million. Then in October of 2012, the Memphis Grizzlies were purchased by a group led by Robert Pera for $377 million.
In April of 2014, Wesley Edens and Marc Lasry anchored a group of buyers who purchased the Milwaukee Bucks for a then record $550 million.While it is true that $550 million is a lot different from the $2 billion fetched for the Clippers, it is also true that Milwaukee is to Los Angeles as Carly Rae Jepsen is to Robert Plant.
The fact remains that, in recent history, the value of NBA franchises has rapidly caught up to the value of NFL franchises. Does this mean that the value of an NBA team will soon objectively surpass that of an NFL team?
It’s role play time. You are a billionaire who equally loves the NBA’s Phoenix Suns and the NFL’s Arizona Cardinals. You have $2.5 billion to spend on a professional sports franchise, and you are tasked with deciding between a deal with Suns owner Robert Sarver or Cardinals owner Bill Bidwell. In acquiring a franchise, your goal is for it to be owned by your family for generations—both quantitatively as a perpetual annual income generator and qualitatively as a point of family pride.
Under these parameters, which team would you purchase? The answer is clearly the Phoenix Suns, and it is not even close.
While you can argue that the Cardinals are a bigger moneymaker than the Suns now and even potentially ten years down the road, what is the “shelf life” on your hypothetical Cardinals investment? Given our growing understanding of the dangers of concussions and chronic traumatic encephalopathy (“CTE”), are we even sure professional football will be around in ten years? Twenty? How about twenty-five?
Pop Warner participation is already down countrywide, and that trend will likely continue—in fairness due to equal parts concern over traumatic head injuries and general sloth amongst the American populace.
I love watching football. But I would never allow my children to play tackle football. Whether you agree or disagree with that decision is largely irrelevant; my belief is rather cemented and far from unordinary.
To be blunt, there is no guarantee that the NFL will be around in thirty years. Whether the likelihood of that outcome is closer is 75% or 15% is open for debate, but the possibility for the extinction of the National Football League is not.
The way I see it, and the way a lot of billionaires will almost assuredly also see it, buying an NFL franchise could end up being like buying an automobile, while buying an NBA franchise will continue to be like buying a piece of real property.
Given the uncertain life expectancy of the NFL, a potential franchise buyer could literally be investing billions of dollars into a rapidly depreciating asset. An investment in an NBA franchise, however, carries significantly less risk and could very well lead to substantial appreciation.
A sports franchise is a de facto investment property, and a sophisticated buyer is going to invest in real estate over a car every day of the week.