How Steve Ballmer Can Justify His $2 Billion Bid for the LA Clippers
Steve Ballmer’s offer to buy the Los Angeles Clippers is currently the hottest story in the sports world. Last week, the former Microsoft (NASDAQ: MSFT) CEO revealed he values the basketball franchise at $2 billion, a price almost unanimously criticized by experts.
“Ballmer is making a vanity purchase,” sports economist Andrew Zimbalist told TIME,while the Los Angeles Times reports that the Economic Policy Institute’sLawrence Mishel said the move “reflects an enormously wealthy person buying a toy.” Even Forbes, the font of valuation lists if not a locker-room staple, estimates the Clippers are reasonably worth just $575 million — about 70% less than Ballmer’s bid.
Given his wealth of experience at one of the world’s most innovative companies, is there a chance Steve Ballmer sees something others don’t? Let’s take a look at a couple of ways he could improve the Clippers’ valuation and prove the critics wrong.
How he can justify his $2 billion bid
Over the past decade, NBA team values have risen by an annual average of 11%. When applied to the Clippers, this league-wide growth rate implies the team won’t reach a valuation of $2 billion until 2026. Twelve NBA teams, led by the Lakers and New York Knicks, should surpass this figure sooner if current trends hold.
Of course, Ballmer could speed up this process — and justify his bid sooner — by improving the Clippers’ on-court play. “I’ve got big dreams for the team. I’d love to win a championship. I’d love the Clippers to be the most dynamic, vibrant team and name in professional sports,” he told the Los Angeles Times last week.
There are a couple ways Ballmer could realize his vision.
The most obvious strategy is to follow in the footsteps of Mark Cuban, the owner of the Dallas Mavericks. Like Ballmer, Cuban is a multibillionaire who made a significant chunk of his fortune during the dot-com boom. And like Ballmer, Cuban was an outsider when he joined the NBA ownership circle more than a decade ago.
Cuban bought the Mavericks in 2000, and transformed the team from a perennial cellar-dweller to one of the NBA’s best. Before Cuban, the Mavericks had experienced 10 straight losing seasons. With him on board, the team has won fewer than 50 games just three times in 14 years. The Mavericks have one NBA Finals title, and two conference championships over that time.
Cuban achieved this largely by increasing payroll. In 1999, the team doled out $35 million to its players. Five years later, that figure was $91 million. All-Stars Dirk Nowitzki, Jason Kidd and Shawn Marion — each among the highest-paid players in the league thanks to Cuban — were integral to the Mavericks’ Finals victory in 2011.
If Ballmer wishes to mimic Cuban, he’s starting out from a much higher floor. The Clippers are coming off a 57-25 season in which they nearly made it to the Western Conference finals. Chris Paul, who was traded to the team in 2011, is statistically the best point guard in the NBA, and forward Blake Griffin almost singlehandedly supplies SportsCenter’s highlight reel. The Clippers’ only real roster issue is finding a viable backup for Paul — a nitpicky problem to have.
Still, recent success doesn’t mean Ballmer won’t boost a payroll that was already sixth in the league at $73 million last season. The Knicks ($88 million) and Brooklyn Nets ($102 million) have proved it’s possible to go even further beyond the NBA’s salary cap, projected to be $63 million next year. Assuming Ballmer has his eye set on a $95 million middle ground between both teams, there are quite a few free agents he could target:
- SF Carmelo Anthony (if he opts out)
- SF Luol Deng
- SG Lance Stephenson
- SF Trevor Ariza
- SF Paul Pierce
- SF Shawn Marion
- C Emeka Okafor
- PG Mario Chalmers
Aside from Carmelo Anthony, the team doesn’t need any of those players, but don’t discount Ballmer’s propensity to spend money. His $2 billion bid already proved that. Mario Chalmers would make a nice contingency plan in case Paul goes down, and a player like Emeka Okafor could add frontcourt depth. Luol Deng would also represent an intriguing option if the team misses out on Anthony.
A second strategy
Ballmer has made it abundantly clear he’s not interested in moving the Clippers from Los Angeles, but he could consider a name change. ESPN’s Arash Markazi recently explained why it would make sense:
“Even before [Donald] Sterling…forever tarnished the Clippers name, the time was right for the Clippers to be rebranded. This current group…has nothing to do with the team’s tainted past. The heavy burden of countless losing seasons and late night jokes isn’t a weight they need to carry anymore.”
Markazi added that after Sterling’s lifetime ban for a barrage of racist comments, the obvious “next step” is for the team to cleanse itself of the Clippers brand entirely.
The bottom line
State Farm, Virgin America, CarMax (NYSE: KMX), Sprint (NYSE: S) and Burger King (NYSE: BKW) are just a few of the sponsors that distanced themselves from the team after the Sterling saga, and many have yet to come back.
Given that a name change could hasten their return, such a move could directly increase the Clippers’ value. The team’s sponsorship income was just 16th in the league last season, the Times reports.
If — and this is a big ‘if’ — Steve Ballmer can bring a championship to Los Angeles, he may justify his $2 billion bid sooner rather than later. And assuming he initiates a Mark Cuban-esque payroll increase, Clippers fans may finally be able to be excited about basketball again.