Is $2 billion the new rate for an NBA franchise? Don't count on it
The news spread quickly this morning: Houston billionaire Tilman Fertitta had agreed to pay Leslie Alexandera reported $2.2 billion for theHouston Rockets.
It's another apparent affirmation that the then-record $2 billion Steve Ballmer paid three years ago for the LA Clippers wasn't just an outlier.
The assumption that all NBA owners will now experience a bump similar to former owners Donald Sterling and Alexander doesn't make much sense.
The latest franchise prices aren't necessarily a reflection of how much teams are worth, but rather how much someone is willing to pay.
Ballmer's $2 billion price tag was 247 percent higher than Forbes' estimate of the Clippers' worth. Fertitta's $2.2 billion offer would be 33 percent higher than Forbes' estimate for the Rockets.
In Los Angeles, it was a bidding war in a neighborhood filled with the rich and famous. In Houston, it was a local billionaire who had lost the team 24 years prior (Fertitta offered $81 million to buy the Rockets in 1993, but Alexander won with an $85 million bid).
The deal was done in 50 days because Fertitta, sources say, was willing to pay a premium to close the process faster.
The Rockets and Clippers deals bring their own sets of circumstances, so to suggest that Brooklyn Nets owner Mikhail Prokhorov is pumping his fists because the Nets are now automatically worth more than $2 billion isn't right.
The assumption suggests sale prices are a predictable science, but fluctuations on bids vary to a huge degree based on what the winner ultimately determines to be the trophy value. And it totally discounts the state of the product at the time of sale.
Both the Clippers and the Rockets at the time of sale were competitive organizations, a few pieces away from winning it all. Fertitta's deal comes with James Harden locked in to a super-max deal and Chris Paul, who was originally part of Ballmer's Clippers. Prokhorov's Nets are in such disarray that even throwing in Barclays Center -- a significant revenue boost for an aspiring owner -- doesn't really matter.
Another argument for a new market standard is that prices of sports teams just don't go down. Record-breaking sales in 2010 (Golden State Warriors, $450 million) and in 2014 (Milwaukee Bucks, $550 million) didn't coincide with new broadcast deals.
The Houston deal definitely does. There are eight years left on the most-recent television rights deal, which is a nice guaranteed cash flow. But franchise values could eventually turn on what happens next.
Will companies such as Facebook, Netflix or Amazon bid up rights? Will the largest revenue stream falter when the television deal expires?
On Tuesday, Madison Square Garden Co. stock was up more than 6 percent, likely on speculation that theNew York Knicksfranchise was worth even more after Fertitta won the Rockets bid.
The Knicks just might be, but are they worth 33 percent more now that the Rockets sold for 33 percent more than projected?
Of course not.
