An individual with knowledge of negotiations to sell the Clippers says Shelly Sterling has reached an agreement to sell the team to former Microsoft CEO and Detroit native Steve Ballmer for $2 billion. (Mark J. Terrill / Associated Press)
A high-profile NBA franchise in a major media market was suddenly available. A handful of power brokers from the technology, entertainment and venture capital fields were lining up for a chance to join the party.
And all the while the clock was ticking on the bidding, with the league waiting and threatening to impose its will on the process if Donald and Shelly Sterling didn’t unload the Los Angeles Clippers.
The result? A $2 billion record bid from former Microsoft executive Steve Ballmer that sent sticker shock through the worlds of sport and finance.
Lending uncertainty to the Ballmer bid is an ESPN.com report Sterling plans to sue the NBA for $1 billion, according to his attorney, Max Blecher. Sterling also is considering legal action against his estranged wife, who brokered the proposed sale, Blecher told ESPN.com.
The NBA canceled its scheduled hearing on Tuesday concerning Sterling.
The league says in a statement it has resolved its dispute over the franchise’s ownership with Shelly Sterling and the Sterling Family Trust. According the statement, Shelly Sterling and the Trust “also agreed not to sue the NBA and to indemnify the NBA against lawsuits from others, including from Donald Sterling.”
The offer, which comes after recorded racist comments made by Sterling prompted the NBA to force the Clippers sale, is among the highest amounts ever paid for a pro sports team. It roughly ties the $2 billion paid for baseball’s Los Angeles Dodgers in 2012 and exceeds the $1.47 billion paid for soccer’s Manchester United in 2005.
A perfect storm might have inflated the price.
A small time frame to negotiate, skyrocketing television rights fees that pushed professional sports franchise values through the roof, an owner-friendly collective bargaining agreement negotiated in 2011 and Ballmer’s own desire to land the team after missing out in his bid to buy the Sacramento Kings last year collided to drive the Clippers price into the stratosphere, experts say.
“I’m completely hornswaggled — if that isn’t a word, it should be — by the going price,” said Michael Leeds, professor of economics at Temple University. “It is almost unimaginable that the Clippers would go for about the same price as the Dodgers did just a year or so ago.”
Ballmer, a Detroit-area native, might have overpaid for the Clippers through an economic theory called “the winner’s curse,” which states the winning bid is always the highest bid and not necessarily the most accurate one.
But with a meeting scheduled for Tuesday in which the NBA was expected to vote to oust the Sterlings as owners of the Clippers, the window for negotiating a deal was closing quickly. That can often prompt prospective buyers to be more aggressive with their initial offers than they normally would be, according to John Vrooman, profressor of sports economics at Vanderbilt.
But Ballmer had good reason to overpay, Vrooman said. The Clippers soon will be renegotiating their local television packages. Their current deal reportedly nets them about $20 million annually.
The NBA also will get a new national television contract in 2016 that figures to add another $50 million to each team.
The expected television revenue alone — not even taking into account revenue from tickets, luxury suites and in-arena advertising — pushes the value of the Clippers to the $1.2-$1.6 billion range, Vrooman said.