L.A. Clippers' $2 billion sale price won't affect Buffalo Bills' value
A pro basketball team is being sold for $2 billion.
That must mean the Buffalo Bills of the almighty NFL are worth at least $4 kajillion, right?
Not at all.
In fact, the Los Angeles Clippers' eye-bulging sale price shouldn't impact the Bills one bit.
NFL and NBA economics aren't comparable. Differences are considerable in their collective bargaining agreements, how they handle broadcast contracts and arena revenues.
The Clippers' sale influences the NFL as much as Cleveland housing prices matter in Seattle.
"It's only because of the NFL's economic factors that you could even conceive of having a team in Buffalo or Green Bay in this day and age," said Andrew Zimbalist, a Smith College economic professor and noted expert on sports business.
"If the NFL had the economics of the NBA, there could never be a team in Buffalo."
A realistic guess for the Bills' sale price is $1 billion, about what the Cleveland Browns sold for two years ago and the Miami Dolphins in 2009.
The Bills' price will depend heavily on the specific instructions Ralph Wilson left for his trustees. For instance, if favor will be shown to keeping the team in Western New York, then the bids will be much lower than if the Bills are untethered beyond the current lease.
What the Clippers' sale does, however, is remind us that anybody with fat stacks of cash can overpay for a rare commodity.
Steve Ballmer agreed to spend $2 billion on the Clippers because he can. Forbes estimates the Microsoft CEO is worth $20.7 billion. Ballmer's bid to purchase the Sacramento Kings was unsuccessful last year. So he overpaid to make sure that wouldn't happen with the Clippers.
"It's important to underscore what Ballmer did with the Clippers didn't have any financial rationale at all," Zimbalist said. "The only way you can understand what he did -- unless he's making a very serious miscalculation financially -- is that he decided to take a fraction of his net worth and buy an expensive toy.
"The same way you or I would by a tennis racket or a bicycle or a computer, he decided to buy a basketball team."
But Ballmer isn't tossing his money down a disposal.
NBA clubs in major markets are highly profitable, and the Clippers have untapped revenue potential. They have made the playoffs three straight seasons and feature star power with Blake Griffin and Chris Paul.
In the NFL, teams have a national broadcast deal and split the money 32 ways. Revenue sharing and a salary cap make sure markets such as Buffalo and Green Bay and Cincinnati can have teams.
The NBA also has a national deal, but each team negotiates its own regional contract and pockets that money.
The Los Angeles Times recently reported the Clippers are believed to make $25 million a season on its regional TV deal. The Los Angeles Lakers, who play in the same arena and didn't make the playoffs this year, get $150 million a season from Time Warner Cable.
Expect the Clippers' local TV contract to soar. Some analysts are predicting it will double or triple. The deal with Fox Sports-owned Prime Ticket has two seasons left, but the L.A. Times reported this week Fox Sports executives already have reached out to Ballmer about renegotiating.
The NBA's labor agreement is more favorable to ownership than the NFL's. The NBA has cost certainty when it comes to payroll and doesn't have to worry about losing gobs of cash in concussion and pain-medication lawsuits.
Even so, $2 billion is an outlandish sum. Zimbalist figured the Clippers actually are worth half that.
"If everybody who purchased sports franchises was perfectly rational, it shouldn't have any impact at all," Zimbalist said. "But people who buy sports franchises do it, in significant degree, for emotional reasons.
"What it's reflecting is there are a lot of billionaires out there who like to buy sports teams because they're a lot of fun and have a variety of side benefits that have nothing to do with the profitability of the franchise."