Clippers sale a case study in ‘idiocy’ profits

  • By Scott Soshnick Bloomberg News
  • Thursday, May 29, 2014 4:26pm
  • SportsSports

NEW YORK — The sale of the Los Angeles Clippers will yield a windfall for Donald Sterling, whose racist remarks and bungled apology will lead to a record-shattering price for a team.

“Never in the course of sports purchases has complete idiocy led to a price that will definitely raise the value of every single NBA team,” said Andy Dolich, who has held management positions in the four major U.S. sports leagues. “The next major focal point will be on the amount of money that was paid to a guy that pulled the pin on his own hand grenade while holding it.”

Sterling paid about $12.5 million for the Clippers in 1981, making him the National Basketball Association’s longest-tenured owner. Proceeds from any sale, whether voluntary or forced, will go to Sterling and his co-owner wife, Shelly, who is working with Bank of America Corp. to sell the club in what sports bankers say is an unprecedented time frame to complete a transaction of this magnitude.

Shelly Sterling wants a signed agreement before June 3, when the league’s owners at the insistence of Commissioner Adam Silver will probably vote to seize the team and sell it.

Five prospective owners submitted bids for the team Wednesday, said a person with direct knowledge of the process. One group, backed by Ares Management Chairman Tony Ressler and Oaktree Capital’s Bruce Karsh, offered $1.2 billion, more than double the record amount paid for an NBA franchise, according to a person with direct knowledge of the bidding. Forbes, citing a person familiar with former Microsoft Chief Executive Officer Steve Ballmer’s interest in the team, said the billionaire offered $1.8 billion.

The Milwaukee Bucks, who play in the No. 34 media market, were sold last month for a league-record $550 million. Los Angeles is the No. 2 media market.

Donald Sterling was banished from the NBA after an audio recording of him was made public in which he told a female friend he didn’t want her associating with black people and preferred that she didn’t bring minorities to games. He mentioned basketball hall-of-famer Magic Johnson, who led the “Showtime” Los Angeles Lakers to five championships and who two years ago was part of the Guggenheim Parters-led group that bought baseball’s Dodgers for a record $2.15 billion.

During an interview on CNN in which Sterling apologized to his fellow owners, he also said Johnson, who is HIV positive, isn’t a role model and doesn’t do enough to help minorities. The initial remarks, and his botched apology, were included in the NBA’s charge against Sterling, who in a letter to the NBA called the process against him a “sham.”

The 80-year-old billionaire’s attorney said his client plans to fight the league.

“If this was your business plan you’d probably go bankrupt,” Dolich said of Sterling’s failures. “Hey, I’ve got a great plan, I’m gonna do X, Y and Z, and every time I open my mouth with a more ridiculous comment than the one before the price is going to go up astronomically. This may be a new course at Harvard Business School.”

Music executive David Geffen, whose group includes Oracle Corp. Chief Executive Officer Larry Ellison and Oprah Winfrey, also made a bid, a person familiar with the process said. The amount isn’t known.

David Kahn, a former general manager of the NBA’s Indiana Pacers and president of the Minnesota Timberwolves, compared the frenzy surrounding the Clippers to “the mania that drives Manhattan real estate prices.”

“There’s enormous liquidity out there — so much that people can afford to overpay by dramatic margin,” Kahn said, adding that the Sterlings might reap $2 billion. “There’s an enormous number of highly wealthy people who have always wanted to have a team in Southern California so that they could rest their head on their pillow at night and not have to travel by private jet to see their team play.”

Forbes last year said the Clippers were worth $575 million, 13th in the 30-team league.

Bob Caporale, founder of Game Plan Ventures, a sports advisory firm, said the Clippers would have sold for about $1 billion without the controversy and publicity surrounding Sterling’s comments. Now, he said, it’ll be more.

“The real issue is how much more,” Caporale said.

Mike Principe, chief executive officer of sports representation and marketing company the Legacy Agency, said the frenzy created by the possibility of a forced sale accounts for at least a 20 percent boost in price. The business fundamentals of the team, he said, don’t warrant the offers.

“If you’re looking at actual returns, I’m not so sure how you justify it,” he said. “The only way you can rationally justify this is just supply and demand. This is a highly sought after asset.”

Dolich said not even former NBA Commissioner David Stern, who presided over the league for 30 years before stepping down on Feb. 1, could’ve driven a team’s price like Donald Sterling.

“If you look at the brilliant work that David and Adam and many other owners and smart business people have done — what event over the last three decades has skyrocketed net asset appreciation as much as maybe the dumbest screed of all time?” he said.

_ With assistance from Edvard Pettersson in Federal court in Los Angeles.

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