Thank you, Steve Ballmer. Or maybe, thank you, television networks.
Those are the twin dynamics that recently and somewhat indirectly boosted the value of NBA franchises, to the point where the New York Knicks, who reside in the financial penthouse of the NBA, are oozing with dollars.
According to the new Forbes magazine list of NBA properties, the Knicks are now worth $3 billion. And if that’s not wallet-swelling enough, 13 teams are now worth at least $1 billion (up from 11 last year). Two years ago, only three were worth $1 billion-plus.
Here’s more from Kurt Badenhausen of Forbes:
The New York Knicks reclaim the top spot from the Los Angeles Lakers after a one-year hiatus, thanks to a new cable deal and the highest premium-seating revenue in the league at almost $90 million. The split of the media and sports assets of Madison Square Garden Company in September precipitated a new media rights deal for the Knicks with the MSG regional sports network. The 20-year pact kicks off this season and is worth $100 million in the first year. We value the Knicks at $3 billion, up 20% and fourth most among U.S. sports franchises behind only the Dallas Cowboys ($4 billion), New England Patriots ($3.2 billion) and New York Yankees ($3.2 billion).
The last two seasons rank among the three worst in Lakers history, and the 2015-16 season, which doubles as Kobe Bryant’s retirement tour, is shaping up even worse. Even so, the Lakers are the NBA’s most profitable team thanks to the club’s 20-year, $3.6 billion deal with Time Warner Cable SportsNet LA. Ratings were off more than 50% for Lakers’ games during the 2014-15 season with Bryant sidelined by injuries most of the year, but the average audience size of 122,000 viewers per game was still the second highest in the NBA. Operating profits, in the sense of earnings before interest, taxes, depreciation and amortization, were an NBA-record $133 million last season by our count. The Lakers are now worth $2.7 billion.
Rounding out the top five are the Chicago Bulls ($2.3 billion), Boston Celtics ($2.1 billion) and Los Angeles Clippers ($2 billion). Thirteen teams are worth at least $1 billion, up from just three two years ago.
The league’s 30 teams generated $5.2 billion in revenue last season and $900 million in operating profit (earnings before interest, taxes, depreciation and amortization). Both are records. The NBA’s 2011 collective bargaining agreement, which enhanced revenue sharing for poorer small market teams and cut player costs, means that every team except one—billionaire Mikhail Prokhorov’s Brooklyn Nets—turned an operating profit last season.
The Hawks are a club on the upswing after years of dysfunctional ownership. The new Fox Sports TV deal kicked off this season and is worth triple the prior pact on an annual basis. Atlanta Mayor Kasim Reed is backing a renovation of up to $250 million of Philips Arena that would include public funding. The team reached the Eastern Conference finals last year and is led by Coach of the Year Mike Budenholzer. Attendance jumped a league-leading 21% at Philips last year and the number of season ticket holders is up to 9,000 from 3,000. We value the team at $825 million.
The Nets and Hawks transactions reflect the bifurcation of franchise values in recent years, with big market teams carrying significant premiums, particularly the largest markets like Los Angeles, where Steve Ballmer paid $2 billion for the Clippers in 2014. The top five teams are now worth $2.3 billion on average or three-and-a-half times the bottom five teams. Five years ago the multiple was only two times as much.
So, in short, what happened? Ballmer happened.
He purchased the Clippers a few years ago for $2 billion and that suddenly set a new standard. The TV contracts happened, too: ESPN and Turner (which manages NBA.com) ponied up $24 billion over nine years. That’s not counting local TV deals. Essentially, those TV contracts are gold to owners.
But it’s not just that. The league overall is profitable, too, with sponsorship deals and ticket sales and merchandise sales all adding more cha-ching to the cash registers. Also, new arenas are coming for Golden State, Sacramento and Milwaukee. Business is very good for the NBA and the teams are reaping the benefits.
Imagine, that in 1988, when the league added four expansion franchises (Miami, Orlando, Minnesota and Charlotte), those franchises cost $32.5 million each. The Heat is now worth $1.3 billion.