Why Bucks Sold for Way More Bucks Than They Were Worth

Why is this man smiling? He just sold the Bucks for $550 million and they are staying in Milwaukee (Credit  Jeff Hanisch-USA TODAY Sports)
Why is this man smiling? He just sold the Bucks for $550 million and they are staying in Milwaukee (Credit Jeff Hanisch-USA TODAY Sports)

The Milwaukee Bucks won’t be moving any time soon. Today, Herb Kohl reportedly sold the Bucks to hedge fund billionaires Marc Lasry and Wesley Edens for $550 million. Bidding for the team has been open since December, and rumors circulated that the Seattle duo of Steve Ballmer and Chris Hansen were interested in purchasing the team. However, Kohl made a condition of the sale that the team would stay in Milwaukee.

Forbes recently listed the Bucks as the least valuable franchise in the NBA at $405 million, which means the team sold for a 36 percent premium on their valuation. The Bucks are in the smallest market with one of the worst arenas in the NBA, so why were billionaires lining up to buy the NBA’s least valuable team?

One reason is that NBA teams have cost certainty until 2017 based on the most recent collective bargaining agreement (CBA). There is a slim chance the CBA could last until 2022. However, that is doubtful due to the NBA’s upcoming new media deal driving up the valuation of small-market teams, such as the Sacramento Kings and (drum roll) the Bucks.

With the impending end of the current NBA media deals in 2016, team owners are about to see a huge influx of revenue. NBA Commissioner Adam Silver not only has live, relatively time shift-proof entertainment to sell to sponsors and partners, but several buyers exist in the media market. ESPN, Turner, Fox Sports 1 and NBC Sports all figure to be heavily involved in the bidding wars, and that is just for broadcast rights.

Silver and the NBA could also slice up the media rights, selling digital rights separately. Bringing in companies with streaming services such as Google, Amazon or Apple only increases the amount of money the NBA can receive for their media rights. All of this money is shared equally between the 30 NBA teams and the NBA is in a perfect place to score a record deal.

The new owners also have an out if they want to leave Milwaukee. The Bucks’ lease at the BMO Harris Bradley Center runs until September, 2017. If a new stadium deal hasn’t been reached, it doesn’t look like Commissioner Silver would stand in the way of the team moving, as he stated less than a year ago:

One obvious issue we all have to deal with is we need a new arena in Milwaukee. At the end of the day compared to other modern arenas in the league, this arena is a few hundred thousand square feet too small. It doesn’t have the sort of back-of-house space you need, doesn’t have the kinds of amenities we need. It doesn’t have the right sort of upper bowl/lower bowl (seating) configuration for the teams frankly that Milwaukee wants to compete against.

This could be political posturing by Silver, but the NBA has let teams move when city governments have not invested, by NBA standards, in the local team (see Seattle). It’s really a win-win for the new ownership group. Either Milwaukee helps out with a new arena, or the team can move to a city that is more receptive after the lease expires.

The only issue that could curtail revenues and make this a risky investment is the impending CBA opt-out by the players. By 2017, the players union should have recovered from the shambles former NBPA Executive Director Billy Hunter, left it in. The players will want a larger percentage of revenue because of the new media deal and teams selling for more than $100 million of what they were determined to be worth. Negotiations between owners and the NBPA could become contentious.

Until then, franchise valuations will continue to increase. The Sacramento Kings sold for more than it was valued at, and the Bucks followed suit. The combination of current cost certainty, increased revenues and a potential ownership group hell-bent on bringing a team back to Seattle has created a situation in which prices for ownership will only increase. It doesn’t seem like a bad investment.

Especially for Kohl, who bought the Bucks for $18 million in the 1980s and just sold them for more than 30 times that amount.

Michael Colangelo is Assistant Director at the USC Sports Business Institute. 

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