With the news that Mikhail Prokhorov is looking (again) into selling the Nets , the $2 billion dollar price tag Steve Ballmer paid for the Los Angeles Clippers has been tossed around. But is this the same situation? Will the Nets set a new record for the sales price of an NBA franchise? By examining the similarities and difference between Ballmer’s purchase and what the Nets have to offer, it’s clear Prokhorov may not get $2 million.
New York and Los Angeles are the two largest media markets in the U.S.. If we just look at market size, then $2 billion doesn’t seem out of the realm of possibility. The Clippers and the Nets also have to deal with younger brother syndrome. The Lakers and Knicks are both more popular, with stronger brand recognition than the Clippers and Nets. That doesn’t mean the market is limited, since there are a lot of corporate partners and potential fans in Los Angeles and New York.
One of the biggest issues some people had with the sales price for the Clippers was that the team does not own the arena the Clippers play in. Ownership groups have more control over concessions and ancillary income if they own the venue. The same problem exists for future Nets ownership. Although Prokhorov may be interested in selling his 80 percent stake in the team (Bruce Ratner owns the other 20 percent and he has been looking to sell his minority stake since October, 2014), the Russian billionaire is apparently not interested in selling his portion of the Barclays Center. Of course, the new ownership group could purchase Ratner’s stake in the venue, which holds concerts, other events and will soon host NHL Islanders games. However, the price of the venue will not be factored into Prokhorov’s asking price.
One of the biggest drivers in the increasing value of sports franchises is the increase in media rights. The Clippers will be negotiating a new local media rights deal after this year. This means the team can drive up the price by creating a bidding war between the local competitors (FOX, Time Warner). The Nets simply don’t have that option. They are signed through 2032 with the YES Network. That could actual hinder the chances of the Nets getting upwards of $2 billion.
There are other factors to take into account as well. Steve Ballmer had reportedly attempted to buy two other NBA teams with the desire to move them to Seattle before purchasing the Clippers (Sacramento and Milwaukee). There was no way Ballmer would be outbid for the Clippers, and he made sure of that with the $2 billion bid. The Clippers also have a stacked name-brand roster, and a borderline future Hall of Fame coach. The Nets have aging superstars, and a lack of draft picks. The Clippers are taking advantage of the Lakers downturn on the court; the Nets may be just as bad as the Knicks in upcoming seasons.
There are also other teams on the market. The Atlanta Hawks are currently for sale for a much lower price tag than the Nets. Atlanta is still a major market, and the team is trending upward with its product on the court. It’s not every day that a NBA team is on the market, but would potential ownership groups rather pay $800 million for the Hawks versus $2-3 billion for the Nets? The Nets and Evercore Partners (the investment firm handling the sale) may be asking for too much.
In any case, Prokhorov is going to make out financially. He paid $220 million for his 80 percent ownership stake. The profit may take a little pain away from watching his fortune devalue alongside the Russian Ruble.
Michael Colangelo is Assistant Director at the USC Sports Business Institute and Senior Editor of The Fields of Green.