Two years ago Steve Ballmer purchased the Los Angeles Clippers for $2 billion. That was — and is — a record setting sale for a NBA franchise. When the Microsoft mogul purchased the Clippers for such a hefty fee, some people had theories on why Ballmer paid so much. Those theories ranged from business logic — increasing revenue from an expiring local TV deal — to more emotional reasons — Ballmer didn’t want to miss out again after losing out on the Milwaukee Bucks. In any case, it was well accepted that to justify the $2 billion price certain aspects of the business had to change — the new NBA TV deal is one revenue stream in favor of Ballmer. Now it seems Clippers’ leadership is discussing another way to increase revenue: building, owning, and operating a new arena on the Westside of Los Angeles.
Arenas and the monetization of those venues can greatly affect revenue generation as well as franchise valuation. As of now the Clippers share an arena with the Lakers that is owned and operated by AEG. The team gets a cut of revenue generated at Staples Center, but it still pays a lease and some sponsorships, signage, and suites are sold by AEG. The Clippers lose out on income compared to if Ballmer and the team owned its own venue.
Ballmer throwing out the idea, or at least researching building a Westside arena is good due diligence. The Westside of Los Angeles has a strong consumer base with disposable income. There is no venue for Westsiders in any of the major sports in L.A. — StubHub Center and the Forum are close, but both are east of the 405 freeway demarcation line for most Angelenos. The arena would probably cost at least $1 billion, but when your owner is a $20 billion man, what’s an extra billion here or there for a new arena.
The original logic assumed that the increase in local TV rights would justify the $2 billion purchase price. The Clippers were coming off one of the leagues smaller TV deals and RSN distribution rights were going through the roof. Then digital and cord cutters threw a bit of a wrench in that idea. The Clippers and Fox have yet to come to an agreement and the Clippers want to keep certain digital rights to create new revenue streams. Right now, the rumored local TV rights and digital won’t make up the revenue projected during the sales process. This means that other avenues need to be explored.
It helps that Ballmer is looking into building a new venue during Los Angeles’ push to host the Olympic Games in 2024. If Ballmer and the Clippers can be part of that push, it may relieve some of the cost associated with a new venue, thus relieving Ballmer of some expense. Los Angeles is not interested in providing public money — especially after the Rams and Stan Kroenke will be building an entire football stadium with private funds — so government subsidies are out of the question.
Los Angeles probably doesn’t need another arena without the Olympics. There are already going to be battles to create ancillary income — non-local sports teams — events at the Forum, Rose Bowl, Staples Center, and eventually the Rams football stadium. These events — concerts, Final Fours, major events — are an important financial justification for building a venue. So building a new arena could justify Ballmer’s $2 billion purchase price, but it is also a costly and potentially risky investment. Many people will say L.A. doesn’t need a new arena, which may be true, but the Clippers and their ownership may build one to increase the teams revenue and justify the historical purchase price.