Steve Ballmer, owner of the LA Clippers, recently turned heads by taking the first step in moving his team from the AEG-owned Staples Center to a new arena in Inglewood. The timing of this initial step, which includes making a $1.5 million down-payment to the city of Inglewood, would align the anticipated date of arena completion and the end of the Clippers’ lease with AEG, in 2024, almost perfectly.
Ballmer, the former CEO of Microsoft, loathes the current lease deal with the Staples Center. It places the Clippers below the LA Lakers and LA Kings (both owned at least in part by AEG) in terms of priority when scheduling dates for home games. Last season the Kings played 15 home regular season games on Friday and Saturday, the Lakers played 11 and the Clippers played only 9. That difference in weekend games greatly impacts Ballmer’s bottom line – and, more than likely, his pride.
Ballmer isn’t one to play third fiddle to anyone. However, the smart move would be to use the threat of moving to Inglewood to gain leverage in future negotiations with AEG. The $1.5 million down-payment is nothing when compared to the potential increase in revenue from a more equitable lease. And this strategy is right up Ballmer’s alley as he has demonstrated in the past.
In 2016, when the Clippers regional media rights’ deal with Fox expired, Ballmer sought to renew for about $100 million per season. Fox, however, offered $60 million a season, still a 140% increase from the previous deal, but not enough for Ballmer. Ballmer then threatened to keep the rights, and produce and distribute the games in-house. Unfortunately, Fox did not budge as the numbers of the proposed venture didn’t add up. Ballmer eventually accepted Fox’s original offer.
However, the main reason Ballmer shouldn’t construct a new arena is because of the many investing red flags that arise. From the absence of public funding to the inability to build supplementary development around the venue, this deal lacks the characteristics that would ensure a high financial return. But the biggest red flag is the fact that the Los Angeles arena market is highly competitive.
The more financially successful venues supplement their resident sports team games with special events (concerts, award shows, etc.) to ensure little revenue drop off during off-peak times. For Ballmer’s proposed arena, this would equate to over 300 days where the Clippers would not have a home game. Ballmer would essentially lose money every day the arena is empty. And the chances to fill those off-days are significantly diminished by the ongoing arena turf war in Los Angeles between two of the most influential companies in sports and entertainment: Azoff MSG Entertainment and AEG.
Azoff MSG Entertainment, led by Irving Azoff himself, incentivizes musical tours to play the Forum in Inglewood instead of Staples Center by giving them priority to perform at the famed Madison Square Garden. While AEG, owner and operator of many venues across the world, retaliates by disallowing acts that choose The Forum over the Staples Center the chance to perform at the O2 Arena in London.
It is uncertain how this war will play out, but what is certain is that neither side would allow a third arena to gain any market share in the L.A. arena market.
At the end of the day, Mr. Ballmer, who is worth over $40 billion, could easily foot the bill of the new arena and not worry about the financial return. But he is too smart of a businessman to do so. His best strategy, if he truly had to move out of the Staples Center, would be to form a strategic alliance with Irving Azoff and allow the new arena to act as a replacement for the Forum. Ballmer would provide the funding and Azoff would provide the special events.
Or, he could move the team to Seattle’s Key Arena – which could potentially be owned and operated by Azoff’s other venture Oak View Group by 2024.
But the money will persuade the team to stay at the Staples Center.