Is $2 billion the new rate for an NBA franchise? Don't count on it
— -- The news spread quickly this morning: Houston billionaire Tilman Fertitta had agreed to pay Leslie Alexander? a reported $2.2 billion for the? Houston Rockets.
It's another apparent affirmation that the then-record $2 billion Steve Ballmer paid three years ago for the LA Clippers wasn't just an outlier.
But the assumption that all NBA owners will now experience a bump similar to former owners Donald Sterling and Alexander doesn't make much sense.
The latest franchise prices aren't necessarily a reflection of how much teams are worth, but rather how much someone is willing to pay.
Ballmer's $2 billion price tag was 247 percent higher than the Clippers' Forbes estimate. Fertitta's $2.2 billion number would be 33 percent higher than the Rockets' Forbes estimate.
In Los Angeles, it was a bidding war in a neighborhood filled with the rich and famous. In Houston, it was a local billionaire who had lost the team 24 years prior (Fertitta offered $81 million to buy the Rockets in 1993, but Alexander won with an $85 million bid).
The deal was done in 50 days because Fertitta, sources say, was willing to pay a premium to close the process faster.
Both the Rockets and Clippers deals brings its own set of circumstances, so to suggest that Brooklyn Nets owner Mikhail Prokhorov is pumping his fists because the Nets are now automatically worth more than $2 billion isn't right.
Fluctuations on bids vary to a huge degree based on what the winner ultimately determines is the trophy value. And it totally discounts the state of product at the time of sale.
Both the Clippers and the Rockets at the time of sale could be seen as very competitive organizations, a few pieces away from winning it all. Fertitta's deal comes with James Harden locked in to a super max deal and Chris Paul, who was originally part of Ballmer's Clippers. Prokhorov's Nets are in such a state of disarray that even throwing in Barclays Center -- a significant revenue boost for an aspiring owner ?-- doesn't really matter.
The next argument for a new market standard is that prices of sports teams just don't go down. They haven't, but will they? Record-breaking sales in 2010 ( Golden State Warriors, $450 million) and in 2014 ( Milwaukee Bucks, $550 million), didn't have new media deals baked in. But the Houston deal definitely does.
There's eight more years on the most-recent television rights deal, which is a nice guaranteed cash flow, but franchise values will eventually turn on what happens next.
Will companies such as Facebook, Netflix or Amazon step up to bid for rights to ensure an upward trajectory, or will the largest revenue stream falter after the television deal expires?
On Tuesday, Madison Square Garden Co. stock was up more than six percent, likely on speculation that the? New York Knicks?franchise was worth even more after Fertitta won the Rockets bid.
And the Knicks just might be. But are they worth 33 percent more now that the Rockets are worth 33 percent more than the publication of record projected?
Of course not.
