Risk and Reward

Forcing Donald Sterling to sell the Los Angeles Clippers would appear to be a complicated proposition. But if such an eventuality were to come to pass, numerous observers believe the sale price could be in the neighborhood of one billion dollars. According to Forbes’ latest valuation, the Clippers are worth $575 million. That represents a 34% increase in value just since last year. A comparable increase over this next year would put the franchise value in the ballpark of $750 million. And the Milwaukee Bucks, the lowest valued team in the league, just sold for a third more than their valuation.

All of which is to say – if Sterling does sell, he will make a shitload of money. He bought the team for $12.5 million in 1981. If we somewhat conservatively estimate a sale price of $750 million and account for inflation, that would be a roughly thirty fold return on Sterling’s investment. I think most people would be pretty happy with that.

Especially when you consider the following: until three years ago, when the NBA gifted Chris Paul to the Clippers, they were among the very biggest laughingstocks in the modern history of major North American professional sports. Their first winning season with Sterling as owner came a decade after he bought them, in 1991-92. After that, they did not manage another better-than-.500 campaign until 2005-06. From 1998-2000, covering three seasons, including the lockout shortened 1999 slate, the Clippers managed to go 41-173. I repeat – 41-173. That’s a stretch of futility that makes the 1962 Mets look like Murderer’s Row (yes, I know comparing baseball to basketball records isn’t entirely fair. Sue me).

They didn’t win their first playoff series under Sterling until that 05-06 season. Think about that – it took the Clippers twenty five years to win a a freakin’ playoff series with Sterling as owner.

As noted above, CP3’s arrival in 2011 has set the franchise on a different course. But Donald Sterling, I think it’s fair to say, has done *nothing* to improve the value of the franchise from whose sale he would now benefit so handsomely. The enormous payday he’s looking at is entirely a function of the explosion in profitability of professional sports more generally, driven by enormous television contracts and other market changes. If we were to assign to owners something like a WAR , it’s hard to imagine being more generous to Sterling than to say that his would be 0.0. This Sterling example of an owner who’s done nothing to add value to a property whose value has nevertheless increased exponentially is worth remembering the next time the commissioner and the owners resume their usual whining and deceitfulness during collective bargaining. You know the drill by now – how the owners of capitalist enterprises need to earn rewards commensurate with the “risk” involved of investing their capital. About how the economic ‘realities’ of their enterprises have changed, forcing them to tighten their belts. About how the players make too much money.

When it comes to major league sports, that’s all sheer nonsense. Sterling illustrates perfectly what a joke it is to talk about “risk” in this context. He was an utterly incompetent owner for a quarter of a century, has only presided over more than one consecutive winning season after falling ass backward into acquiring one of the very best players in the NBA and is going to make an absolute killing if and when he is compelled to sell the team.

Crony capitalism at its finest.


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