Former Microsoft Corporation (NASDAQ:MSFT) executive Steve Ballmer is over paying for ownership of the Los Angeles Clippers basketball team to a historic level, a bid book complied by financial experts suggests.
Ballmer’s $4 billion bid for Clippers
Ballmer’s $2 billion bid is nearly double where sports financial experts had valued the team.
According to a preliminary draft of valuation considerations produced by Bank of America Merrill Lynch the fair value for the Clippers is close to $1 billion to $1.3 billion, or double the $550 million sale price set by the Milwaukee Bucks, who set a league record for price relative to revenue just months ago.
Bank of America Merrill Lynch values the team based on a formula that primarily considers the multiple of revenue to team value. Most teams have been valued under six times revenue, while the Clippers are being valued at 12.1 times team revenue.
Clippers are projected revenues from ticket sales
ESPN, which published the bid book, said the Clippers are projected to finish 2014 with $62.3 million in revenues from ticket sales, $25.8 million from its local cable contract, $24.1 million in additional team revenue and they are projected to receive $52.7 million on the season in shared national league revenue. This leaves total operating revenue for the 2013-14 season projected at $164.9 million.
Bank of America Corp (NYSE:BAC)’s projection was close to two bids Clippers owners received, which came in at $1.2 billion and $1.6 billion.
“Whether you want to call it a slam dunk or a home run, none of us believed that we would get to $2 billion,” Bank of America’s Anwar Zakkour testified in court Tuesday. “None of us even believed we’d get to the $1.8 billion number, so that says it all.”
Zakkour was testifying in a case regarding Donald Sterling’s wife, Shelly, bidding on the team, highlighting just how good the bid being presented to the Sterling’s was, despite Sterling’s desire for a valuation close to that of the Los Angeles Lakers.
Lakers’ rights deal with Time Warner Cable
Sterling himself testified earlier this month that he believed the price for the team could have reached at least $2.5 billion, citing the Los Angeles Lakers‘ $3 billion television rights deal with Time Warner Cable Inc (NYSE:TWC).
While the two teams might share the same home city and stadium, that’s about it.
Both Zakkour and Time Warner’s CEO Dick Parsons, however, cast some doubt on the Clippers’ ability to land a TV deal similar to that of the dominate Lakers. “The Clippers aren’t the Lakers yet,” Parsons testified. “If we doubled our local broadcast revenues, it would be very nice for the owners but it still wouldn’t work up to the price that’s being offered.”
Sterling had filed a lawsuit on Tuesday asking for damages the NBA, commissioner Adam Silver and even his wife on grounds he was defrauded in the prospective sale to Ballmer.
Looking at standard valuation measures, Ballmer might best take the money and run.
H/T Modest Proposal