Clippers valuation update

BVWireIssue #144-1
September 10, 2014

“When you look at tech companies with no earnings and huge valuations and a lot of downside, the Clippers look like a really well valued team to me,” says Steve Ballmer in a video interview on Bloomberg about his $2 billion purchase of the NBA team. Many critics say the price tag was too high (see the August 20 issue of BVWire).

Hubris hypothesis: In a blog post devoted to the Clippers deal, Dr. Aswath Damodaran (Stern School of Business, New York University) estimated the value at $1.61 billion under a set of simplifying assumptions. He also makes an interesting point concerning his hypothesis on “acquisition hubris,” where acquirers overpay due to ego and pride. He says: “While the desire to acquire glamorous assets and pay ego premiums may be clearly visible in sports franchise acquisitions, they are not restricted to them.” He adds: “If Steve Ballmer is overpaying for the Clippers, he is at least overpaying with his own money. When, as CEO of Microsoft, he paid $8.5 billion for Skype, it was Microsoft stockholders who were put at risk from overpayment.”

In our reporting, we mentioned that, in a blog post, Donald Erickson (Erickson Partners Inc.) valued the team at $1.37 billion. However, we’d like to clarify this by pointing out that he did not give an appraisal opinion but simply hypothesized that, if you used the theoretical revised 2014 revenue forecast and applied the highest multiple from recent deals, the result would calculate to $1.37 billion.

Ripple effects? Some people believe that “all boats could rise with the tide,” meaning the values of other teams could increase as a result of the Clippers deal. “But I don’t think so,” says Erickson. “It seems to me that this is a special case of facts and circumstances. We will see.”

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