Brian Gilder has written articles for my blog in the past. He always has a unique perspective. When it comes to Sports and Finances his take is always relevant and on point. With all the talk about Donald Sterling and the sale of the Clippers I asked Brian what he thought of the sale. Here is what he wrote:
A Diversified Low Risk and High Reward Investment
Steve Ballmer’s $2 billion investment in the Clippers might seem outrageous, but in the long term the Clippers could be worth more than $2 billion. Microsoft was one of the best growth companies from 1990-2000. The Clippers could be on that same track. There are five good reasons the Clippers are a good investment for Steve Ballmer:
1. Cable Revenue- Cable companies are paying big money for live sporting events. The Lakers inked a 20 year $3 billion deal with cable TV, and the Dodgers will earn more than $7 billion over 25 years under their contract. The Clippers will certainly earn a higher multiple when they negotiate new agreements because of the team’s new popularity and media exposure.
2. International Growth Opportunities– When you think of growth stocks these are companies that generate big profits for owners. The NBA keeps growing the brand by expanding to different countries to obtain a bigger market share. They play games in Mexico, Japan, United Kingdom, and other countries where NBA popularity has grown. This has led to a big increase in revenues generated for teams from overseas markets.
3. Los Angeles is a Premium Advertising Market- Donald Sterling owned the Clippers for 30+ years but he never leveraged the full capacity of the team until recent years under new management. Ballmer will be able to have plenty of sponsorship and other growth opportunities in one of the nation’s top sports markets, which increases the value of the Clippers even more.
4. Salary Caps- In a nutshell, there is a league limit on the amount teams can spend on individual and team player contracts. The NBA 2011 collective bargaining agreement made teams worth even more money and protected owner profits. It is said that the NBA owners saved themselves at least $3 billion over the life of that collective bargaining agreement.
5. Diversification- When it comes to finance 101 the name of the game is diversify your assets. Steve Ballmer is reportedly worth more than $20 Billion. So Ballmer is investing 10% of his net worth into the Clippers, a privately held company with strong revenues, positive cash flow and profits. If you were worth $200,000 and you made an investment of $20,000 (10% of your net worth) into the Clippers would that be a reasonable investment? And how happy is Ballmer – knowing he can run a company without bothering with shareholders?
Brian Gilder, CFP, CLU, CHFC
Contact (310) 804-3767