Hot News: Steve Ballmer, The Clippers And The Basketball Bubble

Steve Ballmer taking a seat at the KeyArena to watch the Seattle SuperSonics (Photo credit: Wikipedia)

The U.S. stock market is trading at all-time highs, the yields on U.S. government bonds are at eye-popping lows and the nation's professional basketball teams are selling for more than most observers previously thought possible. That the U.S. economy shrank in the first quarter of the year is the disturbing backdrop for this stunning surge in asset prices-call it the basketball bubble.

Forbes first reported early on Thursday that former Microsoft CEO Steve Ballmer had submitted a $1.8 billion bid for the Los Angeles Clippers and that the team could go for $2 billion before all was said and done. By the end of the day Thursday, The Los Angeles Times had reported that Ballmer had submitted a winning $2 billion bid for the Clippers.

A $2 billion sale of the Clippers would be a record sale price for a basketball team. To get a sense of how far out of left field such price tag is, Forbes valued the Clippers at $575 million in January. Just three years ago, the big market Philadelphia 76ers, which like the Clippers are merely a tenant in the building in which they play basketball, sold for 2.5 times revenue. My Forbes colleague, Kurt Badenhausen, who knows more about basketball economics that just about anyone, has come up with 10 reasons why in 2014 the Clippers would fetch 15 times revenue. Those reasons range from new TV deals to a collective bargaining agreement that is more favorable to owners. There is also the issue of supply and demand. There may be only one chance in a lifetime to buy a basketball team in a city like Los Angeles, but there are also now a number of people willing today to pay more than $1 billion for it.

In the aftermath of the Clippers deal, here are two questions worth thinking about: Is Apollo Global Management co-founder Josh Harris, who in 2011 led the investment group that bought the Philadelphia 76ers for $287 million, one of the shrewdest investors of the post financial crisis era? What price would the Los Angeles Lakers sell for in the spring of 2014?

It is really quite remarkable that the sale of one of the saddest and least successful franchises in basketball could epitomize what is going on in the nation, from the enormous popularity of professional sports to race relations. But let's look for a moment about the issue that helped fuel the $2 billion price tag-the nature of the explosion of concentrated wealth in America.

One of the other main bids for the Clippers reportedly came from Tony Ressler and Bruce Karsh, who established what turned out to be a bidding floor and were ready to pay $1.2 billion. Like Harris, these two come from the corner of the alternative investment business known as private equity. Ressler even used to be Harris' partner. Two other hedge fund/private equity finance guys, Marc Lasry and Wes Edens, helped inflate the basketball bubble in April, when they agreed to buy the Milwaukee Bucks, a perennially bad team that plays in a competitive and tiny market, for $550 million. Harris, Ressler and Karsh have seen their three respective private equity firms do well in recent years and conduct their own initial public offerings. Another financial firm, Guggenheim Group, together with David Geffen, also submitted a rich bid for the Clippers.

Still, as well as the Wall Street buy-side guys have been doing, in 2014 tech wealth still trumps hedge fund and private equity wealth. Rich tech guys have recently bought the Sacramento Kings and the Memphis Grizzlies. The net worth of Jan Koum, co-founder of mobile messaging start-up WhatsApp, is greater than the net worth of Harris or even Harris' partner, Leon Black. Ballmer is worth $20 billion. During his 13 years as Microsoft CEO, he proved that he was willing to outspend the competition to buy shiny new things, even when it made little financial sense. It looks like he is about to buy the Los Angeles Clippers for a lot of money.

Post By http://www.forbes.com/sites/nathanvardi/2014/05/30/steve-ballmer-the-clippers-and-the-basketball-bubble/