How in the World Can the Los Angeles Clippers Be Worth $2 Billion?

Lee E. Ohanian is professor of economics at UCLA, where he teaches the economics of sports, writes:

The fact that we’re now living in an increasingly globalized sports marketplace is also driving up these prices. John Henry, the owner of the Boston Red Sox, is better known in much of the world as the owner of England’s fabled soccer club Liverpool. The Glazer family, owners of the Tampa Bay Buccaneers, is better known as the controversial owners of Manchester United. And more teams in England’s Premier League and other European leagues claim cash-rich Russian, East Asian, and Gulf State moguls as owners. One Russian tycoon, Mikhail Prokhorov, owns the NBA’s Brooklyn Nets. The point is there are now more than 2,000 billionaires around the world, and for those who have it all, a professional sports franchise is a coveted asset.

So in the long run, even if it was far more than the $550 million the Milwaukee Bucks sold for in March, the $2 billion Ballmer paid for the Clippers may turn out to be a great deal – for Ballmer...

The Clippers’ regional TV deal is almost up, as is the NBA’s national TV deal. The price of broadcast rights for sports continues to rise enormously as televised sports is one of the very few televised products that is predominantly watched live, and thus is highly valued by advertisers. The Lakers received a $3 billion, 20-year TV deal with Time Warner Cable in 2012. If the Clippers can get a new TV deal close to that, and assuming that the league’s next national TV deal pays significantly more than the current $30 million per year that each team now receives, then the Clippers’ TV revenue alone supports much of Ballmer’s $2 billion price. What’s more, like European soccer, the NBA is hugely popular in China and elsewhere, and over time, the league’s TV revenue could rise from foreign sources as well...

The scarce nature of these assets, these professional sports franchises, can’t be emphasized enough in explaining Ballmer’s $2 billion move. It’s basic supply and demand. And while supply is fixed, demand is skyrocketing as the globalization of business and technology continues to produce ever greater fortunes by the year – many of them looking for an arena in which to play.