Before I go any further, I agree it is an overpayment. In the case of auctions, winner's often overpay because highest bid wins. Also known as the "winner's curse". In this case, there were wealthy investors submitting 1 billion dollar bids in a rushed auction intended to beat the removal of the Sterlings from the team.
Ballmer is worth $20 billion according to Forbes, recently failed to purchase the Kings - has the desire to own an NBA franchise and the money to burn. Some people w/ higher disposable income are willing to spend what they have to on some things and this is just a high profile example. I doubt Ballmer regrets the purchase.
Aside from that, I don't feel the value is all that far off. Not only is the team in the 2nd largest metropolitan area which is expected to grow, it is a major media market. Opportunities to own a sports franchise there don't come along often and the window on this one closed quickly under the strangest of circumstances.
Clippers will see a significant increase in revenue from national TV deals, could sign a huge local TV deal when their contract is up. They should also attract a lot of revenue from endorsements, Blake Griffin & Chris Paul are already among the league's top earners from sponsors. Also the league as a whole continues to grow, they are up in revenues and more teams are turning a profit w/ the owner friendly CBA which includes the revenue sharing you noted.
Not to mention the team is up-and-coming w/ popular stars such as Chris Paul & Blake Griffin. They also have one of the best coaches who players around the league say is the coach they would most like to play for so this team won't be a difficult one to market.
That said, I agree it is an overpayment but it makes perfect sense to me. I'll post an except from my favorite source when it comes to the economics of sports.
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Easier to designate as madness, meanwhile, is that $2 billion sale price. (As yet unconfirmed, but reported by multiple sources.) As I discussed yesterday over at Sports on Earth, it was expected that the Clippers were going to sell for a record price, given escalating sports team values, their presence in the mammoth L.A. market, and the fact that for once they aren’t league doormats anymore. But consider that the previous record, set just last month, was $550 million for the Milwaukee Bucks; and that earlier this year Forbes estimated the Clippers to be worth just $575 million, with the NBA’s most valuable team, the New York Knicks, clocking in at just $1.4 billion; and that the only sports franchise ever to sell for $2 billion was the L.A. Dodgers in 2012, a team that plays in a more popular sport and earns more than double the Clippers’ annual revenues, a figure that will likely hold true even after the Clips renegotiate their TV deal in 2016; and you’ll be forgiven for wondering whether Ballmer shouldn’t have his head examined as well.
The leading theory for what the hell just happened is what you might call billionaire glut: Thanks to the U.S. economy’s increasing propensity for concentrating all its wealth in a tiny number of people, there are a heck of a lot more rich guys like Ballmer in the market for sports teams these days, and not an appreciably larger number of sports teams for sale. That imbalance of supply and demand drives prices through the roof, with would-be hoops magnates bidding each other into oblivion in order to find something to buy with their money. (It’s not too unlike the real estate market in places like Vancouver, where Asia’s one-percenters have created a housing bubble by buying up condos left and right simply as a place to park their money — though you could argue that owning an NBA team, even the Clippers, is more fun than an apartment in Vancouver.) It has to stop somewhere, and it could yet be that $2 billion for the Clippers will be seen as an outlier — even Nate Silver, in his regression-analysis-driven projections of the effects of billionaire glut, could only come up with a Clippers value of $580-950 million — but it does help indicate why sale prices seem so suddenly out of whack with actual team revenues: These are rich men’s toys, yes, but they’re exclusive toys, and there are a lot more rich men wanting to be the ones to find them under their Christmas tree.
http://www.fieldofschemes.com/2014/05/30/7374/ballmer-reportedly-wins-2b-bid-to-buy-clippers-entire-sports-world-turns-upside-down/
Wealth of 400 Billionaires = Wealth of All 41 African-Americans
http://inequality.org/wealth-400-billionaires-wealth-41-million-africanamericans/
Got a Billion Dollars? Buy the Clippers(Nate Silver)
For the Clippers, for instance, the range runs between about $580 million and $950 million. So the billion-dollar estimate might be a little high, but the Forbes valuation of $575 million is probably too low.
There are two other teams whose Forbes valuations fall outside the recalibrated range. One is the Brooklyn Nets, which our formula estimates is worth between about $900 billion and $1.5 billion, and not the $780 million that Forbes estimates. Perhaps Mikhail Prokhorov knows what he’s doing in throwing his resources behind establishing the Nets as a major brand in New York. The number of billionaires in New York continues to skyrocket — so he’ll have plenty of people to sell the franchise to at a profit down the line.
The other team that falls outside of the range is the Lakers. The formula implies that their Forbes valuation, at $1.35 billion, is a little too high.
I personally don’t think the Lakers would have much trouble selling for something in that range if the team were put on the market today. But the logic behind the calculation is something like this: Sure, the Lakers have a much more powerful brand than the Clippers, but they don’t have much of an advantage apart from that brand. The two teams play in the same city, in the same arena. The Clippers have the better roster and a very good coach. The brand advantage can shift over time: At various points in the past 50 years, for instance, the New York Mets have outdrawn the New York Yankees. Another couple years of Blake and CP3 making deep runs into the playoffs while the Lakers struggle with the albatross of Kobe Bryant’s contract will erode some of the Lakers’ edge.
http://fivethirtyeight.com/features/got-a-billion-dollars-buy-the-clippers/
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