Once in a while someone will introduce an intriguing sports debate: Who is the best commissioner of North American professional sports? Although former NBA commissioner David Stern has retired, I think he’s at least the NBA’s “Financial Player of the Year.”
The fact most often neglected when these debates unfold is the concept placing each league’s commissioners as employees working for the various groups of owners. Their job? Make sure things run smoothly and increase shareholder wealth. Fans usually neglect the aforementioned methods of measurement. Instead, we are naturally forced to focus on the decisions made on the surface (instant replay implementation, rules changes, equipment modifications, enforcing policies). After all, it’s difficult for fans to assess a commissioner’s financial impact on privately held firms spread out amongst very different markets.
The headline of the month seems to be the reported sale of the L.A. Clippers for $2 billion. This is an incredible outcome from the Donald Sterling scandal, which forced the new NBA commissioner, Adam Silver, and the existing NBA owners to enforce the expulsion of an owner and sale of his franchise. League members and fans will benefit from the exclusion of a man who is a complete cultural mismatch with the brand. Others will point to the bittersweet reality that Donald Sterling will rake in an incredible profit.
Although the league’s franchises are privately held firms, we get a glimpse of the numbers when a sale is made. To illustrate why I am applauding David Stern’s financial acumen, take a look at this timeline:
- 2006 – Seattle Supersonics sold for $350 million
- 2010 – NBA buys New Orleans Hornets for $300 million
- 2012 – Memphis Grizzlies sold for $350 million
- 2012 – NBA sells New Orleans Hornets for $338 million
- 2014 – Milwaukee Bucks sold for $550 million
- 2014 – L.A. Clippers receive bid to purchase for $2 BILLION
If you look at the NBA map you’ll notice that these transactions are happening all over the U.S. and the spread between them is tens and hundreds of millions of dollars. What you won’t see is how David Stern leveraged every available financial resource to react to a fluctuating economy. He made a variety of decisions to preserve franchise values and avoid market corrections on the hedge that the domestic economy would recover. What were those moves?
Starting in 2006, the Seattle Supersonics sale established general market pricing ($350 million). The New Orleans Hornets’ owner went broke in 2010 and couldn’t afford to maintain his business. He tried to sell, but no one was able to meet his price. The risk of settling for a number too far south of the Sonics’ $350 million sales price was a reality that Stern avoided. Stern convinced the NBA to buy the Hornets for $300 million. He also secured $200 million of additional credit for a league accessible emergency fund for all franchises to use. The NBA held onto the Hornets and waited out the most severe economic rain clouds. Two years later, the NBA sells the Hornets for $338 million, including $50 million in commitments from New Orleans to update their home arena ($383 million of ownership “value”). And then we see consecutive sales records occur just two years later, one of which is achieved in a smaller market (Milwaukee)!
This trajectory in NBA franchise sales prices is not an accident. It’s the result of a combination of factors, both economic and strategic. Here’s a fun question. What would have happened if Stern let the market dictate pricing for the Hornets sale in 2010? What if the best Hornets’ offer was $200 million?
It is with great honor I present this year’s NBA “Financial Player of the Year”, David Stern.