Apr 17 2014, 10:54am CDT | by Forbes
LeBron James took to Twitter last year in January to express his incredulity over the sale of the lowly Sacramento Kings for a huge sum one year after the NBA lockout ended. “So the Kings getting sold for 525M!! And the owners ain’t making no money huh? What the hell we have a lockout for. Get the hell out of here,” tweeted King James to his legion of followers. The Kings sale eventually was completed for $534 million (the NBA eschewed a $625 million bid from a Seattle group looking to relocate the club). James has been quiet on Twitter about the NBA’s latest blockbuster deal, but there is a new poster child for shocking team transactions.
The Milwaukee Bucks and owner Herb Kohl announced Wednesday that the team would be sold for a reported $550 million to a group led by hedge fund titans Wesley Edens and Marc Lasry. The new owners pledged to keep the team in Milwaukee and work towards building a new arena. Kohl paid $18 million for the team in 1985, resulting in a 12.5% annualized return for the former U.S. Senator (9.5% after inflation).
The $550 million total is a record sum for the sale of an NBA franchise (Ted Leonsis paid a grossed up price of around $550 million for the remaining stakes in the Washington Wizards and Verizon Center he didn’t already own). It is a stunning amount for the Bucks, who are universally regarded as having the worst financial situation in the NBA (Forbes valued the club at $405 million in January, last among NBA teams). The Bucks play in the fifth smallest market in the NBA. An average of only 13,000 households watched Bucks’ games last season on Fox Sports Wisconsin, which was the second smallest audience for games behind the Charlotte Bobcats. The Bradley Center, which opened in 1988, is a relic among today’s NBA arenas. The club receives only a small share of suite, merchandise and concession revenues and overall revenues were the lowest in the NBA last season.
The Bucks’ might be the NBA’s weakest franchise financially, but the overall business of the NBA is booming. The new collective bargaining agreement hatched in December 2011 reduced the players’ share of revenue from 57% to 50%. The deal also severely boosted revenue sharing moving from the NBA’s richer clubs to those less fortunate. Only $55 million changed hands annually under the prior CBA, but low revenue clubs will collectively reap nearly $200 million this season. Teams like the Bucks will receive close to $20 million. The NBA wants every team to turn a profit under the new system, and they all will outside of severe free spenders like the Brooklyn Nets’ Mikhail Prokhorov, who is bankrolling a $180 million roster, including $80 million in luxury tax payments.
NBA owners are also licking their chops when it comes to TV. Most major sports TV rights packages are locked up into the next decade. The NBA is one of the last chances for networks to lock up major DVR-proof programming. NBA teams currently divvy up an average of $930 million annually under their current deals with ESPN/ABC and TNT. The next round of pacts is expected to fetch in the $2 billion a year range. Local TV pacts are also skyrocketing like the Los Angeles Lakers’ 25-year, $5 billion deal with Time Warner Cable.
The NBA’s international opportunities also dwarf their counterparts in the NFL and MLB. There were a record 92 international players from 39 countries on this season’s opening night rosters. More than half the daily page views on NBA.com originate from outside of North America. The NBA is still sorting through its China strategy after launching NBA China in 2008, but the country represents a massive opportunity with 300 million Chinese basketball players. Indian-born Vivek Ranadive, who bought the Kings, wants to make basketball the No. 2 sport in India, behind cricket.
The Bucks’ new ownership group brings deep pockets to Milwaukee. Lasry, who founded Avenue Capital Group in 1995, is worth $1.7 billion. He made $280 million last year and ranked among the highest-paid hedge fund executives in the world. Edens co-founded Fortress Investment Group and has a net worth in the high nine figures. Did they overpay for the Bucks? Time will tell.
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