In the summer of 2011, just days into the NBA lockout, a private equity group led by Joshua Harris and David Blitzer purchased the Philadelphia 76ers from Comcast-Spectacor for a reported $280 million.
Tuesday, the Houston Rockets, the professional basketball team in a market size comparable to Philly, were sold to area billionaire Tillman J. Fertitta for $2.2 billion, the richest franchise deal in NBA history.
So what does that mean for the Sixers?
In February, Forbes released its most recent valuations for every NBA team and the Sixers were worth an estimated $800 million, nearly three times what Harris and Blitzer paid just six and a half years prior. Now, with another NBA team crossing the $2 billion range, that valuation has to be higher, doesn’t it? It does.
Dr. Michael Leeds, Chair of the Economics Department at Temple University and co-author of the book The Economics of Sports, estimates the Sixers may not actually be worth more than Forbes set in February, but thinks they’d sell certainly sell for far more. Leeds said the Forbes valuations take into account all the revenue possibilities, including television rights deals, ticket revenue, merchandising, sponsorships, salaries and potential luxury tax and the team’s arena deal. What hurts the Sixers the most is their arena deal, in that they’re tenants, not owners. Houston’s deal comes with operation of the Toyota Center.
Leeds stressed, however, there is what he called an “ego premium” for potential sports franchise owners. “Steve Ballmer was getting forced out at Microsoft, so what did he do? He overpaid for the Clippers. Pat Croce was a business owner and [after buying the Sixers] became a celebrity.”
While Leeds said he’d trust the Forbes valuation in terms of actual dollars for the Sixers, he stressed that there’s certainly potential for the franchise to sell “for somewhat over a billion.”
“If everything plays out, there’s a potential for an uptick in revenue,” Leeds said, referencing both Joel Embiid’s knees and Ben Simmons being as good as advertised as ways the Sixers can become more valuable to potential buyers. “But given the market, stadium deal and recent success of the team,” he cautioned, “they still have a ways to go to reach Houston.”
Dr. Joel Maxcy, a professor at Drexel University who serves as director of the Center for Sport Management and president of the International Association of Sports Economists, thinks the Sixers could be worth even more than a billion.
“I agree that the Sixers’ sale price in 2011 looks like a great deal now,” Maxcy said. “As it is almost without fail, you cannot lose from buying a major league sports franchise, and most profit handsomely on the resale with typically 10 percent or better annual rates of return.”
Maxcy said it’s hard to get an accurate valuation on teams until there is an actual sale but guessed the Sixers, if sold today, would go for $1.5 to potentially $2 billion. “And if they have a good season, maybe $2.5 billion is right.”
“That’s kind of off the top of my head,” Maxcy admitted, “going by market size and by the Rockets sale price, if it happened right now. Of course it won’t happen right now, but I’d say somewhere around that $2 billion range is not entirely unreasonable.”
It seems odd in a sport like basketball where one or two players can make a difference between missing the playoffs and playing for a title that a team’s current success would have such an impact on the value of the franchise. Outside of the Knicks, who stink and are worth more than anyone.
Both Leeds and Maxcy said current success on the court is less of a factor than market size and quality facilities, but pointed out that team performance does have a direct link to increased valuations and sale prices. That said, given all the attention and interest the Sixers have received over the last few years, which has led to increased television ratings and increased ticket revenue — Trust the Process — is now a good time for the Sixers owners to sell?
“If the Sixers have a big improvement this season, which would be pretty likely given the players,” Maxcy said, “that may be the right time, after this year. Or if they’re a marginal playoff team this year and the expectations the year after that are deep in the playoffs, they might give it another year.”
Maxcy suggested the reason teams like San Antonio and Oklahoma City had higher valuations than the Sixers is directly related to their recent success on the court. Players like LeBron James, for example, can change a team’s valuation significantly, even when those rankings factor in salary and potential luxury-tax implications.
“I think the market size and then the real estate teams have is a big factor — the practice facility and whatever interest they have in their arena,” Maxcy said. “Players come and go no matter who they are, but what it does give teams is a lot of publicity, and there’s something to be said for that. So if you’re in the market for a team…there is something to be said for [star power.]”
The Sixers owners aren’t selling. Yet. Probably.
While they do have ties to the city — both Harris and Blitzer went to Wharton — as soon as their group purchased the New Jersey Devils, speculation became rampant about potentially selling the Sixers. It was clear, if nothing else, these teams are investment opportunities for the owners, not passion plays. There was no “ego premium,” as Leeds put it, when the Sixers were purchased. So with valuations skyrocketing and interest in the team at a near 20-year high, there may not be a better time to sell than now.
“We could be at a high water mark in terms of valuation,” Leeds said, “because a lot of that stems from TV and cable is, at best, at its peak right now.“ He cautioned that the new collective bargaining agreement is set up to share more revenue across all teams, which could slightly hurt the valuation of teams in larger media markets. That, plus more and more customers cutting the cord on cable and streaming services for sports not being a viable option in terms of revenue yet, Leeds said we might be in the best window for a group like the Sixers’ owners to cash out.
Are the Sixers worth $2.2 billion? No. But there’s another Ballmer or Fertitta out there, and surely one who sees what this franchise has been set up to become. If it happens in the next few years, Harris and Blitzer would get a 10-times return on their investment in less than a decade, buying low and selling very, very high. That is, as they say, trusting the process.