Los Angeles Clippers Sale: Will TV Revenues Quadruple?

The Clippers' bid book sheds new light on the future of NBA TV rights fees.

Jul 26, 2014 at 6:19AM


Jeff Meyer, Flickr.

Disney's (NYSE: DIS) ESPN estimates 96% of its viewers watch live. That's 25 points better than the all-TV average, and speaks volumes about the value of sports programming. Because sporting events are essentially TiVo-proof, content providers can negotiate sky-high rights fees.

Nowhere is this more apparent than in the Los Angeles Clippers' "bid book." Leaked earlier this week, the book breaks down everything related to Steve Ballmer's $2 billion bid, from valuation multiples to risk factors. The most interesting item revealed, though, is Bank of America's discussion of where TV rights could be headed.

The local scene
Locally, the Clippers are in the midst of a seven-year contract with 21st Century Fox's FSN Prime Ticket. The deal, which pays about $25 million per year, expires after the 2016 season.

Although valuable, it pales in comparison to what big-market competitors like the New York Knicks, Boston Celtics and the rival Lakers make. L.A.'s better-known NBA team signed a 20-year arrangement with Time Warner Cable in 2011. The Lakers will net approximately $200 million each season for the remainder of that deal.

Naturally, BofA believes this windfall will benefit the Clippers. It projects a 10-year, $1.25 billion deal could be on the horizon, which would up the team's local TV revenue by $100 million per year. While the bank doesn't name specific suitors, competition from Time Warner Cable and Fox alone should bid be enough to inflate the Clippers' next contract. 

This hypothetical estimate of $125 million per year is worth about 60% of the Lakers' annual average -- almost identical to the viewership split between the teams last season. The Clippers drew 71,000 households per game, while the Lakers averaged 122,000 households, the LA Times reports.

The bigger picture
The bid book also touches on leaguewide TV rights. According to the projections, a new national contract could boost the Clippers' annual take from $30 million to $90 million. That, in theory, assumes the NBA's next batch of TV contracts triple in value, from $930 million a year to $2.8 billion. Most experts believe an annual take near $2 billion is a reasonable floor.

Existing NBA partners ABC, ESPN and Time Warner's TNT will likely have the initial shot to renegotiate before their deals end after the 2016 playoffs. If, however, competitors like Fox and Comcast join the negotiation table, BofA's estimate could very well come into play. As I recently explained on Business Take, the Finals could be the NBA's "trump card" if it splits championship rights among two or three networks. ABC currently has exclusive control of the Finals.

What's next?
The future remains unclear. But, if BofA's bid book is correct, the Clippers' television revenues could quadruple in the very near future. More reasonably, though, it's safe to assume both income streams will at least double.

Under that scenario, that means the Clippers would make $60 million per year from a new NBA deal, and $50 million annually from local TV rights. This influx of money might not bring Los Angeles a championship, but it will make it much easier for Steve Ballmer to rationalize his $2 billion bid. 

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