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

Tbo

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. 

Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest...better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.

Jake Mann has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers