During the 2010 lockout, many NBA owners were quick to complain about the rate at which they were losing money. While the available evidence backed up their claims, the argument lost some credibility given the exorbitant prices at which franchises sold once they went on the market. Even if teams lost a great deal of money in any consecutive seasons, the difference between owners' purchase and sale rates would net a considerable profit. Viewed as a whole, the business venture would be a smart one.
The rate at which franchises appreciate in value can still be a little startling. Take, for instance, the case of the Golden State Warriors, purchased in 2010 by Joe Lacob, Peter Guber, and assorted other partners for $450 million. When one-time minority owner Vivek Ranadive bought the Sacramento Kings, he had to put his portion of the Warriors up for sale. He has a buyer, and the price puts the Warriors in the upper echelon of NBA franchise values. From Darren Rovell for ESPN.com:
Less than three years after the two agreed to pay the highest price ever for an NBA franchise, the team is now valued at $800 million, according to a source with knowledge of the terms.
The new valuation comes from the price Silicon Valley venture capitalist Mark Stevens agreed to pay for a share of the team that was made available when former partner Vivek Ranadive had to sell it to buy the Sacramento Kings in May.
In a way, Ranadive's agreement to pay about $550 million for 72 percent of the Kings and their existing arena helped his old partners sell their stake for even more. The $800 million number is still surprising, given that Forbes magazine valued the Warriors in January at $555 million. Warriors spokesman Raymond Ridder declined to comment on the new valuation or the percentage that Stevens bought.
Stevens, the managing partner of S-Cubed Capital in Menlo Park, Calif., was presumably not only paying for the present, but also for the future. Last year, the team announced its intention to build a privately funded arena in San Francisco, which is still going through the necessary approvals. If all goes well, the ownership group hopes to have it open in time for the 2017-18 season.
That Forbes valuation ranked the Warriors as the seventh most valuable franchise in the NBA. Based on those figures, Golden State would now be tied for the third-most valuable with the Chicago Bulls, behind only the Los Angeles Lakers and New York Knicks. That's a massive achievement for a team used to picking in the middle of the lottery. Apparently Stevens looked fondly upon the Warriors' 2012-13 performance, Lacob's improvements to the franchise, and the planned arena on the San Francisco waterfront.
Of course, this value did not rise in a vacuum — as Rovell notes, it's linked to the price Ranadive paid for the Kings. However, that $550 million valuation was inspired in part by the $625 million marked by the Seattle-based ownership group led by investor Chris Hansen and Microsoft CEO Steve Ballmer, which had no problems sweetening their initial offer of $500 million once Sacramento got serious about keeping their team. The fairly rare circumstances of the Seattle/Sacramento fight ended up driving up the value of the Kings' closest NBA neighbor, and Lacob is likely pretty happy about it.
Yet, if the Kings' sale impacted the Warriors' value in part because of their geographical proximity, it's not hard to see how the sale of Ranadive's minority stake could have a more widespread effect on NBA values. The Warriors are a special case because of the immense wealth and high standard of living in the San Francisco Bay Area, but they were also a poorly run franchise prior to Lacob's ownership. This $800 million valuation likely won't become a new standard, but it does set a different sort of baseline for franchises. No matter what, this valuation will drive up the average price of NBA ownership, because it's a relative market. The Warriors are now worth $800 million because related examples suggest that they are — it's not as if Stevens agreed to this figure just because he had enough cash at his disposal. Like most businessmen, he wants a deal on smart terms.
Still, a 78 percent rise in valuation over less than three years is jarring, an explosion more commonly associated with tech startups than with the more static markets of sports franchises. In a broader market, it would look a lot like a symptom of a bubble. On the other hand, NBA ownership stakes go on the market rarely enough that these valuations can likely rise for quite some time (until the inevitable plateau) — there only has to be one person willing to pay for each spot for it to persist. From the owners' perspective, it's a sustainable system.
But that doesn't mean it's a good thing for everyone involved with the NBA. Franchise values may continue to rise, but the owners will remain focused on getting every possible concession they can from the players' union at collective bargaining talks. Unless annual losses become much greater, owners will still have the increasingly welcoming safety net of franchise value to break their falls. If that looming profit runs concurrent with lockouts, then we could be looking at a future in which players and management are continual adversaries rather than equal partners irrespective of the health of the league. It's a recipe for volatility, even if the finances look better than ever.
More news from the Yahoo! Sports Minute:
Related coverage on Yahoo! Sports:
• High-tech player tracking devices the next big thing in NBA analytics
• Corey Maggette is getting a front-office education
• Rockets looking for way to keep Omer Asik in lineup with Dwight Howard
• J.R. Smith drives $450K armored truck around New York