Buying and Selling NBA Teams, Research Paper Example

The recent news coverage of Donald Sterling, the owner of the LA Clippers, has led to a number of discussions about the rules involved in owning an NBA team. Sterling was caught on tape making a series of offensive remarks about minorities, and the reaction from the public, the members of the Clippers, and the NBA was understandably harsh. Within days of the tape going public, the NBA handed down a lifetime ban on Sterling. He will no longer be able to attend any games or have any direct involvement in the Clippers. Despite this ban, however, the NBA cannot force Sterling to sell the team, a fact which comes as s surprise to many people. The following paper examines a number of issues related to ownership of NBA teams, including how teams are priced, the rules involved in ownership, and the future of the LA Clippers.

In order to understand the current organizational and ownership structures in the NBA, it is helpful to look at the league’s history. The sport of basketball was invented in the late 19^th century, and grew in popularity over the next several decades. Basketball became quite popular in high schools across the United States, especially because it was a sport that could be played indoors, in any weather. A number of small professional leagues were developed in various parts of the country, and by the 1940s there were two fairly large national basketball leagues: the Basketball Association of America and the National Basketball League. Both of these leagues had been established by owners of hockey arenas and other large venues who were looking for ways to sell tickets to other events when hockey was not in season. In 1949 the National Basketball League (NBL) was absorbed by Basketball Association of America (BAA), and the NBL teams became part of the BAA. At the time of this merger between the two leagues, the BAA changed its name to the National Basketball Association (NBA) to make it clear that it was a new organization and to reflect the addition of teams from the NBL.

From the start, the teams involved in the NBA were franchises, and were independently owned by individuals or ownership groups. The number of franchises has changed over the decades that the NBA has existed. When it first began the NBA had seventeen franchises, though several of these were in smaller cities and did not perform financially as well as some of the larger teams in larger cities. The NBA began to contract some of the smaller teams, and shrunk all the way down to eight teams at one point in the 1950s. Over the coming decades the NBA would start to expand again as it established franchises in more and more markets.  There are currently thirty team franchises in the NBA.

The question of team ownership and how to go about buying or taking ownership of an NBA team must be considered in the context of this history of franchise expansion. During the decades when the NBA was expanding the number of franchises fairly often, it was possible to become a team owner by being involved in the development of a new team. In the current circumstances in the NBA, the question of how to become a team owner is more complex, but generally speaking it involves buying, or buying into, a team that already exists. Some teams are owned by a single individual, while other teams are owned by various forms of ownership groups.

As the NBA has become increasingly popular and increasingly profitable, the valuation and costs of buying a team have climbed significantly. It is now quite common for NBA teams to be owned by groups of investors who purchase a stake or share of the team in exchange for a share of any profits. Such ownership groups often join forces for the purpose of making offers to buy a team, and it is also common for such groups to try to buy a team for the purpose of moving it to a new city. One fairly recent example of this approach was seen when a group of investors attempted to buy the Sacramento Kings. This group wanted to purchase the Kings and relocate them from Sacramento to Seattle, Washington. Even if the current owners of the Kings were agreeable, such a move would have required the approval of the NBA Board of Governors. The fact that the purchase was eventually denied by the NBA demonstrates how complex the process of purchasing and ownership can be.

At first it seemed like a good prospect that Seattle would be the new home of the Kings. The ownership group that was trying to buy the team made an offer that was significantly higher than the team’s valuation, and Seattle is considered to be a larger market than Sacramento (Brockwell, 2013). There are other factors for the NBA to consider, however, and in the end they decided not to allow the move. One of the reasons was that Sacramento was willing to help pay for a new arena for the team to play in, and the NBA felt that the arena deal on the table in Sacramento was stronger than the deal being offered by Seattle (Brockwell, 2013). Also, Seattle may have a larger population, but it also has a number of other professional sports franchises, while Sacramento only has the Kings. By remaining in Seattle the Kings do not have to compete with other teams for money spent by fans on tickets to the games. The Kings were eventually sold to a different ownership group that wanted to keep the team in Sacramento. This demonstrates that purchasing an NBA team is not just about making the highest offer; in the end it is up to the NBA to determine who will be allowed to purchase a team.

An example of an ownership group that successfully purchased an NBA team was seen in 2012, when a group led by 34-year-old Robert Pera made an offer to purchase the Memphis Grizzlies. Pera, who made his fortune working for Apple Computers, is the controlling owner in a partnership that includes other investors such as Justin Timberlake and Peyton Manning, as well as a number of other business and sports figures. Another well-known owner of an NBA team is businessman Mark Cuban, who owns a majority stake in the Dallas Mavericks. In the contemporary era of the NBA, when teams are valued at hundreds of millions of dollars, it is typical to see the teams owned by groups of investors (Howard-Cooper, 2012). As the preceding examples show, some of the most common ways to become an NAB owner are to put together a group to purchase a team outright, or to buy a share of a team from a group that already owns the team.

The current situation involving the LA Clippers and Donald Sterling shows how complicated the rules of ownership and selling a team can be. The NBA would like to see Donald Sterling sell the Clippers, and there are already a number of people who have expressed interest in buying the team, inducing Magic Johnson and Oprah Winfrey (cbslocal.com, 2014). NBA Commissioner has made it clear that he wants to force Sterling to sell the team, and it remains to be seen if he will be able to make that happen (Helin, 2014). The NBA bylaws do allow the NBA to force owners out for certain infractions, but the rules are not entirely clear (Howard-Cooper, 2012). Recent news reports indicate that if the NBA attempts to force Sterling to sell the team that he will sue the NBA to block their efforts (Helin, 2014). Sterling is the sole owner of the Clippers, having purchased the team in 1981 for $12.1 million (Helin, 2014). The team is now valuated at approximately $1 billion, which is an extraordinary growth in value for Sterling (Helin, 2014). If he is forced to sell, he will be responsible for taxes of over $300 million, but if he manages to hold onto the team and it is later inherited by a family member, that new owner would only be responsible for paying approximately $60 million in taxes, because of the complicated tax laws involved (Helin, 2014). That alone could be enough of a reason for Sterling to fight to retain ownership of the team.

Even if Sterling sues it is possible that he will still be forced to sell. The NBA bylaws require 23 owners (or ownership groups) to agree to force him to sell (cbslocal.com, 2014) Under normal circumstances that would likely be a difficult number to reach, but the situation with Sterling has exposed the NBA to public discussions about institutional racism that the league would probably like to shut down as quickly as possible. Any owner who did not vote to eject Sterling would likely receive significant public critics, and the issues and questions about racism in the NBA would continue to dominate discussion among basketball fans. The possibility of boycotts, lost advertising sponsorships, and other problems mean that the NAB will likely do everything it can to force Sterling out. Considering his reported statements so far, however, it seems that Sterling is also ready for a fight. Whatever happens, it is clear that owning an NAB team is an expensive and difficult process.

Works cited

Brockwell, Doug. ‘Why Seattle Lost The Sacramento Kings’. Yahoo Sports. N. p., 2013. Web. 5 May. 2014.

Helin, Kurt. ‘Report: Clippers’ Donald Sterling To Sue NBA To Block Forced Sale Of Team’.Probasketballtalk.nbcsports.com. N. p., 2014. Web. 5 May. 2014.

Howard-Cooper, Scott. ‘The Business Of Buying An NBA Team « NBA.Com | Hang Time Blog With Sekou Smith’. Hangtime.blogs.nba.com. N. p., 2012. Web. 5 May. 2014.

Losangeles.cbslocal.com,. ‘Report: Donald Sterling Plans To Sue NBA If He Is Forced To Sell Clippers – CBS Los Angeles’. N. p., 2014. Web. 5 May. 2014.