Drafts of the Los Angeles Clippers' sale bid book show exactly how much Steve Ballmer is willing to overpay for the team.
The bid book was entered as an exhibit by Shelly Sterling's lawyers in a trial in California probate court to determine whether she should have the right to sell the team without her husband, Donald.
Ballmer's $2 billion final bid is 12.1 times the expected 2014 revenues of the team, according to the numbers given to the bidders by Bank of America, which conducted the sale on behalf of the Sterling trust. The document was introduced into court Tuesday and subsequently obtained by ESPN. A person with knowledge of the sale confirmed that bidders were given these documents.
The book, called "Project Claret" so as not to give away on the cover sheet that these numbers are indeed the financials of the Clippers, reveals that the team is projected to finish the year with $62.3 million in revenues from ticket sales, $25.8 million from its local cable contract and $24.1 million in additional team revenue. The Clippers are also projected to receive $52.7 million on the season in shared national league revenue, according to the document. After taking away player payroll costs, total operating revenue for the 2013-14 season is projected to be $100 million.
Valuation multiples are usually based on total revenues, so the $164.9 million before player costs are extracted equals more than 12 times less than the $2 billion sale price.
"No team in the history of sports has sold for six times total revenues, so that should give you an idea of how crazy this purchase price is," said a sports banker who was not involved in the transaction.
Even according to Bank of America, no team has been purchased for more than five times its total revenues. Before the bidding began, Bank of America valued the Clippers between $1 billion and $1.3 billion, double the $550 million sale price of the Milwaukee Bucks, which had set a league record for a sale price just months before. The document cites a five-year mean of teams that have been purchased during that time at a sales price of 3.4 times total revenue.
Bank of America's projection was more in line with the two bids under Ballmer's, which came in at $1.2 billion and $1.6 billion.
"Whether you want to call it a slam dunk or a home run, none of us believed that we would get to $2 billion," Bank of America expert Anwar Zakkour testified in court Tuesday. "None of us even believed we'd get to the $1.8 billion number, so that says it all."
Both Zakkour and Clippers interim CEO Dick Parsons warned that if the sale fell through and the NBA restarted termination proceedings, there was significant risk the franchise would sell for far less.
"If Steve goes away, I don't know how you get to that number again," Parsons testified.
The original purchase agreement between Ballmer and Shelly Sterling called for the sale to close before July 15, with a possible extension until Aug. 15. The NBA has said it will restart termination proceedings and sell the team itself if the sale is still in limbo on Sept. 15.
By using extremely generous projections, including a new local TV deal that Bank of America projects will go from $25 million to $125 million a year, and a 200 percent increase in the rights fees for a new NBA TV deal, which will begin in the 2016-17 season, an additional $160 million in annual revenue is added to the team in future years. Bank of America says the new national TV deal could bring $90 million each to teams in the league, up from the current $30 million. Including all these projections, the bank concludes that Ballmer's eventual $2 billion is still more than seven times the revenue multiple of the enterprise value of the team.
The projections do not break out revenue sharing, but they do note that among the considerations there is a "potential risk to teams in larger cities from future changes in the revenue sharing mechanism to favor small markets."
Donald Sterling testified earlier this month that he could have gotten at least $2.5 billion for the team, citing the Los Angeles Lakers' $3 billion television rights deal with Time Warner Cable. Both Zakkour and Parsons cast some doubt on the Clippers' ability to secure a deal in that range, even though Bank of America's bid book takes a shot at the Lakers by saying the Clippers are at an advantage because of "strong recent team performance and Lakers going through recycling period."
"The Clippers aren't the Lakers yet," Parsons testified. "If we doubled our local broadcast revenues, it would be very nice for the owners, but it still wouldn't work up to the price that's being offered."
Donald Sterling filed an additional suit in Superior Court on Tuesday asking for damages from his wife, the NBA and commissioner Adam Silver on the grounds he was defrauded in the prospective sale to Ballmer.
Shelly Sterling agreed to sell the team to the former Microsoft executive on May 29, once her husband was disqualified from being a party of the sale after two neurologists declared him mentally incapacitated and unfit to conduct his legal and business affairs. Donald Sterling since has challenged the opinion of the doctors who evaluated him. Shelly Sterling agreed to indemnify the NBA from lawsuits, which now essentially means that Donald Sterling is suing for damages that would be taken out of his own trust should he prevail.