OT: - Lakers $10B sale question | The Boneyard

OT: Lakers $10B sale question

Kitaman

Kitaman

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Can someone help me understand how long the ROI takes on a $10 billion dollar sports team investment/purchase?

I'm curious to know how 'richer' does someone get paying $10b (assuming leveraged financing) as well as how long to break even.

Any theories or otherwise?

Lakers sale for $10B
 
It's tough to recover it through profits each year. Even if they made a net $250M, that would take 40 years to recover the initial investment.
They recover the money as value of the franchise goes up on value. Pay $10B to buy it, sell it later for $14B.
 
They make approximately $525 million annually, their operating expenses are approximately $225 million, so with a purchase price of $10 billion, it would take approximately 45 years to start earning a return on investment. It's just a simple projection, there are many factors that can negatively or positively affect those numbers.
 
I helped analyze the Celtics deal a little when the current owners bought the team in 2002. The cash flow numbers don't make any sense to the purchase price no matter what assumptions you make. The IRR was good if you assumed the team sold for double what you bought it for after 10 years. Which at that time didn't seem possible but sports franchise values just keep going up at a tremendous rate so buyers probably project that will continue. The IRR on a 10 year hold was about 80%, if I remember correctly, due to the residual sale value so the cash flow didn't help the IRR much. Obviously after 22.5 years the franchise value of the Celtics increased almost 17 times. Quite an investment.

The managing general partnership group takes a 3% or 4% management fee of total annual revenue. So that helps your return on equity.

Also, there are accounting benefits for owners who have a lot of active personal income such as real estate investments for real estate developers. I don't totally understand it but I was told you can depreciate the players' salaries over the life of their contracts, and since the majority of operating expenses of a team is the players' salaries, there is a lot of depreciation to use.

I keep getting told that sports franchises are almost always bought for ego. There just aren't that many of them. And there are even fewer iconic franchises like the Celtics and Lakers. Rich people with egos want to own those.
 
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Not too veer too far off the intended topic, but I found the timeline of events here awfully interesting:

April 2023 - Kyrie and Luka both sit (almost) the last two games of the season despite still being alive for a play-in spot so that the Mavs don't lose their pick (ended up being Dereck Lively)

December 2023 - Mark Cuban's unexpected sale of the Mavs is approved

February 2025 - One of the most shocking trades in sports history sends Luka Doncic, a 26-year-old superstar that precisely zero people around the league knew was available, to the Lakers. Anthony Davis goes to Dallas.

May 2025 - The Mavs win the draft lottery despite having, I think, <1% chance of doing so. It just so happens that one of the best prospects in years is also coming out.

June 2025 - It is announced that Jeanie Buss, daughter of longtime Lakers owner Jerry Buss, has agreed to sell the franchise for a record $10 billion, potentially ending the family's 45+ year ownership.

Do people really still think the Luka-AD trade happened because some guy named Nico believes defense wins championships?
 
It's an appreciating asset like anything else rich people buy. Buy it for 10b now. Sell it for 15 in a decade. The cash flow is a tertiary concern--they have enough to buy anything they want already, and can get dirt cheap loans for anything else.
 
B1GEast said:
They make approximately $525 million annually, their operating expenses are approximately $225 million, so with a purchase price of $10 billion, it would take approximately 45 years to start earning a return on investment. It's just a simple projection, there are many factors that can negatively or positively affect those numbers.
Expand ...
Leverage + yearly income volatility can push the breakeven well north of 45 years.
 
Kitaman said:
Can someone help me understand how long the ROI takes on a $10 billion dollar sports team investment/purchase?

I'm curious to know how 'richer' does someone get paying $10b (assuming leveraged financing) as well as how long to break even.

Any theories or otherwise?

Lakers sale for $10B
Expand ...
They don’t. I guess for some it’s the ultimate flex but the bubble is about to burst on these valuations. The value sometimes is the real estate surrounding the arena but that ship sealed as well in downtown la.
 
champs99and04 said:
Not too veer too far off the intended topic, but I found the timeline of events here awfully interesting:

April 2023 - Kyrie and Luka both sit (almost) the last two games of the season despite still being alive for a play-in spot so that the Mavs don't lose their pick (ended up being Dereck Lively)

December 2023 - Mark Cuban's unexpected sale of the Mavs is approved

February 2025 - One of the most shocking trades in sports history sends Luka Doncic, a 26-year-old superstar that precisely zero people around the league knew was available, to the Lakers. Anthony Davis goes to Dallas.

May 2025 - The Mavs win the draft lottery despite having, I think, <1% chance of doing so. It just so happens that one of the best prospects in years is also coming out.

June 2025 - It is announced that Jeanie Buss, daughter of longtime Lakers owner Jerry Buss, has agreed to sell the franchise for a record $10 billion, potentially ending the family's 45+ year ownership.

Do people really still think the Luka-AD trade happened because some guy named Nico believes defense wins championships?
Expand ...
Yes.

Luka’s a problem long term and Dallas didn’t want to pay him $300M. There is no conspiracy.
 
TroyHall98 said:
Leverage + yearly income volatility can push the breakeven well north of 45 years.
Expand ...
The nba coffers is about to explode next year with the new tv deal. The valuations are nuts, and they are moving into a new class of owners with super wealth.
 
I just read that Mark Walter now owns the Dodgers and Lakers as well as:
  • Los Angeles Sparks (WNBA)
    Co-owned since 2014.
  • Professional Women’s Hockey League (PWHL)
    Backed since its 2023 launch; the league’s championship trophy is named the Walter Cup.
  • Cadillac Formula 1 Team
    A part-owner of the new Andretti-run Cadillac F1 team, debuting in 2026.
  • Chelsea FC (English Premier League)
    Through a 12–13% stake in BlueCo, Walter is part-owner alongside Todd Boehly and others since 2022.
  • RC Strasbourg (Ligue 1)
    Also held via BlueCo alongside Chelsea.
 
Deepster said:
I just read that Mark Walter now owns the Dodgers and Lakers as well as:
  • Los Angeles Sparks (WNBA)
    Co-owned since 2014.
  • Professional Women’s Hockey League (PWHL)
    Backed since its 2023 launch; the league’s championship trophy is named the Walter Cup.
  • Cadillac Formula 1 Team
    A part-owner of the new Andretti-run Cadillac F1 team, debuting in 2026.
  • Chelsea FC (English Premier League)
    Through a 12–13% stake in BlueCo, Walter is part-owner alongside Todd Boehly and others since 2022.
  • RC Strasbourg (Ligue 1)
    Also held via BlueCo alongside Chelsea.
Expand ...
He does, but the NBA has so many rules in place to protect owners from themselves. He can’t just spend money and pay the penalty tax in the NBA. You start losing picks, the ability to sign players and trade picks. What he will do is spend monies in training, scouting , player development etc that the Lakers had not or were limited in.
 
Deepster said:
I just read that Mark Walter now owns the Dodgers and Lakers as well as:
  • Los Angeles Sparks (WNBA)
    Co-owned since 2014.
  • Professional Women’s Hockey League (PWHL)
    Backed since its 2023 launch; the league’s championship trophy is named the Walter Cup.
  • Cadillac Formula 1 Team
    A part-owner of the new Andretti-run Cadillac F1 team, debuting in 2026.
  • Chelsea FC (English Premier League)
    Through a 12–13% stake in BlueCo, Walter is part-owner alongside Todd Boehly and others since 2022.
  • RC Strasbourg (Ligue 1)
    Also held via BlueCo alongside Chelsea.
Expand ...
He owns a 27,000 square foot mansion in Chicago.

5132241346_501540469e_b.jpg
 
I really, really don't want to hear about the players getting paid too much anymore.
 
What percentage does Walter actually own now? From the article I read he was already a 26% owner. This just made him majority owner. The Buss's are retaining 15% ownership.
 
Andrew Zimbalist has written extensively on the economics of baseball. Granted, baseball is its own animal but some concepts apply:

1. Asset appreciation. I doubt any owner ever sold a franchise for less than he/she paid for it.
2. Feeding revenue to other businesses of the owner. I remember Zimbalist using the St. Louis Cardinals as an example. Busch owned the team, stadium, and rights to concessions. The Cardinals showed little or no profits, presumably so ownership could claim poverty when negotiating with players' union. The stadium overcharged the baseball team for rent of the facility. The team did not receive any revenue from concessions (sounds like UConn playing in Hartford).

Other teams funneled payments to the partners, which showed up as expenses to the teams. Over the years, owners have committed to opening their books but it has only happened on a limited basis.

3. Consumption/entertainment value. For many of these owners, the franchise is like an ordinary guy buying a sports car. Making money is secondary to the entertainment value they derive from owning a sports team.
 
Kitaman said:
Can someone help me understand how long the ROI takes on a $10 billion dollar sports team investment/purchase?

I'm curious to know how 'richer' does someone get paying $10b (assuming leveraged financing) as well as how long to break even.

Any theories or otherwise?

Lakers sale for $10B
Expand ...
In the old days, owners did really well. With these valuations, they are buying teams as a toy rather than an investment. If it breaks even or makes a little, that's fine. You still have access to all the famous people who play for or want to attend Lakers games. You just bought your way into celebrity circles.
 
HuskyHawk said:
In the old days, owners did really well. With these valuations, they are buying teams as a toy rather than an investment. If it breaks even or makes a little, that's fine. You still have access to all the famous people who play for or want to attend Lakers games. You just bought your way into celebrity circles.
Expand ...
You follow Boston sports. You really think the new owner bought the Celtics as a toy? Do you think FSG bought the Penguins and now a French club as a toy? No way.
 
For those that have driven through Waterbury or Bristol or anyplace that has a lot of old, empty factories, do you ever wonder what the last guy to build a big factory in one of those places was thinking? Didn’t he realize that the world was about to change?

Every momentum buyer is a winner right up to the point he isn’t. If we aren’t at the peak of the market for professional sports teams yet, we are pretty close.
 
Waquoit said:
You follow Boston sports. You really think the new owner bought the Celtics as a toy? Do you think FSG bought the Penguins and now a French club as a toy? No way.
Expand ...
I'd say the inclusion of private equity into many sports ownership groups has changed the return expectation dynamics. Bill Chisholm is a private equity guy and he brought in Sixth Street as a 10% investor in the Celtics. Private equity money is in it to make money. That's their sole purpose. I think Fenway Sports Group bringing in Redbird Capital changed how they run the Red Sox, for the worse for fans. Seems to be all about the bottom line now.

But then you have a guy like Steve Cohen, who owns the Mets. He seems to care more about winning than making money on the Mets. Even though he's going to make money. I'm sure he didn't buy the team to lose money. But winning is his #1 goal. I remember when the Mets tried to sign Carlos Correa after already spending a huge amount on free agency that offseason. He said something like, "What's another $30 million a year?"
 
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