Episode 36: The LA Clippers
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Okay, I have this great, great curve out. I don't know what it's called, but it's you should go down .

IT didn't down the title. I wanted to make that.

Welcome back to episode thirty six of acquired the podcast about technology acquisitions and IPO .

S I am been gilbert .

David and we are your hosts. Today's episode David and I are venturing away from technology into the world of sports will be talking about Steve bombers twenty fourteen purchase of the los Angeles clippers. So for full disclosure here, David, I or not huge N, B, A fans, well, maybe accept my unapologetic bandwagon and fan hood. The cavs and lebron James and .

I meet the warriors are .

pretty fun to one. Yeah, what? They're changing the game. So in death Carries awesome. But we do love digging into the analysis of any acquisition, and there's no shortage of writing an opinion on this one.

And we're going to be doing some episodes on the overlap of sports and tech in the near future. So we figured we would dive in just absolutely had first, and kind of force ourselves to do all the research. And thanks to many acquire listeners and many of of David, my friends, who we we call them, to get their kind of hard core sports opinions on on all this yeah open invitation .

listeners to get touch with us by email or or jump in in this lack and tell us where we went wrong. But but we think this be really fun. We done a bunch er can a serious, more hard eating episodes in a row.

We wanted to do something light. And given that the N. B. A playoff s start literally today, we thought this would be a fun one.

yeah. And I think, you know, this was a two billion dollar a purchased by Steve ballmer. And any time there is two billion dollar answer tion go on .

involving Steve omber.

right involving Steve bomber. You know whether it's sports or airlines like we did with the virgin alasia acquisition or any of our standard tech. Whilst um we can definite apply the the acquired method gy to IT and get some good discussion in.

So um a few things before we dive in the life blood of the show is is itn reviews. So please help us grow the show and and if you're so incline, leave an itunes review for us. We also have a slack and we are close to six hundred people.

So if you enjoy doing um analysis of any tech event, there's people and they're talking about m and a events about IPO s about new product launches, about star wars trailers coming out. If if you want to talk with other nerds about the sort of stuff we are all hanging out in the acquired slack, which you can join at acquired data. F, M.

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So now, without further to do, David, will you take us into the .

story in the history and facts in the wide world of sports? So the los Angeles clippers were actually founded as the buffalo braves, buffalo o new york, in nineteen nineteen seventy. They were one of three expansion teams to join the N, B, A that year, and they had bonus success in the first year, but in some for shadow of of things to come for the team and in some chAllenging decades ahead. They were, they were obviously in in buffo. They they found IT hard to schedule home games in the first couple years because there was another basketball team in town, the Kenneth's golden griffin, the the well known and world famous golden.

Ffs, yeah, it's just like very similar. The right .

with the lagrime. Fs.

yeah, both trying to draw millions and millions of .

people to there, there, there. yeah. The golden griffin s had preexisting rates to uh priority on games in the arena in buffalo and they were worried about the braves kind of threatening their popularity in town and so they would always schedule all the best states at the arena and as as such, the braves couldn't really develop much of a fan base.

So this was a problem. And the team after just a couple years get sold um to the then owner of the kentucky kernels uh which I I believe is a basketball team, was a basketball am john Brown junior and he really wanted to move the team for obvious ous reasons. And so what he decided to do in further for shadowing of things to come for the the helpless clippers, a future clippers.

He basically just designated the teams or roster trade IT away all the stars and and and as a result, attendance plumped. And and basically that came. And that was all his goal.

So they could, they could break the least and move out of town. So couple of more years go by. And in one thousand nine hundred seventy eight, Brown actually did he.

He said, only in the seventies could something like this happen. He he just trades ownership with the owner of the celtics, so Brown tics over the celtics and irv levin, who lived in south n. California and owned the cell tics at the time, he wanted to move the celtics to southern california. But the N B, A wasn't going to let that happen. Eleven takes .

over what I, I, I saw that they moved to become the ego clippers. But I was via just an ownerships.

via everybody, uh, and and eleven six over the brave was muslim to see the ago where they change the name to the sand ago. Clippers because of the impressive um sailboats that would would dock and sell through the bans in the ego. So thus the clippers are born or reborn.

So that was in one thousand and seventy eight. But the team unfortunately didn't get much Better. And in one thousand eighty one, the teams still struggling. And a los Angeles lawyer and realestate developer by the name of downed d sterling, the informal Donald sterling. Um and we don't really talk much about like we don't really weren't not in the business of making judgment calls on people's character here on required. But this one is pretty and ambiguous that Donald sterling is is basically .

a horrible human being and IT is incredible. How long IT took for that to come to light? Listeners will get into this. But despite lots of rumors and allegations over the years, as he sort of him aged to scoop by a Scott free after um IT being quite clear, he was A A huge racist yes.

well we will get into IT. And the crazy thing is like everybody knew, but he just still on the clubs, anyone, he buys the clubs in one thousand nine hundred eighty one for twelve and a half million. And this was also, I thought, hilarious in the introduction tory news conference the ago where where he announced he lives in a lab, by the way, that he's buying the clippers. He vows to spend, quote, unlimited sums to build the clippers into a contender heat later become famous like spending no money on the .

coppers on players know they .

seem to play their entire existence yeah and then he launches an advertising campaign in in cnd ago um he puts he puts his face, uh downtown sterlings face on billboards and on buses around town with a quote unit saying, my promise I will make you proud of the clippers yeah that's .

what every fan of every sports team wants to see a gigantic picture of the owner's face yeah nail that. No.

your audience, the hours. Obama, then maybe, but so that honeymoon doesn't last long. And in one thousand nine hundred eighty four, he just often moves the clippers to L. A. Against the N. B. A wishes. Um he basically does the illegally by the the the league bylaws and and the way he get around IT is he just sues the league the league you don't finds them a huge amount of money and he's like, okay, fine, i'm going to see you until he sees them for one hundred million dollars and they stand down and they they reduce the fed to him for for basically stealing, absconding ding with the clippers from sand ago and moving them up.

L I boy story ed franchise, right? Like all this, all these moves, ownership trades.

ridiculous lawsuits, sounds just like a tech company ah right?

The boy seeming more and more a perfect fit for .

acquire than we thought we thought thought so from there. Um we can basically just fast forward during the next thirty seven years because .

they didn't do very well.

They they so they go to the playoff s four times in the next twenty five years um which is prety bad and and actually in the whole so sterling owns the car from twenty one until twenty and when this horrible that happened about to describe um the clippers actually have the worst winning percentage of any team in any major american sport is what is incredible .

but that's a feet it's like, yeah that's more likes statistically difficult to achieve them mediocre.

You have to work really hard to be that bad. In two thousand nine E S P N name the clippers the worst franchise in profession sports um and sterling continues his sterling reputation for being a horrible human being. Um he actually get this you know he's the owner right? He has court side seats to every game. He at some point in the two dozens, late two thousands just starts hackling his own employee but like for thank you. You can make .

us up classic. I mean, esty, it's it's incredible that they played on the same floor at the staple center that that the lakers did franchise like that like it's a privilege to get to play in the staple center. And yes.

so after the the stable center is built in the early two thousands, the clippers share IT with the lakers. But in the lakers are the markey team. They have the least. And so just like just like back in back in buffalo ah they can't get the good dates.

And in their basically the second you know not even the second, they're ty far down the list of things to do in L A far sporting events go but then magically really against um despite all of sterlings efforts to continually abot ge the team in the early twenty tens, things actually started to get Better. So the the recommendation of some good draft picks and and good trades, they get black griffin, Andrew Jordan and Chris paul. Um they actually start to build a pretty good team. And in twenty thirteen they win the first division title in in team history and and and are off to the playoffs.

Are things are looking up for for the clippers. That seems like they're got momentum on their side. Maybe the organza finally is working in lockstep on the business side after all these years in the yeah in the woods and you know and actually this is when um what's coaches named doc doc rivers because to coach the team, right and he's also what president of basketball Operations.

I think that's sorry. I am not sure if the dates are if I was that year that he was in IT, which leads into the next season after their sort of best season in perhaps ever in twenty thirteen, the first time they win the division title at the end of the twenty fourteen, they were another good season. They're bound for the playoffs. And then on April twenty fifth twenty fourteen, uh, the L A news, a channel and website T M Z releases a bomb shell A A taped phone conversation with Donald sterling and between him and his mistress, he is married by a stranger from his wife and has an open relationship with with a mistress again gm of a human being here um and as bend mentioned, uh you know IT was sort of you know known but swept under the rug that sterling had been made a really racist for a very long time this ah this phone conversation tmd releases in which he releases his his mistress for posting an instagram photo with her and magic Johnson um and he rereview ds uh his mistress for posting this photo with a you know goods is a quote here broadcasting that he is associating with black people and that he did not want her to bring them to the team's games .

this guy is office rocker .

cable in every sense not but his N B。 A. Owner and this is a photo with magic Johnson um you know hall of famer magic Johnson um so needless to say this this is not an ant welfare sterling.

No, no. You know, as you can imagine, the NBA is not too pleased about this.

No, nobody is pleased.

So in fact, in fact, this is, this is a, this is awesome. The clipper's players are so displeased about this that on the twenty seven so this comes to light on the twenty fifth, on the twenty th, they warmed up for their playoff game on sunday afternoon against the warriors with their their shooting shirts worn inside out to obscure the team logo to not represent Donald stirling and and sort of the logo that he owns yeah.

it's incredible and and that was, they decided they considered, before they decided to play the game. They considered boycotting the game and for fitting the game, which was, you know, playoff game and and a playoff game for the clippers is such a huge.

huge event yeah, you ve got to imagine the teams is too hard for.

but that's how obviously sponsors, most of the major sponsors with the team be announced. They were severing ties and then really know the N. B. A. Handled this parable situation as well as you could command of foreign and an ostern the commissioner deserves at ober adam server.

sorry.

yeah, adam server, the N. B. A. Commissioner at the time and still currently deserves huge credit for this. So less than a week later, on April twenty nine th, after an investigation that the NBA lunch great away, the NBA issues a lifetime ban of of Donald staring from the game and finds him two and a half million dollars, barred him from attending games, practices any event involving any B, A, T. Barred him from being present in any clippers office or facility from and from participating in any team, business player, personal decisions or any lead activity.

And that two and a half million dollar fine is the maximum allowable able fine by the N. B. A. You could imagine that could be much higher. There wasn't a guideline.

absolutely. And then in a press conference following announcing this ban and silver, the commissioner states that he is, he is planning and he will try to force sterling to sell the clippers and that they are basically gna kick him out of the league, which the league can do. H with the three quarters vote of the other twenty nine team owners.

which they do yeah, that's super interesting. And I you know I I think I remember so when this all went down, I remember reading about IT briefly, but diving into all the details has been super interesting to understand how the mechanics of all this go. So when you own an N B A franchise, it's truly that a franchise and you can imagine like going mcDonald's where um yes, you've bought all this money in this thing and you own this asset, but there's actually a um you know corporate government structure uh uh above you. They can force a lot of decisions with um you know in this case of three quarters vote like yes you own that team, but if three quarters of the other others then you don't .

get on like a social network council that a we know if a snap chatter, instagram did something horrible and facebook and google and twitter could could make themselves the company and this so this is now where we sort of pick up from the acquired standpoint and where things get interesting. So obviously, this is a distressed sale. You have a terrible situation going on.

You would think IT be a like, okay, will get warn of this. But like IT IT, IT should be a low Price, right?

Because it's like a fire sale. Fire sale team has to get sold. It's the clippers right over there. They are literally the joke, the punch of every joke about being a bad team is like, well, at least year, you know, not as bad as the clippers. You would .

think that this is .

going to be a even worse. You would think this would be A A fire sale but there are quite a few people who are interested in buying the team including um reportedly over wind fury flight may weather matic down himself several other bidding groups and Steve amer a hero he is also very interested. He has at this point left microsoft retired as CEO sati nadella has succeeded him.

Um that happened just a couple months earlier in february of twenty fourteen. And bomb has been a lifelong basketball fan twice in seattle. He tried to first save me part of a group to save the sonics from leaving seattle a dark, dark day in seattle history, when the sonics left to the company, okay, ma city thunder, right after they drafted cabinet to terrible and a and and then once more, part of another otherness group that attempted to buy the secrets of kings and move them to see at. So this is bombers, third by at the apple to own A N, B, A franchise. And he is not gonna be denied in trusty of boma fashion to be a home.

Or here is such a shame that he can get IT done. Seattle, I mean, I really thought, I I really thought that that ownership group to to move the king's up here and build a new sonics arena was going to happen. But well, shit to I think if .

there's any solus, it's that IT does seem to be at least according to bill Simons, the oracle and all such matters. Um I think there's there's a good chance that see at all will get an expansive team at some point in the next couple years, which IT absolutely deserves. Um yeah still .

a basketball city.

Yeah people love the sonics. You see people wearing sonics gear all over the place still. Um so a Steve comes in with a pretty over the top bid. So forbes magazine doesn't annual valuation of all and and it's just you know numbers they make up, but is kind of the best source of a valuation of of sports franchise across all all sports.

And they had that year valued the clippers at five hundred and seventy five million um which was thirteen th in the N B A and well behind the number one value team, the highest value team which was the next in new york, which they had at one point four billion. So obama comes in with a bit of two billion. So not just it's .

amazing how much the market matters, right? Like it's the clippers now. I mean, for sure they've gotten some great players recently. Theyve started having some momentum, a griff in the under Jordan, Chris paul, but like there's still the clippers in the lakers market and there, you know, in the top half of the N, B, A teams because L, A is .

just a and, and, but, but this kind of blows everybody out of the water. No N, B, A team had ever sold for anywhere near that amount of money. The moon chi bux had sold earlier that year for five hundred and fifty million um so you know just over a quarter of that purchase Price. And and at the time, everybody was pretty astounded by this .

yeah I think that it's three and a half x the largest ever Price tag for N B A T before. And it's really interesting to note that you know this all sort of started happening recently where when you look at you know might come for everything is the cabs. Um when you look at no listeners.

if you if you're own long time listeners, I don't know. Then regardless, he is he's a proud ohio on native.

It's right. It's right, clive, until I die. So then go about the case for one hundred and eighty five million um but that wasn't two thousand and five and so when you start to look at like the escalating Price tag of N B A franchise, um it's all been in recent years and it's something that I kind of want to get too later in episode and try and defect you. Why is that happening? Why is you know any N B A team potentially a good A A A good pick up right now because of the direction and the .

growth solution? Well, this is there again at the time, people, which is only a couple years ago, three years ago now. People thought ama was crazy and and will dive into that in a minute. But but just to wrap up, the clippers have continued there, you know if not dominance, uh, not being the clippers of of old at this point, they are in the playoffs this year.

It's there's sixth straight year going to playoff s after only doing IT four times in twenty five years in california and h it's their fifth straight year with over fifty winds in the season, which is pretty great at this point. They are they are one of the best teams are certainly in the western conference, if not in the whole N. B. A.

Well, so I gave a little bit more barish take on this and will end up getting to this and in the way that we greet the acquisition. But and they have incredible starting five like they've done a nice job, especially with bomber up to um um to retain the Andrew Jordan. But there is no depth to that bench.

There's not their whole roster not filled out with stars. And what I want to get to to is you know why is that the case? Why why haven't they made the right the right player moves throughout the league to make that the case? And then on top of that, like they still haven't made in an appearance in the western western conference final. So like it's it's definitely the story of incredible you know starting .

players no that but .

like yeah ah they're definitely not um um a winning team at in terms of of playoff appearances and you know final appearances.

So just to wrap up the history and facts just recently this year, the two thousand and seventy inversion of the forbes A N B A french evaluations came out. The clips are up to number six but still at two billion. The same mark, the same Price that bomber paid for them three years ago um but the rest in the list is pretty interesting so the next are still number one.

And remember in twenty fourteen they were one point four billion, I believe and uh yeah and twenty fourteen they are one point four billion. They are now valued at three point three billion. So for all the other owners in the league, this was a pretty nice mark. They're all pretty happier right now. yes.

Yeah and I want to make a few points were still in acquisition history facts the this is like A I had just have to read this this clip to um to underscore what a ridiculous transaction this was when when Steve thought the team from the sterlings as part of the deal Shelley sterling gets the titles of owner a merits and clippers number one fan as well as ten tickets in section one to one or one eleven for all clippers games, two court side tickets for all games in los Angeles, six parking spots and lots sea for each game twelve VIP passes that include access and lexus bena club or chairmans slang and media room or equivalent for each staples games three championship rings following any eclipse title and will run a yet to be named charity foundation.

So like what? Why is that part of the transaction? Why does he get clipper's rings like .

a happy he is downstairs, a strange ed wife for don't know, we care by that earlier. And SHE kind of ran the sales process on the behalf of the team because Donald himself actually, you know, was super resistant, ended up suing the N. B A, suing everybody involved, but fortunately has pretty much written off to the sunset at this point.

Yeah yeah. And I think, uh, it's really worth like to me, a big sticking point of this whole transaction is IT should have been a fire sale. IT was under intense arrest. They were still incredible bidding for this thing. And they know and bomber paid almost four .

x the highest transaction ever, six purity.

As right as right and think about the diamonds on those champion brings you know ah but the thing that that sticks with me about that is it's a limited supply thing, right? Like this is a team in a major market with a sport that has risen dramatically in popularity and in twenty fourteen looked like um IT was only going to continue to have a more A A more lucrative TV deals to come. And that leads itself to you know that with incredible supply constrain that there's there's more there's a lot of five plus billionaire out there that would like to own a team, and there's a very limited number of big market teams that they could own. So in in considering this, I mean, in creating this acquisition later, like one thing that we should keep in mind as uh whether or not it's actually the um you know the best place to park your money that is a very exclusive club of people that that own teams like this and not every billion or can .

get in yeah and IT actually reminds me a lot of the other non technology what one of the other non technology episodes we've done on this show, which was asked buying virgin amErica and what we realized in in nature is how important the the quote, quote real state of of gate access and gate control at airports wasn't there's just a limited number of gates at airports and that was probably the biggest reason we concluded why alaska bought virgin. Um and it's a similar situation here. There's just limited real estate yeah .

and they don't often come up for .

sale you and and to other themes that will get into later in the show.

But here, here's another thing that I found really interesting in the forbes list. I would not have projected this at first, and I started to make make more sense when I was thinking about IT. But N, B, A teams on average, I mean, is kind of balling, and I should crush the numbers. But IT looked like the valuations of these teams are about ten ex their revenues in about fifty x their Operating income.

And for anybody who's building a software business know you're thinking, oh my ass, business is probably going to get like a three to five X A revenue multiple or my I guess I just I just wouldn't expected that these sports teams would uh like half fifteen x Operating income multiple and in in kind of talking through with uh with other friends before they show economic sense because you would think like, okay, what I am, I sure that this B2B sas com pany is goi ng to be aro und in fif teen yea rs? no. And I pretty sure that this NBA franchise is going to be around and generating somewhere in this neighborhood of of Operating income that IT is right now. Give her take twenty percent yes. Like this is such a sports franchise, or such a enduring part of the fabric of a city in the fabric of of american culture that, you know, we just trust that these things are going na continue to be around and continue to be popular.

Yeah um one heck, there's another really key element to analyzing this transaction um which we feel lets get into now and we can continue to discuss throughout the show, which is growth right? And in when you're talking about multiples, do multiples will there be of of of eba Operating income or or revenue? What they really are in terms of valuation is, is a proxy for you know you're expected cat flows over the future, the discounted cash flows in, in the future, which is the theory of how you how you value companies and and multiples are just sort of putting your finger in the air and and guessing kind of how much growth you're gna have in your cat flows over the next several years and how much that's gonna worth to your bottom line. And in terms of the valuation of the company, what's really interesting is the growth in the N B A over the last few years and how much and I wish I had harder numbers on this. I don't maybe I know if you do banner I had listeners .

do um pop into the slack after A H .

yeah the slack. But to me the most interesting part of the story line is that the N B A has emerged really since bomber acquired the clippers.

Um I don't think this is caught but maybe he might have seen this as I think the most innovative sports uh league h sports in the world and that has been experiencing the most growth and experiencing the most growth among Young viewers uh which is the future the the data do have is that according the Nelson um the MBA has the Youngest audience of any of the major sports in amErica and has almost half of its viewers under thirty five which is you know definitely not the case with with baseball, probably the oldest but not football, not hockey. There is a lot of growth happening in the N B. A right now and would be fun press the digging. why?

Yeah I mean, it's i'd Carry all, all this with the Younger stage in the fastest growth of any physical sport. I'd say league legends and counter strike. Yeah, I think I love, love to do a future episode on any sports, but will scope IT to traditional sports for for this episode. Yes, I think yeah that that that makes a lot of sense.

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So then acquisition category yeah .

um this is a business line. I mean, it's it's it's kind of hard to fit our. I yeah .

yeah and .

actually from a um technical perspective, uh the way that see I can find this the quote from I think it's a four article. mr. Bomber, fifty eight, is likely to enjoy significant personal financial benefits when investor purchases a sports team, he can attribute a large part of the purchase Price to the player contract he is acquiring. As those contracts expire, their depreciation can offset income. So IT kind of is interesting to think about IT like you're buying something that largely consists of appreciating assets.

interesting. I am still .

calling IT a business line because I think all, all the future growth is being able to turn that fly wheel of the franchise and leverage that brand to get more players, to get more fans and and turn that fly wheel and that that all is part of one one business line. But you know I think IT IT is interesting that from a technical perspective um as player's age, there are appreciating .

assets yeah well and well this is this will lead right into one of my technics and the so we stopped for a moment on what would have happened otherwise. I mean, he was clear the sale was gonna happen and .

are really quick. Are you saying .

business line also my saying business line or asset um yeah I think I I say I i'll say business like I think these are your sports teams traditionally have been viewed as assets. You know you don't buy sports teams to make money. Egal is is the uh traditional view on the space.

It's billionaire who want to play and and have fun and have a retirement gig. Um but I think that might be changing. You know I an with the growth and and the tech names i'll talk about, um I think there's a great future ahead for for sports franchise as businesses and as global businesses uh that woking into so yeah business like cool um moving into .

what would have happened and otherwise I think we should we should focus more on the team than on what Steve ballmer a than with this money. But IT is interesting that uh according to that forms list at least um you know the the business has not appreciated at all and if he just parked IT in an mEdison p index fun from that day that he bought IT until today, the day that we were recording IT would have been a twenty twenty eight percent return. So like you're saying, at least in in in the short term so far from what we can see in terms of actual appreciation of of the estimated value of the asset, that is the team that he bought. Um you know not the best place to park your money for an investment.

Yeah should we move on into tech names?

Yeah I mean, it's play worth what would have one thing that I also had in what would have happened otherwise? What is Steve ballmer done for the team that another owner couldn't like? What if I did, you know, fall into the hands of another another bitter? Like, would we, would we see the diving safe to to resign the Andrew Jordan stop him from um going to the mavricks like what we see. I think one thing that's interesting about potentially advantages for the clippers of of having Steve ballmer on the team is that, number one, he's ridiculously involved and much more so than I think most, most owners are and probably maybe even to a fault.

Are you?

No, no, i'm not. I I really think um this was chatting with someone that has a uh, close friend in the in the clippers organization and just that I was a little like disruptive and the the of the Operations, the business when he took over that he was just involved in in so much of IT. Um so you know for Better for worse, he's much more involved than another owner would be.

But he also he employed a similar strategy to the one that he employed a microsoft or ma in in making a over the top bid for skype to just end all negotiations, like he did the same thing with the clippers here in in bidding, twenty percent over the next highest bitter. And you know, the man has one hundred billion dollars, and this is what he's gna do for maybe the rest of his life. And he has expressed over over again that he he has always wanted to own A N B.

A team. But um he had he he couldn't because his daily job kept him too busy before. And I I think that his willingness to go above and beyond, even when IT, may not make like obvious financial sense when you like or if you really, really dig into IT like he's he's able and willing to write really big checks because I could have a really big payoff. Ff, like if he can win the clipper is a championship ring, then you know he's a total hero and he may actually like all this may turn out to be a great investment form. So I think that one thing to think about is like he his um liberal sort of loosely with the the post strings, especially compared to their previous ownership, is really benfica al for the team.

What's interesting um you bomas um what's talking about bomb's personality here for a minute can in the show without talking about I wanna talk about burma's personality and compare IT to mark eaker berg um who is, as we ve talked about on the show, probably the acquire the C E O of an acquiring company whose style we've analyzed most on this show and zc berg is equally very very aggressive and willing to come in with very high Prices but he sort of like the silent killer type.

No, he doesn't say a lot. He comes down. He flies down and he likes to buy southern california companies or try to buy something. California companies lies down to the meeting, you know and he says, you know, hey, well, i'm going to cross you want to help you and like, you know here's the number is a lot of money like let's get this done but um but think about psychic, you know I think with some potential missteps as far as we talked about on oculus in the last episode, he his judgment in and is generally pretty spot on. He's been right a lot more than he's been wrong with these things.

Bomb is a very um I wouldn't say that his judgment is is bad, but but he takes a very different style list c approach to being an aggressive acquire. He is loud is boy stress he is there is we will linked to in the show notes, very famous for his public persona his developers, developers, developers, developers chance is a is jumping up and down on stage and and and that's just him too. I think we both uh you know cross pass with them in in seattle and elsewhere in our in our travels and you know you have a conversation with him and he just uses enthusiasm yes. And and that's what he's bringing .

to the clevers yep and one yeah you're absolutely write on that. I mean, he you know he's still I think he actually jumped on a train in and dunk when they were announcing the new copper mascot when he still does the the the standard bomber lean back in the middle of an a in full of people in yell and you know filling .

his arms around and talk .

about and so great trench .

in sweat ah yes .

yes says he is true to his style and you know he's his uh love my haddam his his a passion is infectious and I think one other point that I wanted to make before moving out of this what would have happened otherwise is uh basketball fans will know will note that um there's an uh not unprecedented but uncommon thing going on within the clipper's orange zone where um doc rivers is both the head coach and sort of the president G M.

Role and typically the the president G M roll handles you making the right player acquisitions, signing the right contracts, making the trades, doing a lot of the work on the draft to to fill out the roster and and kind of handle the sort of the business of the team and the business of making sure the team is in a place that can win and then the coaches in charge of of of of the um actually dealing with the players in the strategy and and working with the G M. And in this case, uh, bomber gave doc kind of all of that power as coach and president and what that probably ends up looking likes. And he so involved as bomber making a lot of the the business decisions and then also having no doc potentially split this time too much. So you know I would say what would have happened otherwise a different order may have actually brought in a gm and you know and add a little but no more depth to the um depth to the roster and potentially just you know had a little bit more baseball expertise in there.

You um but that is not Steve .

style and is not so you move on the things .

let's do IT. okay. So here's my theme for this episode, an and again, listeners that are closer to the basketball world but love your input. I think this purchase, uh, certainly, as we've talked about, IT reset the landscape of valuations for NBA Francis's. And there is a you kind of realist component to IT that they are limited number of B A team and a lot of billionaire out there with a lot of time. And I want to give up but here's what's really interesting, I think going on in in sports and perhaps perhaps even more so what certainly in in the game um in basketball more than the sport right now, there is a ton of innovation happening and and I think there is business model innovation that is happening in sports right now.

In in american sports for the last fifty plus years, fifty, sixty years, there's been this huge and vintas has read them about this um this huge synthetic tic relationship and fly wheel between the television industry, the sports industry and the advertising industry know the auto industry, the the beer industry, the the retailer industry and that has been a very tight coupling where you have sports being the the biggest T V events, the literally the super bowl moments that bring huge scale, mass scale audiences that advertisers of mass products advertised on and that starting to break down. Uh, today, as the internet is pushing farther in the entertainment, we've talked about this a lot in our various facebook episodes and Snapchat, of course, in the opportunity to disrupt TV. But what's happening at the same time over the last few years is in in one sense, that's very threatened to the business model of sports because the vast majority of the revenue comes from TV.

But they've been developing streaming and direct subscription revenue and direct customer relationships as part of the product on the site. And I think that is a huge opportunity. Um you know we've been and I talked a lot about we debated doing this episode on majorly baseball advanced media, which which changes its same to be amtech that provides the technology for streaming behind this.

And and we wanted do a future epsom on IT. But the ability in for major baseball charges A I believe it's one hundred and fifty dollars a year for this incredible product where you can stream any game and anytime, anywhere in the world. And they make so much money off that from their engaged customer base and have a direct customer relationship.

Um that's a bright future for sports. And I wonder if bomber came in and bought this team for what seemed like a huge amount of money at the time. But if and as this transition happens, this IT might be the path for sports teams to become real businesses.

Yeah and I you know I don't know exactly why the um there are so much more money in the TV rights for these teams than there was five years ago. I mean one thing I could speculate as that with most shows, uh, people chord cutting means that live doesn't matter as much and that they're down to watch a promo on the TV rights .

are staying the same or or or and growing as sports are becoming the only thing that people keep their T V, subjective for. Yes, but the leagues themselves on the back of bam tech are and rounding, you know, disrupting themselves in that business model and offering these direct subscription packages to customers with this big revenue stream that they still sell advertising on. But now they also they're basically disrupting E S P N. You know, in E S P N makes so much money, is by far the largest and most profitable table channel on the back of sports and the leagues. I think you're starting to realized that they can they can cut S P N right out of that and make both the advertising money one hundred percent of IT and the subscription money, right?

Because in that subscription money they're commanding more power uh, in the bundle as they are the reason that people want lindy or television, you know want that life experience and and uh yeah that so it's it's there. They're winning on two fronts there .

yeah yeah because the point I am trying to make is they're still getting the E S P N. juice. And they are also like all getting a tone of money from people that are buying league pass.

We were and and those people are also buying cable and paying money to E. S, B, M, too, right? So like these sports leaks for the next couple of years are just going to be in in the money.

Yeah, I think you're right. You know, I had the exact same tech theme as you on this one. I mean, I think, uh, I I have a much more high level is just that the the N.

B, S. Broadcast rights are getting more valuable. But I think you nail exactly why that is.

So the one of the techne I want to cover quickly that I feel very unqualified to open on other than I see that happening and it's so fun to watch is how the product, how the game on the court um is also had so much generation over the last couple years and have seen driven well, there's the whole money ball aspect and what need of the rockets started doing and and bringing kena statistical analysis to front office management of of teams um but then there's also literally the game on the court, which the warriors have just completely changed and I love.

Watching that. And that's what so rare in sports I feel these days. And to me why um many reasons to why.

But now I grew up loving baseball, playing baseball, and I still love baseball. It's hard to watch because they're so little innovation and how the game is played. But but basketball is so dynamic right now.

Yeah and you know, when funny I play ten fifteen years ago, I was saying I don't really love the NBA like watching college baskets works as real basketball and watching the NBA is watching a few superstars traveled all over the place dunk and then have, you know like wait around at the top of the key for the shot clock to stick down, drive and then dunk and it's like, okay, we know is going to happen every time the rest can be really nice to these few players.

And I think that what we've seen happen is it's just a much more fast pace dynamic game where there's a lot more of there are pass in the ball around, there's a lot more ball movement um that there they're optimized ing for exactly the three point and they should be taking not taking the ones that they should be taking. And they're really I mean, there's a lot of data science apply to this from a technical perspective, but that from an intuition perspective, you just have your staff curries that that um you know come together on a team like the warriors to really change how the how the game is played. And if I have any grapes about my own team like about the way that the cows play, is that a there very, very fortunately to have lebron and it's it's unclear if you mean they're still kind of playing that .

that older styles yeah, they are. And I think again, with a avoiding the temptation to dive too deep into analyzing these aspects of the .

game because really hope the other sports and .

and you certainly I am much more qualified to talk about baseball in football, having played both myself close to fifteen years, there is there just been no innovation in in either of the really in in terms of how the game is played.

I hope these other sports and managers and and coaches in other sports at all levels can look at the M, B, A and say there is so much value and power in in not feeling like we have to stick to tradition in the way it's always been done and how these games are played and that that fans will react super positively and love new innovations I mean stuff like you know in facebook you should never bunt its lakes statistically proven that bunting is is terrible um just like in football c you should go forward on fourth down way more often than people do. But but there's such conservative environments that people don't do these things. And I hope the MBA is is gonna drive some more innovation in other sports as well as as people see how well audiences reactive IT.

yep. And I think the the N F L had amazing twenty year run up to call IT five years ago, where they really turn the N F L into a family support. It's not the thing that dad does and drink beer on the weekend with buddies at the game.

Like it's a thing that like theyve really turned IT into a family product where you know you have people over and the whole family gets into IT and the the the broadcast is much more tailor around entertainment than IT is like a great iron sport. And you know the super bowl is the the best implementation of that. But I don't think we've seen much evolution beyond that yet. Like I think the nfl is right and high now, but the basketball ah, but the NBA is is more the stock .

that I would buy right? Well, the nfl has a huge liability on their hands that I don't see any way out of IT with the concussion issues. Yeah, you know, I mean, I I played football for over ten years myself at middle school, high school, college and loved IT. But if I could go back in and, you know, make those decisions again, back in at every level, I I would I would not play that does not worth the .

risk yeah and honestly, watching some of your investment decision, it's pretty clear .

to me that he wasn't can just imagine how play ball.

Man, should we should we go into grading IT?

Yeah, just go into grading IT.

right? Well, one thing I want to bring up is that from one listener in front of the show that I just I just read this quote because he had a really interesting inside here that we hadn't talked about yet. And that's that a the most interesting phase is coming soon when J.

J. Redit is likely to sign for more money elsewhere. Blake and C, P, three, Chris paul are free agents. And how will the franchise move on if one or both of those guys leave? That's the chAllenge for bomber. And I think you know now are David I or not probably here to speculate about the the future player moves of the team, but IT is interesting to think about something that's onna knock some points of migrators is definitely um the the lack of a true president G M in place here to you. Keep a good handle on a good pipeline on all these debt chart moves yeah but .

I I do think I think this will be the true test for obama as an owner, right? Um and where if we're onna like we reserve the right to with tech companies, if we reserve the right to change our grades in the future will be reaction to this. I think IT gets back to management and lessons, you know that are equally applicable to tech companies and start up.

So IT is, you know, it's not always up into the rate things happen, right? Like your start, players become free agents and they leave. If like you can, you can change that.

That just happens. That's a life in a company. The test of of a management team and the company is how you react to that. And do you either you know give up and start tackling your players like Donald sterling, like that's that's one into the spectrum um you know or do you do you support your employees and your yourself and your team and make the h decisions sometimes hard to continue to do your best to put the put the team out there that's that's going to win and do that really thought fully and strategically like we like we saw you know facebook do throughout their IPO and afterwards when they realized, you know, there I was like they lost their stars in free agency as as the mobile wave was about to wash over them and they .

went out affect IT yeah agreed. Well, i'll i'll take a first step at at the grade. We Normally on acquired grade with the lens of, was this a good financial decision for the acquiring company to acquire the acquired company? And the tech that I want to take unit for this episode is to take out the word financial.

So we can say, was this a good decision for Steve ballmer to acquire the clippers? And I think that, you know, the guy had twenty billion dollars and the rest of his life in front of him. And I, another friend, bring up this idea that it's incredibly rare that an opportunity like this comes on the market.

And when you're ready, a billion, you know, buying and running a sports team is really only like the hard, the only hard thing remaining for you to do. You're instantly tly famous when when you do this, right, like, you know, Jerry Jones made all his money in oil, but then, you know, now is famously the dallas cowboys owner, and like, you can be a billionaire but not have your name in lights. And I think that you know oma had a good amount of that already.

But but for him, you know what you're going to do with the rest your life. This is a really fun thing to do and you're in this very, very you exclusive club of of you know tear one market owners of of franchise. And so there's like some amount of my grade that's onna come from, it's like an a in terms of how do you want to spend the rest your life and that that is not necessarily a financial decision on the financial decision.

Um he really is bring some innovation here. I mean, he he's putting a lot of effort into IT. I disagree with them not having a president. So you know on the execution of actually doing this thing and kind of furthering the turnaround of this team. I'll give IT A B, but you know if if you have that much money and you want to buy A N NBA franchise and make this year your your second foray of less work, certainly a fun .

way to do IT yeah um I think guy, i'm going to try and resist temptation to think about IT outside of a business decision and think about IT solely in terms of the Price bomber paid. He said probably gotten team for a lot worse. I think no, I was coming in hot with with that race but he reset the market and and it's reason to that level and for all the reasons I talked about that the before um you know I think he is kind of catching this wave at the rate time where the leagues and um the teams as as components of the sports leagues um have a big technology enabled opportunity in front of them to you know change their business model h disrupt myself into something more valuable.

So given that i'm going to go with b plus because I think he's got all the fundamentals rate, there's execution that remains to be seen both on the product, on the team side and and and quite honestly, on the business model for the league. Two, it's early days and I think he probably could cut in the team for a lot less. But to your point, bend, he he did not want to miss fire on this one.

He wasn't gonna SE. And that is, that is classic steep pommer 呀， a follow up and hetaira. I've got a few this week instagram stories, uh, was reported that instagram stories now has more than two hundred million D A.

You, uh, which is more than all of snaps chat. At least until we see Snapchat uh, growth numbers for key one, which they'll be reporting their earnings soon here. Um that will be a big, big day for snap stock. And associated with that, want to give a big shout out to listener A A listening me ross, who uh very kindly wrote ban on me h correcting us on our definition of D A U that we've used a few times on this show where we implied that wrongly that A D A U meant people users using IT every single day doesn't just really mean that it's just the percentage of the user base, the uh the total user base that a product that uses IT on any given day.

So if half the half the user base uses IT on one day and half the user base uses IT on another day, uh and then they mix up in various portions of them on the third, you can still have fifty percent d to M A U ratio um but with nobody using IT on every single day. So an important distinction. Thank you, ross, for pointing that out. Yeah and one other yeah I think we do have one other follow up from our early episodes. There is a trailer that was released on the internet this week.

Yes, i'm excited. I'm scared. I'm nervous. I I don't know to do with myself and then watch the the new star wars trailer over and over over and wonder as Christmas yet is .

IT Christmas yet is going to take on a whole new meaning. So excited .

yeah and no spoilers ers on the trailer but like IT all changes in at the end. So like it's worth watching multiple times. And then reinterpreting IT through that lens after seeing the ends of the trailer, I believe i'm giving a spoil for a trailer.

But like it's so well done.

it's that big. Yeah.

I can't wait. yes.

Another one is a little quick piece of follow up from the starbuck episode. A one reason that the starbucks IPO is so successful, uh, that we didn't really touch on integrating and is is because they delivered on a consistent basis financially for like many quarters after after the offering and they had like tens and tens and tens or I think maybe even one hundred months of of months over months growth on average in the same store sales. And so a if we ever do uh similar analysis in the future of um you know an an expanding chain of stores that uh it's an interesting mark to keep in mind and know. David, one of the reasons we do this show is to try and understand what makes an acquisition successful, what makes an IPO successful and and summit on that that metric of even though you're opening multiple stores because you have more free cash flow to keep reinvesting the average of of your same store sales across all stores continuing to rise is a really interesting um piece to zoo m in on .

and and thing to shoot for. IT indeed is incredibly impressive. Tens and even up to one hundred consecutive months of the same start growth. IT does help when you are literally selling drugs to your customer, says starbeck does.

But any any time you can sell illegal drug is really .

probably good business. But there, as we talked about on the episode, so many more great lessons from from starbucks that that everyone can learn should you move on the car bet?

Yeah, let's do IT. Let's do IT. So or i'll take A A stab. Us know we love recommending podcast. Bill girly was on Jason Kelly annis this week in startups this week. And um any any time you get a chance to read some bills writing on his blog or here am speaking on a podcast, it's a it's a tree because he just has such incredible clarity of thought and he walks through sort of the benchmark business model of really only investing in a couple companies per year and spending just an incredible amount of time um embedded with those companies.

And and actually I didn't know that much about bills background had touched on when we were when we had tom all were gone for the amazon IPO episode um he he had mentioned that h bill grill in franquet one to the to the IPO and I didn't really know that that you know bill was a computer sciences major before that. And it's really interesting here about that's right, that's right. It's super interesting to think about the the decisions that guy made in the rist that he took in the way that he he looks at the world, in the way that he looks at investing. So if you're if that's your cup tee or if any of those things in your cup tee, I highly recommend listening to bill .

because he is a stage he and all the folks at benchmark, they are they are one of the best and a joy to work with and very, very good at what they do. My car out for the week is also a podcast, a really great one. Uh, Jenny, my wife, they were on road trip recently.

And this is a jennie's member of sleep plus. Uh, so this is a sleep plus pig. Has that you have to be a have to be A H subscriber to but but it's worth subscribing. It's called pop race in the sixties and it's by jack hamilton who's a professor uva and he interviews focus only six episode is, is, is a short series, but it's great each episode is about A A White musician uh or musical group from the sixties and and a black musical musician or musical group from the sixties um and comparing them against each other and there h how they were viewed by society at the time and their legacies and impact and IT is so great I love sixties music grew up listen to all of IT and and jack actually wrote A A book, his his first book, which was I believe this dissertation, A P H D dissertation um called just around midnight.

Which is basically, if you can listen to the podcast, this is the pakistan book form, but janis join and a ref, a Franklin and to be hendry ics and bob dolin and the beetles, the stones, and talking about the importance of race and the the conversations across these groups. You know whether there was I didn't realize how often both the beatles covered motown songs and motown artists covered the beatles. They out their career super cool.

And and also, I know this is going on for a while about this car out, but I think it's also, as I was listening to a really applicable to the tech industry, made me think about, made me think a lot about safran ces go in the sixties, and so much of that music was coming out of there. And the counter culture movement. And how about like the tech movement and silicon valley really was burthened out of the countercultural movement and huge driving force of change and that kind of started in the inferences go in the sixties with that counter culture movement and the legacy you see in that in the tech industry. Um so super or worth worth listening to or if you can listen to IT reading the book will linked to both in the showers.

So we want to think .

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Thanks for joining us again. If you aren't subscribed and you want to hear more, you can subscribe from your favorite podcast client. If you've been a long time listening the show and and want to leave a view or if you just happen to tune in this one and like the episode, either way, we'd love lover of you one itunes. So thanks so much for listening. Enjoy the the N, B, A playoff s go caves go that we'll see .

the next time, the next time.