After a tape of Sterling making racist comments was leaked to the public, NBA commissioner Adam Silver on Tuesday suspended Sterling from the NBA for life, fined him $2.5 million (the maximum allowed) and recommended that the other owners force Sterling to sell his team. So the somewhat awkward question now is: How big a check will Sterling get if he does sell the team?
NBA franchises are hard to value, both because the business is becoming more lucrative and because the business's fundamentals are completely beside the point. On the first part, the NBA has negotiated a new collective bargaining agreement that's much, much more favorable for the owners, with a better revenue split and shorter player contracts. And it's about to negotiate a new multimedia deal that, according to Grantland's Bill Simmons, could "easily double the current deal." Throw in maybe the most marketable stars since Michael Jordan in LeBron James and Kevin Durant, and it's a golden age for NBA owners.
There's just one problem: how to actually become an owner. There are 30 NBA teams, and only a handful of them have come up for sale the past few years. But there are many more billionaires than that looking for a new plaything, regardless of its financial performance — especially one with the cachet, or "psychic benefits," as Malcolm Gladwell puts it, of a pro sports team. That's part of the reason the Sacramento Kings and Milwaukee Bucks, two of the smallest markets in the league, just fetched what recently would have seemed like absurd sums of $534 million and $550 million — up from the $377 million the Grizzlies sold for in 2012. The other part is the Seattle factor. The city hasn't had an NBA team since Clay Bennett and Aubrey McClendon stole the Supersonics away to Oklahoma City, and now an investor group is trying to get a new one — no matter the cost.
So, what does that mean for Sterling's bottom line? I talked to Andrew Zimbalist, a professor of economics at Smith College, and he estimated that the Clippers are worth $700 million right now. If anything, that might be the team's price floor. They still play in the second-biggest media market. They still have their own bankable stars in Blake Griffin and Chris Paul. And there's still the Seattle group willing to pay almost any price for a team. Yahoo!'s Adrian Wojnarowski reports that investor groups are already lining up —including one led, perfectly enough, by Magic Johnson — who'd be willing to pay at least a cool billion.
Now, if the idea of a racist billionaire getting a check for close to $1 billion as punishment for his racism doesn’t seem fair, consider this: Selling the team now will cost Sterling’s family a couple hundred million dollars in taxes. Sterling bought the team in 1981 for just $12.7 million, so if he’s forced to sell he’ll owe the 23.8 percent capital gains tax on almost all of the sales prices.
But if none of this had happened and Sterling was able to bequeath the team to, say, his daughter, she would only owe capital gains on the difference between what it was worth when she got it and what she eventually sold it for. This tactic is called “step-up basis,” and it would have saved as much as $250 million for the Sterlings.
That might get Donald Sterling's attention as much as a black person on Instagram.