Clippers sale

Clippers sold for $2 billion. That's insane--the previous sale of a franchise, the Bucks (okay, decidedly a less appealing purchase), was for $550 million. That's a ridiculous increase in a short period of time--albeit for a team with a solid foundation, a decent facility (albeit a shared one), a prime location for attracting employees/players, and a great market (albeit a competitive one).

It's maybe a weird connection to make, but I thought about something I read recently that covered hedge funds buying fast food franchises. Yeah, really--hear me out. These are businesses with controlled labor costs (fast food employees are getting minimum wage and no benefits; the NBA has a salary structure that deals in larger amounts but implements a cap, max contracts, luxury taxes to curtail overspending, etc), and with minimal key personnel possessed of unique skills (arguably nobody but marketers in fast food, but the actual players and some coaches and scouts in the NBA). Everybody else in these organizations is replaceable, whether because their labor is relatively unskilled, because there are droves of individuals who could fill that role. Even scouts are being replaced by analytics and an emphasis on big data (sort of--I know the big lesson is that these should complement each other)--and big data analytics doesn't necessarily rely on people with expertise in the sport, but rather in broader evaluative mechanisms. Once again, this is potentially cost effective and measurable and outsource-able for owners--if you can hire an economics major at the entry level to replace the years of experience of a scout, why not do it? Cheerleaders are defined as independent contractors rather than employees; the spots on the squads are posed as entry-level, with an emphasis on the potential for upward mobility and connections elsewhere; this reminds me of the exploitation of interns a few years back, young people getting paid nothing to do tons of work because it was supposedly a foot in the door.

I don't exactly think players reap no benefits from this system, but I think the deficiencies are overlooked because of the massive salaries (dwarfed by franchise values and owners' profits, though). These are employees with limited careers, who have highly specialized skills that quickly diminish and can't really be translated easily to other fields. Essentially this is vocational training, an approach to higher education we see growing in the U.S., which may yield short-term advantages but ultimately inhibits flexibility in the long-term as those specialized vocational skills either become outdated or become interchangeable with younger, cheaper labor.

Meanwhile, the product is tightly controlled--the NBA doesn't have to face competition. There are limited quantities of quality NBA basketball and so production is limited (30 teams, 82 games each), but unlimited scale (that limited product can potentially be consumed by 8 billion people worldwide). As long as you can expand that audience via the internet, TV contracts (getting bigger because live sports are DVR-proof in comparison to other programming, so people aren't skipping those commercials), etc., you can build the audience paying to consume that product. Then, as your audience grows, you demand more for other companies to access your customer base, using your product as a vehicle for advertising (the same thing Google, cable TV, Facebook, etc do).

So now you have a product with limited production costs but potentially practically unlimited sales.

Add to that the fact that these moneymakers are publicly subsidized by the people who then turn around and pay to consume them, and this gets to be an even better deal for billionaires. Recent studies have uncovered how dependent fast-food-sector workers are on public assistance--for health care, food stamps, etc. In the NBA, it's arenas, which pose as a public good and a symbol of civic pride, pretending to generate tons of jobs (many of them of course end up being low-paying and temporary/seasonal) that will benefit the local economy while demanding millions in taxpayer money every decade or so, communities and politicians held hostage by high-profile owners/organizations.

And thus $2 billion for the Clippers. It's a lot of money, and it will be worth it. Steve Ballmer knows this--whatever you think of Microsoft, the dude who has run it for the last decade is smart and knows how to turn a profit. In other words, this isn't just a vanity purchase--it's smart business.

It's worth thinking a bit about the actual shift in ownership here, too, aside from the fact that Ballmer may just be a less contemptible human. Ballmer may not have any experience running a basketball team, but he can run a business, and if he can extend that managerial competence to the NBA--and I think he can, in part because we're talking about an industry that, as I've outlined above, doesn't necessarily rely on an organization stocked only with highly specialized skill-positions, but has to some degree deskilled much of its labor force through standardization and big data, etc. He recognized that moving MS Office to a subscription base would solve the problem Windows XP created by ensuring a constant revenue stream as users are forced continue paying after purchasing the initial subscription, and aren't season tickets much the same? TV rights? Plus there's all the ancillary benefits--concession sales, etc. And it matters less and less for owners if the costs of actually attending a game alienate fans, because those fans will still be obligated to pay to purchase TV access (and even if they choose to boycott the team/sport, their cable package costs are driven by sports channels)--and ultimately that might even appeal to some owners who would be freed from the overhead on facilities, staffing, etc.

I know that's a slippery slope argument, but it doesn't strike me as completely absurd, and I think taking the situation to its extreme just serves to reinforce how logical a $2 billion purchase price may actually be.