Episode 36 The LA Clippers

In episode 36 of the "Acquired" podcast, hosts Ben Gilbert and David Rosenthal shift from their usual tech focus to explore the sports world, specifically Steve Ballmer's $2 billion acquisition of the Los Angeles Clippers in 2014. Despite not being avid NBA followers, they dissect the deal's nuances, Ballmer's aggressive bid, and the Clippers' troubled history under previous owner Donald Sterling. The episode delves into the implications of the purchase, the innovative potential of NBA franchises, and the evolving business models in sports broadcasting. The hosts also touch on the Clippers' performance and future prospects, as well as the broader context of sports franchise ownership as a unique asset class for billionaires.

• Episode 36 of Acquired focuses on Steve Ballmer's 2014 purchase of the Los Angeles Clippers.
• Hosts Ben Gilbert and David Rosenthal mention they are not huge NBA fans but are interested in the analysis of acquisitions.
• The episode is a departure from technology and into the world of sports.
• The hosts acknowledge their limited knowledge of NBA and invite listeners to provide feedback.

"Today's episode, David and I are venturing away from technology into the world of sports. We'll be talking about Steve Ballmer's 2014 purchase of the Los Angeles Clippers."

The quote sets the stage for the episode's content, highlighting the hosts' venture into sports analysis, specifically the acquisition of the Los Angeles Clippers by Steve Ballmer.

• The hosts discuss applying the "acquired methodology" to analyze the Clippers' purchase.
• They tease future episodes about the intersection of sports and technology.
• They encourage listeners to engage with them on various platforms and review the podcast on iTunes.

"We can definitely apply the acquired methodology to it and get some good discussion in."

This quote emphasizes the hosts' confidence in applying their analytical framework to different types of acquisitions, including those outside of their usual focus on technology.

• Pilot is a sponsor and partner of Acquired, offering accounting services to startups and growth companies.
• Pilot is recognized for its significant growth and notable backers, including Sequoia and Jeff Bezos.
• The hosts discuss the importance of startups focusing on their core product and outsourcing non-core activities like accounting.

"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs."

The quote explains Pilot's role in providing comprehensive accounting services to companies, which is relevant to the podcast's startup-focused audience.

• The Clippers were founded as the Buffalo Braves in 1970 and faced early scheduling challenges.
• Ownership changes and relocations led to the team becoming the San Diego Clippers, then the Los Angeles Clippers.
• Donald Sterling's controversial ownership began in 1981, marked by poor team performance and allegations of racism.

"The Clippers actually have the worst winning percentage of any team in any major American sport."

This quote highlights the Clippers' historically poor performance under Donald Sterling's ownership, setting the context for the significance of the team's eventual sale.

• In 2014, a recording of Donald Sterling making racist remarks was released, leading to widespread condemnation.
• The NBA responded with a lifetime ban and a maximum allowable fine for Sterling.
• The Clippers players protested by wearing their shirts inside out to obscure the team logo.

"The NBA issues a lifetime ban of Donald Sterling from the game and finds him two and a half million dollars."

The quote details the NBA's decisive actions against Donald Sterling, illustrating the league's stance on racism and its impact on the team's ownership.

• Owning an NBA team is akin to owning a franchise, such as McDonald's.
• There's a corporate governance structure that can enforce decisions with a three-quarters vote of the other team owners.
• The situation with the Clippers demonstrates that even if you own a team, majority owners can force a sale.

"So when you own an NBA franchise, it's truly that a franchise. I mean, you can imagine it's like owning a McDonald's where, yes, you've poured all this money into this thing and you own this asset, but there's actually a corporate governance structure above you that can force a lot of decisions with, in this case, a three quarters vote."

This quote explains the concept of owning an NBA team as a franchise where despite being an owner, there's a higher authority that can dictate major decisions, such as forcing a sale.

• The Clippers were considered a distressed sale due to the forced selling situation.
• Despite being a historically unsuccessful team, there was significant interest in purchasing the franchise.
• Notable potential buyers included Oprah Winfrey, Floyd Mayweather, Magic Johnson, and Steve Balmer.
• Steve Balmer had previously attempted to purchase NBA teams and was determined to own a franchise.

"You have a terrible situation going on."

This quote refers to the circumstances leading to the Clippers' sale, highlighting the distress involved in the situation.

• Steve Balmer made an over-the-top bid of $2 billion for the Clippers.
• Forbes valued the Clippers at $575 million, placing them 13th in the NBA.
• The bid was surprising as no NBA team had previously sold for close to that amount.
• The Clippers' valuation and Balmer's bid highlight the importance of market size in franchise value.

"So Bomber comes in with a bid of 2 billion."

This quote states the amount Steve Balmer bid for the Clippers, indicating his aggressive approach and the high value placed on the franchise despite its history.

• NBA franchises have seen a recent escalation in valuation.
• The Clippers' valuation increased to $2 billion, the same price Balmer paid three years prior.
• The Knicks' valuation rose from $1.4 billion to $3.3 billion, showing significant growth in franchise values.
• The growth in franchise values reflects the increasing popularity of the NBA and lucrative TV deals.

"The Clippers are up to number six, but still at 2 billion, the same mark, the same price that Bomber paid for them three years ago."

This quote provides information on the Clippers' valuation increase and position among NBA franchises, indicating stability in their value over time.

• The sale of the Clippers included unusual perks for Shelley Sterling, such as tickets and parking spots.
• Despite the forced sale, there was strong bidding, and Balmer paid a price well above previous NBA team sales.
• The limited number of NBA teams and the exclusivity of owning a team in a major market drive up valuations.
• The scarcity of teams and the enduring popularity of sports franchises justify high revenue and income multiples.

"As part of the deal, Shelley Sterling gets the titles of owner emeritus and Clippers number one fan, as well as ten tickets in section 101 or 111 for all Clippers games."

This quote details some of the unique terms included in the Clippers' sale, emphasizing the unconventional nature of the transaction.

• The Clippers have shown improvement, making six straight playoff appearances and achieving over 50 wins in five consecutive seasons.
• Concerns remain regarding the depth of the team's bench and the lack of appearances in Western Conference finals.
• The team's recent success contrasts with its historical reputation, but questions about its ability to become a championship-winning team persist.

"They are in the playoffs again this year. It's their 6th straight year going to the playoffs after only doing it four times in 25 years in California."

This quote summarizes the Clippers' recent performance improvements, contrasting with their past record.

• The NBA has the youngest audience among major American sports, with almost half of its viewers under 35.
• The league's growth among young viewers positions it favorably for the future.
• The NBA's innovative approaches have contributed to its growth and popularity.

"The NBA has the youngest audience of any of the major sports in America and has almost half of its viewers under 35."

This quote highlights the NBA's demographic advantage and potential for continued growth, emphasizing its appeal to a younger audience.

• NBA teams are valued at high multiples of their revenues and operating income.
• Sports franchises are seen as enduring assets with a high degree of certainty in their long-term viability.
• The high multiples reflect confidence in the stability and enduring popularity of NBA franchises.

"NBA teams on average, I mean, this is kind of eyeballing. I should crunch the numbers, but it looked like the valuations of these teams are about ten x their revenues and about 15 x their operating income."

This quote discusses the high valuation multiples for NBA teams, which indicate the market's confidence in their long-term stability and profitability.

• Statsig is a tool for managing product evolution, especially useful for experimenting with new AI features.
• It helps determine the impact of new features on KPIs.
• Statsig can ingest data from data warehouses, facilitating integration with a company's existing data infrastructure.
• It is compatible with various feature flagging setups and does not require migration from current solutions.

"All of that was managed with Statsig."

This quote emphasizes the effectiveness of Statsig in managing the evolution of a product, highlighting its role in overseeing the development and implementation of new features.

• The acquisition category of sports teams is complex and can be viewed from different angles.
• Sports teams can be seen as depreciating assets due to player contracts, which depreciate as they expire.
• Alternatively, sports teams can be considered a business line, with the potential for future growth through brand leverage.
• The traditional view is that sports teams are assets for billionaires seeking entertainment rather than profitable investments.

"You could argue it's asset... from a technical perspective... they are depreciating assets."

This quote discusses the technical financial perspective of sports teams as assets, focusing on the depreciation of player contracts.

"I'm still calling it a business line because I think all the future growth is being able to turn that flywheel of the franchise."

Here, the speaker expresses their view of sports teams as a business line with growth potential, rather than just depreciating assets.

• Steve Ballmer's ownership of the Clippers is marked by his high involvement and aggressive investment strategy.
• Ballmer's willingness to pay a premium for the Clippers and his hands-on approach are notable.
• His involvement may be disruptive but also brings a passion and commitment to the team.
• Ballmer's investment in the Clippers may not have been the most financially sound decision in the short term, but his passion for owning an NBA team drove his actions.

"He's ridiculously involved... much more so than I think most owners are... he's much more involved than another owner would."

This quote comments on Steve Ballmer's unusually high level of involvement in the operations of the Clippers, which is atypical for team owners.

"He employed a similar strategy to the one that he employed at Microsoft for M&A in making an over the top bid for Skype to just end all negotiations."

The speaker draws a parallel between Ballmer's aggressive acquisition strategy at Microsoft and his approach to purchasing the Clippers, characterized by making a significantly higher bid than competitors.

• Both Steve Ballmer and Mark Zuckerberg are aggressive acquirers, but their styles differ significantly.
• Zuckerberg is described as a "silent killer" with generally good judgment, while Ballmer is loud, boisterous, and enthusiastic.
• Ballmer's personality and approach bring a unique energy to the Clippers, impacting the team's culture and public image.

"Bomber is a very, I wouldn't say that his judgment is bad, but he takes a very different stylistic approach to being an aggressive acquirer."

The quote contrasts Ballmer's acquisition style with Zuckerberg's, highlighting Ballmer's more public and enthusiastic approach.

"He just oozes enthusiasm, and that's what he's bringing to the Clippers."

This quote encapsulates Ballmer's infectious passion and how it translates into his management of the Clippers.

• Doc Rivers holds a dual role as the head coach and president/GM of the Clippers.
• This arrangement is uncommon and could lead to a division of focus and responsibilities.
• Ballmer's decision to give Rivers this power reflects his own management style and could have implications for the team's operations.

"Balmer gave Doc kind of all of that power as coach and president."

The quote explains the unique organizational structure of the Clippers under Ballmer's ownership, with Doc Rivers holding significant power in both coaching and management roles.

• The sports industry is experiencing business model innovation, particularly in basketball.
• The traditional business model, heavily reliant on TV and advertising, is being disrupted by streaming and direct-to-consumer offerings.
• NBA franchises are increasing in value due to the potential for direct revenue streams and the limited number of teams.
• The NBA is innovating both in the front office with analytics and on the court with dynamic gameplay.

"There is business model innovation that is happening in sports right now."

This quote identifies the ongoing transformation within the sports industry, where traditional models are evolving to incorporate new revenue streams and customer relationships.

"The ability for Major League baseball charges... for this incredible product where you can stream any game at any time, anywhere in the world."

The quote highlights the successful implementation of direct-to-consumer streaming services by Major League Baseball, setting an example for other sports leagues.

"The leagues... are starting to realize that they can cut ESPN right out of that and make both the advertising money, 100% of it. And the subscription money."

This quote discusses how sports leagues are beginning to bypass traditional broadcasters like ESPN by offering their own streaming services directly to consumers, capturing both advertising and subscription revenues.

"The NBA's broadcast rights are getting more valuable."

The speaker notes the increasing value of NBA broadcast rights, likely due to the unique position of live sports in an era of cord-cutting and on-demand entertainment.

• The NBA's willingness to depart from tradition is seen as a potential driver for innovation across other sports.
• There is a belief that conservative traditions in sports like baseball and football prevent the adoption of statistically supported strategies.
• The hope is that other sports will follow the NBA's lead and embrace innovation for positive fan reactions.

"I hope these other sports, and managers and coaches in other sports at all levels can look at the NBA and say there is so much value and power in not feeling like we have to stick to tradition in the way it's always been done, in how these games are played, and that fans will react super positively and love new innovations."

This quote highlights the potential influence of the NBA's innovative approach on other sports, suggesting that breaking from tradition could lead to positive fan engagement and potentially better strategies.

• The NFL's transformation into a family sport has been a significant change over the past two decades.
• The broadcast focus has shifted more towards entertainment than just the sport itself.
• The Super Bowl exemplifies the NFL's success in becoming a family-friendly event.

"They really turned the NFL into a family sport. It's not the thing that dad does and drinks beer on the weekend with buddies at the game. It's a thing that they've really turned it into a family product where you have people over and the whole family gets into it."

This quote emphasizes the NFL's strategic shift towards making football a more inclusive and family-oriented experience, which has broadened its appeal.

• Concussion liability is a significant concern for the NFL, with no clear resolution in sight.
• Personal experiences of playing football and the associated risks have led to reflections on whether it was worth the potential health consequences.

"The NFL has a huge liability on their hands that I don't see any way out of it with the concussion issues."

This quote points to the ongoing challenges the NFL faces with concussion-related health issues, which could impact the league's future.

• The NBA is seen as a more promising "stock" for innovation compared to the NFL.
• There are concerns about the NFL's ability to evolve beyond its current state, whereas the NBA is viewed as being on the cusp of more significant changes.

"The NBA is more the stock that I would buy right now."

This quote suggests that from an innovation and growth perspective, the NBA is currently more attractive than the NFL.

• The NBA's handling of player free agency and management decisions is seen as a test for team owners.
• The ability to adapt and make strategic decisions in response to changes is valued.
• The comparison is made to tech companies and startups, where flexibility and strategic thinking are critical for success.

"The test of a management team and the company is how you react to that. And do you either give up and start heckling your players like Donald Sterling? That's one end of the spectrum. Or do you support your employees and your staff and your team and make the decisions sometimes hard to continue to do your best to put the team out there that's going to win and do that really thoughtfully and strategically."

This quote compares the challenges faced by NBA teams to those of tech companies, emphasizing the importance of supportive and strategic management in the face of change.

• The acquisition of the Clippers by Steve Ballmer is debated in terms of its value as a financial versus personal decision.
• Ballmer's acquisition is seen as a potentially fun and fulfilling personal venture due to the rarity of such opportunities.
• There is criticism of the lack of a true president or GM in the Clippers' organization, which could affect the team's future success.

"Was this a good decision for Steve Ballmer to acquire the Clippers? And I think that the guy had $20 billion and the rest of his life in front of him. And I had another friend bring up this idea that it's incredibly rare that an opportunity like this comes on the market."

This quote discusses the personal aspects of Steve Ballmer's decision to acquire the Clippers, considering the unique opportunity and the potential for enjoyment it offers.

• Instagram Stories has surpassed Snapchat in daily active users (DAU).
• The definition of DAU is clarified as the portion of the user base that uses the product on any given day, not necessarily every day.
• The growth of Instagram Stories is a significant development in the social media landscape.

"Instagram Stories now has more than 200 million Dau, which is more than all of Snapchat."

This quote highlights the milestone reached by Instagram Stories, overtaking Snapchat in terms of daily active users.

• Starbucks' IPO was successful in part due to consistent financial performance and growth in same-store sales post-offering.
• The metric of average same-store sales growth is identified as a key indicator of success for expanding chains.

"One reason that the Starbucks IPO is so successful that we didn't really touch on in grading. It is because they delivered on a consistent basis financially for many quarters after the offering."

This quote attributes Starbucks' successful IPO to its ability to consistently deliver financial growth, setting a benchmark for evaluating other similar businesses.

• The podcast 'Pop Race' explores the cultural impact of 60s music and its connection to race and society.
• The influence of 60s music extends beyond entertainment, with parallels drawn to the tech industry's roots in the counterculture movement.

"It's called pop race in the it's by Jack Hamilton, who's a professor at UVA, and he interviews folks. It's only six episodes. It's a short series, but it's great."

This quote introduces the podcast 'Pop Race,' which delves into the cultural significance of 60s music and its broader societal implications, including its influence on the tech industry.

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"Crusoe's cloud is purpose built for AI and run on wasted stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."

This quote explains Crusoe's unique selling point as a provider of AI cloud services powered by otherwise wasted or clean energy sources, offering both environmental and financial advantages.