What the Houston Rockets’ $2.2B Sale Tells Us About The NBA’s Future – The Clubhouse – a blog by Menlo House

Leslie Alexander purchased the Houston Rockets in 1993 for $85 million. While the ownership has been a successful one — Forbes named Alexander the NBA’s best owner in 2008 — he decided this year would be his last as the team’s owner. He will get quite a payout for his time served, as it turns out.

The former bond trader has announced he will sell the franchise to Houston billionaire Tilman Fertitta for $2.2 billion, a new NBA record and over 25 times more than what he paid for the team. It’s a staggering sum, but one that Alexander has earned through consistency on the court (21 winning seasons in 24 years) and global growth, most notably with the organization’s willingness to draft the league’s first Chinese star, Yao Ming, in 2002. While Yao was unable to bring another championship to Houston, he led the Rockets into uncharted waters: the massive Chinese market.

Fertitta, who attempted to purchase the Rockets in 1993 but lost to Alexander by $4 million, will now take over the franchise with the intention of continuing its upward trend. Working in his favor is the city’s growth — Houston is the fourth-largest city in the U.S. and should continue to expand even after Hurricane Harvey — a favorable demographic, international airport and a superstar-laden roster with James Harden and Chris Paul.
Image via Bleacher Report

According to Forbes‘ February estimations, the Rockets were worth $1.65 billion, just eighth-best in the league behind the New York Knicks ($3.3 billion), Los Angeles Lakers ($3 billion), Golden State Warriors ($2.6 billion), Chicago Bulls ($2.5 billion), Boston Celtics ($2.2 billion), Los Angeles Clippers ($2 billion) and the Brooklyn Nets ($1.8 billion). While it would appear that Fertitta overpaid for Houston, with the franchise pulling in $250 million a year in revenue and $65 million in profit, $2.2 billion is not an outlandish offer. Especially when you consider the upward trajectory the league as a whole is on.

Last year, the NBA signed a nine-year, $24 billion media rights deal with ESPN and Turner Sports. The contract effectively tripled the amount each team received; from $30 million to $90 million. The league’s deal with the player’s union, which keeps labor costs at around 50 percent of revenue, is also encouraging when considering its future.

None of this information is lost on current and prospective league owners. That includes Nets owner Mikhail Prokhorov, who, after failing to sell a minority stake in the franchise, plans to sell a controlling stake in the team. According to the New York Post, Prokhorov is considering a two-part sale that would allow someone to buy a minority piece of the team and then acquire the entire franchise within the next three years. While the team is still expected to lose money — and plenty of games — next season, the 52-year-old Russian billionaire believes he can sell the Nets for roughly $2 billion.
Image via Bloomberg

The Memphis Grizzlies, estimated to be worth $790 million by Forbes, may also be sold soon, as Grizzlies minority owners Steve Kaplan and Daniel Straus will be eligible to purchase control from majority owner Robert Pera in October. The Rockets’ sale could push a potential Memphis sale near $1 billion. Not too shabby for a team in the 42nd-largest metropolitan area and 50th-largest media market in the country.

The NFL remains the king of American professional sports leagues, but the NBA is steadily rising up the ladder. The futures of the two sports may be on opposite trajectories, as well. With every concussion, football as it’s currently played is drawing closer and closer to extinction. NBA players, meanwhile, are commanding piles upon piles of guaranteed money in their contracts due to the smaller risk of career-ending injuries in basketball. The largest amount of guaranteed money on a contract in the NFL ($60.5 million) dims in comparison to the NBA’s largest ($201 million). While elite American athletes will continue to play football, those figures could sway more towards basketball at a younger age. Football, while immensely popular in America, is not played by anywhere near as many international athletes as basketball, either.

Yes, it’s safe to say Fertitta is not the only NBA owner grinning these days.

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