The NBA's $5 Billion Franchise

Billionaire Philip Anschutz has agreed to sell his 27% minority stake in the Los Angeles Lakers, valuing the NBA franchise at $5 billion.

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Friends,

When it comes to the past, present, and future of major US professional sports, there are few people more influential than Philip Anschutz.

The son of an oil tycoon who also owned thousands of acres of farmland across Colorado, Utah, and Wyoming, Philip Anschutz has built up a fortune worth north of $10 billion by dominating a wide array of industries, including real estate, land ownership, railroads, and oil.

But, perhaps more impressively, Anschutz has strategically invested his $10 billion fortune, building the world’s largest sporting & music entertainment company — the Anschutz Entertainment Group (AEG).

Here’s an overview of a few AEG assets.

Arenas & Stadiums

  • Staples Center (Los Angeles)

  • The O2 (London)

  • T-Mobile Arena (Las Vegas)

  • Dignity Health Sports Park (California)

  • Accor Arena (Paris)

  • Mercedes-Benz Arena (Shanghai)

Sports Teams

  • LA Kings (NHL)

  • LA Galaxy (MLS)

  • LA Lakers (NBA)

  • Immortals (esports)

Music Festivals

  • All Points East (London)

  • Coachella (California)

  • Firefly (Delaware)

  • New Orleans Jazz & Heritage Festival (New Orleans)

Hotels

  • JW Marriott (Los Angeles)

  • The Ritz Carlton Hotel (Los Angeles)

The craziest part? As a founding member of Major League Soccer, Philip Anschutz once owned 6 MLS franchises concurrently — the LA Galaxy, Chicago Fire, Colorado Rapids, Houston Dynamo, San Jose Earthquakes & D.C. United — and not only reportedly lost millions of dollars to help the league get started but was instrumental in developing the profitability model that most teams employ today.

“Without Phil Anschutz, there's no MLS today.” — MLS Commissioner Don Garber

But now, Anschutz is in the news again after reaching an agreement to sell his 27% minority stake in the NBA’s Los Angeles Lakers.

When it comes to NBA valuations, we all know the story by now. League-wide media rights have surged to almost $3 billion annually, which, combined with growing arena & merchandise revenue, has caused NBA franchise valuations to increase dramatically.

Worth an estimated $367 million in 2011, the average NBA franchise is now worth about $2.2 billion — a compounded annual growth rate of almost 20%.

Furthermore, only 8 out of the 30 NBA teams were profitable in 2011, with the average operating income per team sitting at $6 million. But, fast forward 10 years, and every single NBA franchise is now profitable, with an average operating income of $62 million.

Avg. NBA Team Operating Income

  • 2011: $6 million

  • 2012: $12 million

  • 2013: $24 million

  • 2014: $23 million

  • 2015: $30 million

  • 2016: $31 million

  • 2017: $52 million

  • 2018: $61 million

  • 2019: $70 million

  • 2020: $62 million

But that only tells part of the story.

Most of the increase in NBA franchise valuations has been driven by big market teams — the New York Knicks, Golden State Warriors, Los Angeles Lakers, and more — with the six most valuable teams representing nearly two-thirds of the total franchise value gains.

A simple comparison between the operating income of the Los Angeles Lakers and the NBA’s average franchise highlights the growing disparity.

LA Lakers Operating Income

  • 2011: $24 million

  • 2012: $47 million

  • 2013: $66 million

  • 2014: $104 million

  • 2015: $133 million

  • 2016: $119 million

  • 2017: $136 million

  • 2018: $147 million

  • 2019: $178 million

  • 2020: $155 million

Even more interesting? After experiencing the best decade of franchise valuation growth in NBA history, minority owners across the league now seem willing to cash out.

Arctos Sports Partners, a private equity firm with about $1 billion in assets under management (AUM), purchased a 5% minority stake in the Golden State Warriors in April — valuing the team at $5.5 billion.

And now, according to Sportico, after watching the LA Lakers valuation exploded from $640 million in 2011 to $5 billion today, 81-year-old billionaire Philip Anschutz has agreed to sell his 27% stake in the franchise.

The transaction values the Lakers at about $5 billion and is being acquired by Los Angeles Dodgers owners Mark Walter and Todd Boehly

The Anschutz Entertainment Group (AEG) still owns the Staples Center, and the Lakers just extended their lease for another 20 years, so Philip Anschutz isn’t necessarily going anywhere.

But, for me, it’ll be more interesting to see if this becomes a trend.

Given the NBA now allows institutional funds to purchase minority stakes in multiple NBA franchises, the pool of potential buyers has grown. Does that enable more minority owners to take chips off the table after a decade of record growth?

Early signs would indicate that’s possible, but the next 12-24 months will be more telling.

Ps. Anschutz’s minority stake comes with the right of first refusal to buy any additional shares that come to market, which will transfer to Boehly & Walter upon purchase.

Have a great day, and I’ll talk to everyone tomorrow.


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