Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.
Mon, 24 Apr 2017 06:30
Okay, I have this great great curve out. I don't know what it's called, but it's you should go and download it and paint it right down the title. I wanted to make sure I got it right. Welcome back to episode 36 of acquired the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. David Rosenpill. And we are your hosts. Today's episode David and I are venturing away from technology into the world of sports. We'll be talking about Steve Balmer's 2014 purchase of the Los Angeles Clippers. So for full disclosure here, David and I are not huge NBA fans. Well, maybe except for my unapologetic bandwagon fanhood of the calves and LeBron James. And I got to admit the warriors are pretty fun to watch. Yeah, well, they're changing the game. So it's deaf carries awesome. But we do love digging into the analysis of any acquisition and there's no shortage of writing an opinion on this one. And we're going to be doing some episodes on the overlap of sports and tech in the near future. So we figured we would dive in just absolutely headfirst and kind of force ourselves to do all the research. And thanks to many acquired listeners and many of David and my friends who we called in to get their kind of like hardcore sports opinions on on all this. Yeah, open invitation listeners to get in touch with us by email or jump in the slack and tell us where we went wrong. But but we think this will be really fun. We've done a bunch of kind of serious more hard hitting episodes in a row. And we wanted to do something light. And given that the NBA playoff start literally today, we thought this would be a fun one. Yeah, and I think, you know, this was a $2 billion purchase by Steve Balmer. And anytime there's a $2 billion transaction going on involving Steve Balmer, right involving Steve Balmer, you know, whether it's sports or airlines like we did with the the Virgin Alaska acquisition or any of our, you know, standard tech wheelhouse. We can definitely apply the acquired methodology to it and get some good discussion in. So a few things before we dive in, the lifeblood of the show is iTunes reviews. So please help us grow the show and if you're so inclined, leave an iTunes review for us. We also have a slack and we are close to 600 people. So if you enjoy doing analysis of any tech event, there's there's people and they're talking about M&A events about IPOs, about new product launches, about Star Wars trailers coming out. If if you want to talk with other nerds about this sort of stuff, we are all hanging out in the acquired slack, which you can join at acquired.fm. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founder. So we knew there's a natural fit. We know the host of founders. Well, David Senra, hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together and then they say it's like the best curriculum for founders and executives. It really is. We use your show for research a lot. I listened to your episode of the story of Akiyama Rita before we did our Sony episodes this incredible primer. You know, he's actually a good example of why people listen to founders and so acquired because all of history's greatest entrepreneurs and investors they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research. But I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them because in my opinion, the greatest such a printer to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die, but the ideas never do. And so Edwin Land had passed away way before the apex of Apple, but Steve was still able to use those ideas and now he's gone and we can use those ideas. And so I think what acquired is doing what a founder trying to do as well is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well, listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. So now without further ado, David will you take us into the story and the history and facts in the wide world of sports. So the Los Angeles Clippers were actually founded as the Buffalo Braves, Buffalo, New York in 1970. They were one of three expansion teams to join the NBA that year. And they had modest success in the first year, but in some foreshadowing of things to come for the team and some challenging decades ahead. They were obviously in Buffalo. They found it hard to schedule home games in the first couple of years because there was another basketball team in town. The canisys golden griffins, the well-known and world famous golden griffins. Oh yeah, it's just like very similar to their rivalry now with the Lakers where you know, they're like, you know, Lakers, Griffins, Clippers, both trying to draw millions and millions of people to their their their their well. The golden griffins had pre-existing rights to priority on games in the arena in Buffalo. And they were worried about the Braves kind of threatening their popularity in town. And so they would always schedule all the best dates at the arena. And as such, the Braves couldn't really develop much of a fan base. So this was a problem. And the team after just a couple years gets sold to the then owner of the Kentucky kernels, which I believe is a basketball team, was a basketball team. John Brown, Jr. And he really wanted to move the team for obvious reasons. And so we decided to do in further foreshadowing of things to come for the the hapless Clippers, future Clippers. He basically just decimated the team's roster, treated away all the stars, and and as a result, attendance plummeted and basically nobody came. And that was all his goal so that they could they could break the lease and move out of town. So a couple more years go by. And in 1978, Brown actually did he swathe only in the 70s could something like this happen. He just trades ownership with the owner of the Celtics. So Brown takes over the Celtics and Erv Levin who lived in Southern California and owned the Celtics at the time. He wanted to move the Celtics to Southern California. But the NBA wasn't going to let that happen. Levin takes over. What I saw that they moved to become the San Diego Clippers, but it was via just an ownership swap with the Celtics. Everybody's happy. And and Levin takes over the Braille's Museum to San Diego where they changed the name to the San Diego Clippers because of the impressive sailboats that would would dock and sail through the Bay in San Diego. So thus the Clippers are born or reborn. So that was in 1978. But the team unfortunately didn't get much better. And in 1981, the team still struggling and a Los Angeles lawyer and real estate developer by the name of Donald Sterling, the infamous Donald Sterling. We don't really talk much about like we don't really we're not in the business of making judgment calls on people's character here on acquired. But this one's pretty in ambiguous that Donald Sterling is is basically a horrible human being. Yep. And it is incredible how long it took for that to come to light. Listeners will get into this. But despite lots of rumors and allegations over the years, he sort of managed to scoop by Scott free after it being quite clear. He was a huge racist. Yeah. Well, we'll get into it. And the crazy thing is like everybody knew, but he just still owned the Clippers. Anyway, he buys the Clippers in 1981 for 12 and a half million. And this was also I thought hilarious in the introductory news conference in San Diego where where he announces he lives in LA, by the way, that he's buying the Clippers. He vows to spend quote unlimited sums to build the Clippers into a contender. He later becomes famous for like spending no money on the Clippers on on players. You know, it seemed to plague their entire existence. Yeah. And then he launches an advertising campaign in in San Diego where he puts he puts his face, Donald Sterling's face on billboards and on buses around town with a quote under it saying, my promise, I will make you proud of the Clippers. Yeah, that's what every fan of every sports team wants to see a gigantic picture of the owner's face. Yeah. Nailed it. Know your audience. Well, the owner is Steve Bomber then maybe, but so that honeymoon doesn't last long. And in 1984, he just up and moves the Clippers to LA against the MBAs, wishes he basically does it illegally by the the the leagues bylaws. And and the way he gets around it is he just sews the league. The league, you know, finds him a huge amount of money and he's like, okay, fine. I'm going to sue you. And so he sues them for $100 million and they stand down and they they reduce the fine to him for for basically stealing absconding with the Clippers from San Diego and moving them up to LA. Boy, storied franchise, right? Like all this, all these moves, ownership trades, ridiculous lawsuits. Sounds just like a tech company. Yeah. Right. But boy, seeming more and more a perfect fit for a choir than we thought then we thought then we thought so from there, we can basically just fast forward through the next 30 some odd years because they didn't do very well. Yeah. They they they so they go to the playoffs four times in the next 25 years, which is pretty bad. And actually in the whole so sterling owns the Clippers from 81 until 2014 when this horrible event happens that we're about to describe the Clippers actually have the worst winning percentage of any team in any major American sport, which is which is incredible. Boy, that's a feat. That's like, yeah, that's that's more like statistically difficult to achieve than mediocrity. It's you have to work really hard to be that bad. In 2009, ESPN names the Clippers, the worst franchise in professional sports and sterling, you know, continues his sterling reputation for being a horrible human being. He actually get this, you know, he's the owner right he has courtside seats to every game. He at some point in the 2000s, late 2000s just starts heckling his own players clasps like Lee, but like for his own team. You can't make this up. Class act. I mean, honestly, it's it's incredible that they played on the same floor at the Staples Center is that that the Lakers did franchise like that. Like it's a privilege to get to play in the Staples Center and that's what they did with it. Yeah. So after the the Staples Center is built in the early 2000s, the Clippers share it with the Lakers, but again, the Lakers are the marquee team. They have the least and so just like just like back in back in Buffalo, they can't get the good dates and they're basically just the second, you know, not even the second. They're pretty far down the list of things to do in LA as far as sporting events go, but then magically really against despite all of Sterling's efforts to continually sabotage the team in the early 2010s, things actually start to get better. So they through a combination of some good draft picks and good trades, they get Blake Griffin, DeAndre Jordan and Chris Paul. They actually start to build a pretty good team and in 2013, they win the first division title in team history and are off to the playoffs. Yeah, things are looking up for the Clippers. It seems like they've got momentum on their side. Maybe the organization finally is working in lockstep on the business side. After all these years and the woods, you know, and actually this is when what's their coach's name? Doc, Doc River is in as to coach the team, right? And he's also what president of basketball operations. I think that's right. I'm not sure if the dates are, if it was that year that he was in it, which leads into the next season, after their sort of best season and perhaps ever in 2013 for the first time they win the division title. At the end of the 2014, they have another good season. They're bound for the playoffs. And then on April 25th, 2014, the LA News Channel and website TMZ releases a bombshell, a taped phone conversation with Donald Sterling and between him and his mistress, he's married but estranged from his wife and his open relationship with a mistress. Again, Gem of a human being here. And as Ben mentioned, it was sort of known but swept under the rug that Sterling had been really racist for a very long time. This phone conversation TMZ releases in which he reprimands his mistress for posting an Instagram photo with her and Magic Johnson. And he reprimands his mistress for posting this photo with, you know, good, this is a quote here, broadcasting that she is associating with Black people and that he did not want her to bring them to the team's games. This guy's off his rocker. Dispicable in every sense. But he's NBA owner and this is a photo with Magic Johnson, you know, Hall of Famer, Magic Johnson. So needless to say, this is not going to end well for Sterling. No, no, you know, as you can imagine, the NBA is not too pleased about this. No, nobody is pleased about this. So in fact, in fact, this is awesome. The Clippers players are so displeased about this that on the 27th, so this comes to light on the 25th, on the 27th, they warmed up for their playoff game on Sunday afternoon against the Warriors with their, their shooting shirts worn inside out to obscure the team logo to not represent Donald Sterling and sort of the logo that he owns. Yeah, it's incredible. And that was they decided to do that. They considered before they decided to play the game, they considered boycotting the game. And for fitting the game, which was, you know, a playoff game and a playoff game for the Clippers is such a huge, huge event. Yeah, you got to imagine the teams like, no, we've worked, worked way too hard for this to, you know, but that's how serious, you know, this was obviously, you know, sponsors, most of the major sponsors with the team, you know, announced they were severing ties. And then really, you know, the NBA handled this horrible situation as well as you could commend the foreign and Adam Sterling, the commissioner, I think deserves. Adam Silver. Adam Silver, sorry, yes. Adam Silver, the NBA commissioner at the time and still currently deserves huge credit for this. So less than a week later on April 29th, after an investigation that the NBA launched right away, the NBA issues a lifetime ban of Donald Sterling from the game and finds him $2.5 million bars him from attending games, practices, any event involving any NBA team bars him from being present in any Clippers office or facility from and from participating in any team business, player personnel decisions or any league activity. And that $2.5 million fine is the maximum allowable fine by the NBA. You could imagine that could be much higher if there wasn't guidelines there. Yeah, absolutely. And then in a press conference, following announcing this ban, Adam Silver, the commissioner states that he is he is planning and he will try to force Sterling to sell the Clippers and that they are basically going to kick him out of the league, which the league can do with a three quarters vote of the other 29 team owners, which they do. Yeah, that's super interesting. And I, you know, I think I remember, so when this all went down, I remember reading about it briefly, but diving into all the details has been super interesting to understand how the mechanics of all this go down. 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, you know, in this case, a three quarters vote like yes, you own that team, but if three quarters of the other owners don't want you to own that team, then you don't get to own that team. Yeah, feel like if there were like a social network council that, you know, if Snapchat or Instagram did something horrible and Facebook and Google and Twitter could could make them sell the company. And this is so this is now where we sort of pick up from the acquired standpoint and where things get interesting. So obviously, this is a distressed sale. You have a terrible situation going on. Well, you would think it'd be a dislike. Okay, I will get more into this, but like it should it should be a little tight. It's right. It's right. It's like a fire sale. Fire sale team has to get sold. It's the Clippers, right? I mean, they're they are literally the joke, the punchline of every joke about being a bad team is like, well, at least year, you know, not as bad as the Clippers. You would think that this is going to be like the Cleveland Browns at basketball. Even worse, you would think this would be a fire sale, but there are quite a few people who are interested in buying the team, including reportedly Oprah Winfrey, Floyd Mayweather, Magic Johnson himself, several other bidding groups, and Steve Bomber, our hero. He is also very interested. He has, at this point, left Microsoft retired as CEO Satyana Della has succeeded him that happened just a couple months earlier in February of 2014. And Bomber has been a lifelong basketball fan. Twice in Seattle, he tried to first save, be part of a group to save the Sonics from leaving Seattle a dark, dark day in Seattle history when the Sonics left to become the Oklahoma City Thunder right after they drafted Kevin Durant too. Terrible. And then once more as part of another ownership group that attempted to buy the Sacramento Kings and move them to Seattle. So this is Bomber's third bite at the Apple to own an NBA franchise and he is not going to be denied in true Steve Bomber fashion. To be a Homer here, it's such a shame that he couldn't get it done in Seattle. I mean, I really thought that that ownership group to move the Kings up here and build a new son Xerina was going to happen. But well, you know, shed a tear. I think if there's any solace, it's that it does seem to be at least according to Bill Simmons, the Oracle and all such matters. I think there's a good chance that Seattle will get an expansion team at some point in the next couple years, which it absolutely deserves. Yeah, still a basketball city. Yeah, people love the sonics. You see people wearing Sonics gear all over the place still. So Steve comes in with a pretty over the top bid. So Forbes magazine does an annual valuation of all and it's just, you know, numbers they make up, but it's kind of the best source of valuation of sports franchises across all all sports. And they have that year valued the Clippers at 575 million, which was 13th in the NBA and well behind the number one valued team, the highest valued team, which was the next in New York, which they had at 1.4 billion. So bomber comes in with a bit of two billion. So not just it's amazing how much the market matters, right? Like, it's the Clippers. Now, I mean, for sure they've gotten some great players recently. They've started having some momentum, you know, Blake Griffin, Deandre Jordan, Chris Paul, but like, there's still the Clippers in the Lakers market and they're, you know, in the top half of the NBA teams because LA is just a ridiculous market. Yep. Yep. And, and but this kind of blows everybody out of the water. No NBA team had ever sold for anywhere near that amount of money. The Milwaukee Bucks had sold earlier that year for 550 million. So, you know, just over a quarter of that purchase price. And at the time, everybody was pretty astounded by this. Yeah, I think that it's it's three and a half X, the largest ever price tag for an NBA team before. And it's really interesting to note that, you know, this all sort of started happening recently where when you look at, you know, my comp for everything is is the calves. When you look at, no, for listeners, if you, if you aren't long time listeners, or don't know Ben, regardless, he is, he is a proud Ohio native. That's right. That's right. Cleveland till I die. So, Dan Gilbert bought the calves for 185 million. But that was in 2005. And so, when you start to look at like the escalating price tag of NBA franchises, it's all been in recent years. And it's something that I kind of want to get to later in this episode and try and dissect, you know, why is that happening? The why is, you know, any NBA team potentially a good pick up right now because of the direction and the growth of the league. Absolutely. Well, this is, you know, again, at the time, people, which was only a couple years ago, three years ago now, people thought Bomber was crazy. And so we'll dive into that. In a minute, but, but just to wrap up, the Clippers have continued their, you know, if not dominance, not being the Clippers of, of, you know, of old. At this point, they are in the playoffs again this year. So, their sixth straight year going to the playoffs after only doing it four times in 25 years in California. And it's their fifth straight year with over 50 wins in a season, which is pretty great. I mean, at this point, they are, they are one of the best teams, certainly in the Western Conference, if not in the whole NBA. Well, so I think I have a little bit more bearish take on this. We'll end up getting to this in the way that we grade the acquisition. But I mean, they have incredible starting five, like they've done a nice job, especially with Bomber ponying up to, to retain DeAndre Jordan. But there's no depth to that bench. Like there's not, they don't, their whole roster is not filled out with stars. And what I want to get to too is, you know, why is that the case? Why haven't they made the right, the right player moves throughout the league to make that the case? And then on top of that, like they still haven't made an appearance in a Western, Western Conference final. So like it's, it's definitely the story of incredible, you know, starting players, no depth. Yeah, that's not yet. But like, yeah, yeah, they're definitely not a winning team yet in terms of playoff appearances and, you know, finals appearances. So just to wrap up the history and facts, just recently this year, the 2017 version of the Forbes NBA franchise valuations came out. The clips are up to number six, but still at two billion, the same mark, the same price that Bomber paid for them three years ago. But the rest of the list is pretty interesting. So the next are still number one. And remember in 2014, they were 1.4 billion, I believe. And yeah, in 2014, they were 1.4 billion. They are now valued at 3.3 billion. So for all the other owners in the league, this one's a pretty nice mark. They're all pretty happy right now. Yep. Yep. And I want to make a few points where we're still in acquisition history and facts. The, this is like a, I just have to read this, this clip to, to underscore what a ridiculous transaction this was when Steve bought the team from the sterlings. As part of the deal, Shelley Sterling gets the titles of owner emeritus and Clippers number one fan as well as 10 tickets in section 101 or 111 for all Clippers games, two quartside tickets for all games in Los Angeles, six parking spots and lots see for each game. 12 VIP passes that include access to the Lexus Club arena club or chairman's lounge and media room or equivalent for each staples games, three championship rings following any Clippers title and will run a yet to be named charitable foundation. So like, what, why is that part of the transaction and why does she get Clippers rings like or champion? She is, she is Donald Sterling's estranged wife for, I don't know if we clarified that earlier. And she kind of ran the sales process on the behalf of the team because, because Donald himself actually, you know, was super resisted and ended up suing the NBA, suing everybody involved. But fortunately has pretty much written off to the sunset at this point. Yeah. Yeah. And I think it's really worth like, to me, a big sticking point of this whole transaction is it should have been a fire sale. It was under intense duress. There was still incredible bidding for this thing. And they, you know, and bomber paid almost 4x the highest transaction ever for, you know, six parking spaces in perpetuity. That's right. That's right. And think about the diamonds on those championship rings, you know. But the thing that sticks with me about that is it's a limited supply thing, right? Like, this is a team in a major market with a sport that has risen dramatically in popularity. And in 2014 looked like it was only going to continue to have more lucrative TV deals to come. And that leads itself to, you know, that with incredible supply constraint, that there's more, there's a lot of five plus billionaires out there that would like to own a team. And there's a very limited number of big market teams that they could own. So in considering this, I mean, in grading this acquisition later, like one thing that we should keep in mind is whether or not it's actually the, you know, the best place to park your money, it's a very exclusive club of people that own teams like this. And not every billionaire can get in. Yeah. And it actually reminds me a lot of the other non technology, one of the other non technology episodes we've done on this show, which was Alaska buying Virgin America. And what we realized in that show is how important the the quote unquote real estate of of gate access and gate control at airports was and there's just a limited number of gates at airports. And that was probably the biggest reason we concluded why Alaska bought Virgin. And it's a similar situation here. There's just limited real estate. Yep. And they don't often come up for sale. Yep. And and a bunch of other themes that we'll we'll get into later in the show. But yeah, here's here's another thing that I found really interesting in the Forbes list. I would not have projected this at first. And it started to make more sense when I was thinking about it. But NBA teams on average, I mean, this is kind of eyeballing I should I should crunch the numbers. But it looked like the valuations of these teams are about 10X their revenues and about 15X their operating income. And for anybody who's building a software business, you know, you're thinking, Oh, my SaaS business is probably going to get like a three to five X revenue multiple. Or my I guess I just I just wouldn't have expected that these sports teams would like have a 15X operating income multiple. And in kind of talking through it with with other friends before this show, it kind of makes sense because you would think like, Okay, what am I sure that this B2B SaaS company is going to be around in 15 years? No. Am I pretty sure that this NBA franchise is going to be around and generating somewhere in this neighborhood of of operating income that it is right now, give or take 20% yes, like this is such a sports franchises are such an enduring part of the fabric of a city in the fabric of of American culture that, you know, we just trust that these things are going to continue to be around and continue to be popular. Yeah. When I think there's another really key element to analyzing this transaction, which we will let's get into now and we can continue to discuss throughout the show, which is growth. Right. I mean, when you're talking about multiples, you know, multiples, whether it be of, you know, of of EBITDA or operating income or revenue, what they really are in terms of valuations is is a proxy for, you know, you're expected cash flows over the future, you know, the discounted cash flows in the future, which is the theory of how you how you value companies. And multiples are just sort of putting your finger in the air and guessing, you know, kind of how much growth you're going to have in your cash flows over the next several years and how much that's going to be worth to your bottom line in terms of the valuation of the company. What's really interesting is the growth in the MBA over the last few years and how much and I wish I had harder numbers on this. I don't maybe I don't know if you do better or if our listeners do, um, hopefully we can, uh, we can pop into the Slack after and chat with listeners. Yeah. Hop in the Slack. But, um, to me, the most interesting part of this storyline is that the MBA has emerged really since bomber acquired the Clippers. Um, I don't think this is causal, but maybe he might have seen this as I think the most innovative sports league, uh, sports in the world and that has been experiencing the most growth and experiencing the most growth among young viewers, uh, which is the future. The data I do have is that according to Nielsen, um, the MBA has the youngest audience of any of the major sports in America and has almost half of its viewers under 35, which is, you know, definitely not the case with with baseball is probably the oldest, um, but not football, not hockey. There is a lot of growth happening in the MBA right now and it'd be fun for us to dig into why. Yeah, I mean, it's, I, I'd caveat all this with, uh, the youngest age and the fastest growth of any physical sport. I'd say, uh, uh, League of Legends encounter strike. Well, um, but, yeah, I think I'd love to, I'd love to do a future episode on, on eSports, but we'll scope it to a traditional sports for, for this episode. Yeah. I think, yeah, that, that makes a lot of sense. So Ben acquisition category. Yeah. Um, this is a business line. I mean, it's, it's like, it's kind of hard to fit our, our, yeah, what I'm going to do it like it's, it's, it's, I mean, you could argue as asset. Yeah. Yeah. And actually from a, um, technical perspective, uh, the way that you see if I can find this is a quote from, I think it's a Forbes article. Mr. Balmer, 58 is likely to enjoy a significant personal financial benefits. When an investor purchases a sports team, he can attribute a large part of the purchase price to the player contracts he is acquiring as those contracts expire. Their depreciation can offset income. So it kind of is interesting to think about it like you're buying something that largely consists of depreciating assets. Interesting. I, I'm still calling it a business line because I think all the, all the future growth is being able to turn that flywheel of the franchise and leverage that brand to get more players, get more fans and, and turn that flywheel and that, that all is, is part of one, one business line. But, you know, I think, uh, it, it is interesting that from a technical perspective, um, as players age, they are depreciating assets. Yeah. Well, and, um, well, this is, this will lead right into one of my tech themes in a minute. But, um, so we stopped for a moment on what, what happened otherwise. I mean, it was clear the sale was going to happen. Um, and, uh, uh, wait, we're, we're real quick. Are you saying business line also? Um, am I saying business line or asset? Um, yeah, I think I'll say, I'll, I'll say business line because I think these are, you know, sports teams traditionally have been viewed as assets. You know, you don't buy sports teams to make money. You know, is, is the, uh, traditional view on the space. It's billionaires who want to play and, and have fun and have a retirement gig. Um, but I think that might be changing, you know, I mean, with the growth and, and the tech names we'll talk about, um, I think there's a bright future ahead for, for sports franchises as businesses and as global businesses that we'll get into in a minute. So yeah, business line. Cool. Um, it, moving into what would have happened otherwise, I think we should, we should focus more on the team than on what Steve Balmer could have done with his money. But it is interesting that, uh, according to that Forbes list at least, um, you know, the, the, the business hasn't appreciated it all. And if, uh, he had just parked it in an, uh, an S&P index fund from that day that he bought it until today, the day that we were recording, it would have been a 20.8 percent return. So like you're saying, at least in, um, in, in the short term so far from what we can see in terms of actual appreciation of, uh, of the estimated value of the asset that is the team that he bought, um, you know, not the best place to park your money for an investment. Yep. All right. So we move on into tech names? Yeah. I mean, it's probably a worth what would have, uh, what, one thing that I also had in what would have happened otherwise is what is Steve Balmer done for the team that another owner couldn't? Like what if it did, you know, fall into the hands of another, another bitter, like would we, would we see the diving save to, to, to resign DeAndre Jordan and stop him from, um, going to the Mavericks? Like would we see, I think one thing that's interesting about, you know, potentially advantageous for the clippers of, of having Steve Balmer own the team is that number one, he's ridiculously involved and much more so than I think most, most owners are and probably maybe even to a fault. But I'm just being too experienced like the Microsoft. No, no, I'm not. I really think, um, this was chatting with someone that has a, uh, close friend in the, uh, in the clippers organization and, uh, just, just that it was a little like disruptive in the, the, the, the operations the business money took over that he was just involved in, in so much of it. Um, so, you know, for better or for worse, he's much more involved than another owner would be. But he also, he, he employed a similar strategy to the one that he employed at Microsoft for M&A, you know, in, in, in making him an over the top bid for Skype to, to just end all negotiations. Like he did the same thing with the clippers here and in bidding 20% over the next highest bidder. And, you know, the man has 19 billion dollars and this is what he's going to do for maybe the rest of his life. And he has expressed over and over again that he, uh, he has always wanted to own an NBA team, but, um, he had, he, he couldn't because his day job kept him too busy before. And, uh, I think that his willingness to go above and beyond, even when it may not make, like obvious financial sense when you like, where if you really, really dig into it, like he's, he's able and willing to write really big checks because it could have a really big payoff. Like if he can win the clippers, a championship ring, then, you know, he's a total hero. Uh, and he, he may actually, like all this may turn out to be a great investment for him. So I think that one thing to think about is like he, his, um, liberal sort of the looseness with the, the purse strings, especially compared to their previous ownership is really beneficial for the team. Well, it's interesting. Um, you know, bombers, uh, let's talk about bombers personality here for a minute, which we can't end the show without, without talking about, um, uh, but, but I want to talk about bombers personality and compare it to Mark Zuckerberg's, uh, who is, you know, as we've talked about on this show, probably the, the acquirer, the CEO of, of an acquiring company, whose style we've analyzed most on this show. And Zuckerberg is equally very, very aggressive and willing to come in with very high prices. But he's sort of like the silent killer type, you know, he doesn't say a lot, he kind of comes down, he flies down to say he likes to buy Southern California companies or, or try to buy Southern California companies, flies down to the meeting, you know, and he says, you know, hey, well, I'm going to crush you or I'm going to help you and like, you know, here's the number. It's a lot of money. Like, let's get this done. But, uh, uh, but the thing about Zuckerberg, you know, I think with some potential missteps, as far as we talked about on Oculus in the last episode, like he's judgment and, and, and, uh, is generally pretty spot on. He's been right a lot more than he's been wrong with these things. Bomber is a very, uh, I wouldn't say that his judgment is, is bad, but, but he takes a very different stylistic approach to being an aggressive acquirer. He is loud, he is boisterous. Uh, he is, you know, there is, we will link to in the show notes, uh, very famous for his public persona and, um, his developers, developers, developers, developers, developers, chant his, uh, his jumping up and down on stage. And, and that's just him too. I mean, we've, we've both, uh, you know, cross paths with him in Seattle and elsewhere and are, in our travels and, um, you know, you have a conversation with him and he just oozes enthusiasm. Yep. And, uh, and that's what he's bringing to the clubbers. Yep. And one, um, yeah, you're absolutely right on that. I mean, he's, uh, you know, he's still, I think he actually jumped on a trampoline and dunked when they were announcing the new, uh, clippers with mascot. I mean, he still does the, the, the, the standard bomber lean back in the middle of an arena full of people and yell and, you know, fling his arms around and talk about it. I love the clippers. I love this company. I love this company. So good. You know, you know, he's, he's, he's, uh, love and hate him. His, his, uh, passion is infectious. And I think, um, one other point that I wanted to make before moving out of this, what would have happened. Otherwise is, uh, basketball fans will know that we'll note that, um, there's a, uh, uh, not unprecedented, but uncommon thing going on within the clippers organization where, um, dock rivers is both the head coach and sort of the, the president GM role. And typically the, the president GM role handles, you know, um, making the right player acquisitions, signing the right contracts, making the trades, doing a lot of the work on the draft to, to fill out the roster and, and kind of handle the sort of the business of the team and the business of making sure the team is in a place that can win. And then the coach is in charge of, of, of, you know, the, um, actually dealing with the players and the strategy and working with the GM. And in this case, uh, bomber gave dock kind of all of that power as coach and president. And what that probably ends up looking like since he's so involved is bomber making a lot of the business decisions. And then also having, you know, dock potentially split his time too much. So, you know, I would say what would have happened otherwise a different owner may have actually brought in a GM. And, um, you know, and, and added a little bit more depth to the, uh, depth to the roster and potentially just, you know, had a little bit more basketball expertise in there. Yep. Um, but that is not Steve style. It is not, it is not. So, um, let's do it. Okay. So here's my theme for this episode. And, and again, listeners that are closer to the basketball world would love your input. I think this purchase, uh, certainly as we've talked about it, reset the landscape of valuations for MBA franchises. And there is a, you know, kind of real estate component to it, uh, and that there are limited number of MBA teams and a lot of billionaires out there with a lot of time, uh, and a lot of ego. But here's what's really interesting, I think going on in, in sports and, and perhaps perhaps even more so, what's certainly in the, in the game, uh, in basketball more than any other sport right now, there is a ton of innovation happening. And, and I think there is business model innovation that is happening in sports right now in, in American sports for the last 50 plus years, 50, 60 years. There's been this huge and Ben Thompson has, has written about this, this huge symbiotic relationship and, and flywheel between the television industry, the sports industry and the advertising industry, you know, the auto industry, the, um, the beer industry, the, the retailer industry. And, and that has been a very tight coupling where you have sports being the, the biggest TV events, you know, the literally the Super Bowl moments that bring huge scale, mass scale audiences that advertisers of mass products advertise on. And that's starting to break down, uh, today as the internet is pushing farther into entertainment, we've talked about this a lot in our various Facebook episodes and Snapchat, of course, and the opportunity to disrupt TV. But what's happening at the same time over the last few years is in one sense, that's very threatening to the business model of sports because the vast majority of the revenue comes from TV, but they've been developing streaming and direct subscription revenue and direct customer relationships as part of the product on the side. And I think that is a huge opportunity. Um, you know, we've been and I talked a lot about we debated doing this episode on Major League Baseball Advanced Media, which, which changed its name to BAM tech that provides the technology for streaming behind us and, and we want to do a future episode on it. But the ability, you know, for, for Major League Baseball charges, I believe it's $150 a year for this incredible product where you can stream any game at any time, anywhere in the world. And they make so much money off of that from their engaged customer base and have a direct customer relationship. That's a bright future for sports. And I wonder if Bomber came in and bought this team for what seemed like a huge amount of money at the time. But if an as this transition happens, this might be the path for sports teams to become real businesses. Yeah. And I, you know, I don't know exactly why the, um, there's so much more money in the TV rights for these teams than there was five years ago. I mean, one thing I could speculate is that with most shows, uh, people cord cutting means that live doesn't matter as much and that they're down to watch almost all programming on, you know, Netflix, Amazon. Well, to be clear, I think there are two things going on. The TV rights are staying the same or growing as sports are becoming the only thing that people keep their TV subscriptions for. Um, yes. But the leagues themselves on the back of BAM tech are in-derounding, you know, disrupting themselves in that business model and offering these direct subscription packages to customers with this big revenue stream that they still sell advertising on. But now they also, they're basically disrupting ESPN, you know, and ESPN makes so much money is by far the largest and most profitable cable channel on the back of sports. And the leagues, I think, are starting to realize that they can, they can cut ESPN right out of that and make both the advertising money 100% of it and the subscription money. Right. Because in that subscription money, they're commanding more power in the bundle as they are the reason that people want linear television and, you know, want that live experience. And, uh, yeah, so it's, it's, they're, they're winning on two fronts there. Yeah. Yeah. Because the point I'm trying to make is they're still getting the ESPN juice. And they are also like all getting a ton of money from people that are buying league pass who were and those people are also buying cable and paying money to ESPN too, right? So like, these sports leagues for the next couple of years are just going to be raking in the money. Yeah. I think you're right. You know, I had the exact same, tech theme as you on this one. I mean, I think I have a much more high level as just that the, the NBA's broadcast rights are getting more valuable. But I think you nailed exactly why that is. So the one other tech theme I want to cover quickly that I feel very unqualified to opine on other than I see it happening. And it's so fun to watch is how the product, how the game on the court is also had so much innovation over the last couple of years. And, and, you know, seem driven. Well, there's the whole money ball aspect and what, you know, the rockets started doing and bringing kind of statistical analysis to front office management of teams. But then there's also literally the game on the court, which the Warriors have just completely changed. And I love watching that. And that's what's so rare in sports. I feel these days. And to me, why, the many reasons why, but, you know, I grew up loving baseball, playing baseball, and I still love baseball. But it's hard to watch because there's so little innovation in how the game has played. But, but basketball is so dynamic right now. Yeah. And, you know, when, it's funny, I probably 10, 15 years ago, I was saying, I don't really love the NBA, like watching college basketball works is real basketball. And watching the NBA is watching a few superstars travel all over the place, dunk, and then have, you know, like, wait around at the top of the key for the shot clock to stick down, drive, and then dunk. And it's like, okay, we know it's going to happen every time. The rest are going to be really nice to these few players. And I think that what we've seen happen is, it's just a much more fast-paced dynamic game where there's a lot more of, you know, the past in the ball around. There's a lot more ball movement. That they're optimizing for exactly the three-pointer. They should be taking, not taking the ones that they shouldn't be taking. And they're really, I mean, there's a lot of data science applied to this from a technical perspective. But then from an intuition perspective, you just have, you know, your staff curries that, that, you know, come together on a team like the Warriors to really change how the game has played. And if I have any gripes about my own team, like, about the way that the Cavs play, it's that they're very, very fortunate to have LeBron. And it's unclear if, I mean, they're still kind of playing that older style. Yeah, they are. And I think, again, with avoiding the temptation to dive too deep into analyzing these aspects of the game, because I'm not qualified. David and I are so far off. I thought we should be talking about right now. I really hope that other sports, and certainly, I am much more qualified to talk about baseball and football. I've been played both myself for close to 15 years. There's, there's just been no innovation in either of them really, in terms of how the game has played. And 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, and 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 that fans will react super positively and love new innovations. I mean, stuff like, you know, in baseball, like, you should never but it's like statistically proven that bunting is, is terrible. Just like in football, like, you should go for it on fourth down way more often than people do, but, but there's such conservative environments that people don't do these things. And I hope the NBA is, is going to drive some more innovation in other sports as well as, as people see how well audiences react to it. Yeah. And I think the, the NFL had an amazing 20 year run up to call it, you know, five years ago, where they really turned the NFL into a family sport. It's not the thing that dad does in Drink's Beer on the weekend with buddies at the game. Like, it's a thing that like, they've really turned it into a family product where, you know, you have people over and the whole family gets into it and they're, the, the broadcast is much more tailored around entertainment than it is like a gridiron sport. And, you know, the Super Bowl is the, the best implementation of that. But I don't think we've seen much evolution beyond that yet. Like, I think the NFL is right in high now, but the basketball, but the NBA is, is more the stock that I would buy right now. Well, in the NFL has a huge liability on their hands that I don't see any way out of it with the concussion issues. Yeah. You know, I mean, I, I played football for over 10 years myself throughout middle school, high school, college and loved it. But if I could go back and, and, you know, make those decisions again, back in, at every level, I would, I would not play. It's just not worth the risk. Yeah. And honestly, watching some of your investment decisions, it's, it's pretty clear to me that, it's a, yes. It's really, it's just a matter of having to have good IV if I hadn't played football. Oh, man. Should we, should we go into grading it? Yeah. Let's go into grading it. All right. Well, one thing I want to bring up is that from one listener in front of the show that, I'll just, I'll just read as quote, because he had a really interesting insight here that we haven't talked about yet. And that's that the most interesting phase is coming soon when JJ Redick is likely to sign for more money elsewhere. Blake and CP3, Chris Paul are free agents. And how will the franchise move on if one or both of those guys leave? That's the challenge for Balmer. And I think, you know, not David and I are not probably here to speculate about the, the future player moves of the team. But it is interesting to think about something that's going to knock some points off my grade is definitely the, the lack of a true president GM in place here to, to, you know, keep a good handle and a good pipeline on all these, these depth chart moves. Yeah, but I, I do think I think this will be the true test for Balmer as an owner, right? And where if we're going to, like we reserve the right to with tech companies, if we reserve the right to change our grades in the future, would be his reaction to this. I think it gets back to management and lessons, you know, that are equally applicable to tech companies and startups, so it's, you know, it's not always up into the right things happen, right? Like your, your star players become free agents and they leave. Like you can't, you can't change that. That just happens. That's life in a company. The test of, of a management team and the company is how you react to that. And do you either, you know, give up and start heckling your players like Donald Sterling, like that's, that's one end of this spectrum. You know, or do you, do you support your employees and your, your staff and your team, and make the decisions sometimes hard to continue to do your best to put the, put the team out there that's, that's going to win and, and do that really thoughtful and strategically like we, like we saw, you know, Facebook do throughout their IPO and afterwards when they realized, you know, they're, it was like they lost their stars and free agency as, as the mobile wave was about to wash over them and they went out and they fixed it. Yep. Agreed. Well, so I'll, I'll take your first habit at the grade. We normally, unacquired grade with the lens of was this a good financial decision for the acquiring company to acquire the acquired company. And the tech that I want to take on it for this episode is to take out the word financial. So we can say, was this a good decision for Steve Balmer to acquire the Clippers? And I think that, you know, the guy had 20 billion dollars 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. And when you're already a billionaire, you know, buying and running a sports team is really only like the hard, the, the only hard thing remaining for you to do. You're instantly famous when, when you do this, right? Like your, you know, Jerry Jones made all his money in oil, but then, you know, now he's, he's famously the Dallas Cowboys owner. And like you can be a billionaire, but not have your name in lights. And I think that, you know, Balmer had a good amount of that already, but, but for him, you know, what are you going to do with the rest of your life? This is a really fun thing to do. And you're in this very, very, you know, exclusive club of, of, you know, tier one market owners of franchises. And so there's like some amount of my grade that's going to come from, it's like an A in terms of how do you want to spend the rest of your life? And that is not necessarily a financial decision. On the financial decision, he really is bringing some innovation here. I mean, he's, he's putting a lot of effort into it. I disagree with them not having a, a president. So, you know, on the execution of actually doing this thing and kind of furthering the turnaround of this team, I'll give it a B, but, you know, if you, if you have that much money and you want to buy a an NBA franchise and, and make this your, your, you know, second foray of life's work, which is certainly a fun way to do it. Yeah. I think I, I'm going to try and resist temptation to think about it outside of a business decision and think about it solely in terms of, you know, the price bomber paid. He certainly probably could have gotten this team for a lot worse. I mean, that was, that was coming in hot with, with that price. But he reset the market and, and it's risen to that level. And for all the reasons I talked about and, and tech the IMSM before, you know, I think he is kind of catching this wave at the right time where the leagues and the teams as, as components of these sports leagues have a big technology enabled opportunity in front of them to, you know, change their business model, disrupt themselves into something more valuable. So, given that, I'm going to go with B+. Because I think he's gotten all the fundamentals right. There's execution that remains to be seen both on the product, on the team side and, and, and, quite honestly, on the business model for the league side too, it's early days. And I think he probably could have gotten the team for a lot less. But to your point, then, you know, he, he did not want to miss fire on this one. He wasn't going to lose. And that is, that is classic Steve Bomber. Yep. All right. Follow-ups and hot takes. We've got a few this week. Instagram Stories was reported that Instagram Stories now has more than 200 million DAU, which is more than all of Snapchat, at least until we see Snapchat's growth numbers for Q1, which they'll be reporting their earnings soon here. That'll be a big, big day for SnapStock. And associated with that, I want to give a big shout out to listener, a listener named Ross, who very kindly wrote Ben and me, correcting us on our definition of DAU that we've used a few times on this show, where we implied that, wrongly, that DAU meant people, users, using it every single day. Doesn't necessarily mean that. It's just the percentage of the user base that the total user base that a product has that uses it on any given day. So if half the half the user base uses it on one day and half the user base uses it on another day, and then they mix up and various portions of them on the third, you can still have 50% DAU to MAU ratio. But with nobody using it on every single day. So an important distinction. Thank you, Ross, for pointing that out. Yep. And that one other, yeah, I think we do have one other follow up from our early episodes. There was that there was a little trailer that was released on the internet this week. Yes, I'm excited. I'm scared. I'm nervous. I don't know what to do with myself other than watch the the new Star Wars trailer over and over and over again. Wonder if it is Christmas yet. Is it Christmas yet is going to take on a whole new meaning? I'm so excited. Yeah. And I know spoilers on the trailer, but like it all changes in the at the end. So like it's worth watching multiple times and then reinterpreting it through that lens after seeing the end of the trailer. I can't believe I'm giving spoiler alerts for a trailer, but like it's so well done. It's that big. Yeah. Yeah. I can't wait. Yeah. Another one is a little quick piece of follow-up from the Starbucks episode. One reason that the the Starbucks IPO is so successful that we didn't really touch on in grading it is is because they delivered on a consistent basis financially for like many quarters after after the offering and they had like tens and tens and tens or I think it was maybe even a hundred months of month over month growth on average in same store sales. And so you know it's it's if we ever do a similar analysis in the future of you know an expanding chain of stores that's a it's an interesting mark to keep in mind and you know one David one of the reasons we do this show is to try and understand what makes an acquisition successful what makes an IPO successful and and zooming in on that that metric of even though you're opening multiple stores because you have more free cash flow to keep reinvesting the average of of your same store sales across all stores continuing to rise is a really interesting piece to zoom in on and and thing to shoot for it's indeed it is incredibly impressive tens and tens and even up to a hundred consecutive months of of same store growth it does help when you are literally selling drugs to your customers so Starbucks does but any any time you can sell legal drugs probably good business but there as we talked about on the episode there so many more great lessons from from Starbucks that that everyone can learn she move on the car belts yeah let's do it let's do it so I'll take a a stab you guys know we love recommending podcasts bill girly was on Jason Callacanis is this week in startups this week and any any time you get a chance to read some bills writing on his blog or hear him speak on a podcast it's a it's a treat because he just has such incredible clarity of thought and he walks through sort of the benchmark business model of really only investing in a couple companies per year and spending just an incredible amount of time embedded with those companies and and and actually I didn't know that much about bills background we had we had touched on when we were when we had Tom Albergon for the Amazon IPO episode he he had mentioned that Bill girly and Frank Quattrone did the to the IPO and I didn't really know that that you know Bill was a computer science major before that and it's really interesting that you're about that's right that's right it's super interesting to think about the decisions that guy made and the risk that he took in the way that he he looks at the world and the way that he looks at investing so if you're uh if that's your cup of tea or if any of those things are your cup of tea I highly recommend listening to Bill because he is a sage he is he and and all the folks at bench branch they are they are one of the best and enjoy to work with and very very good at what they do my carve out for the week is also a podcast a really great one uh Jenny my wife and I were on road trip recently and this is a Jenny's a member of sleep plus so this is a a sleep plus podcast that you have to be a have to be a subscriber to but but it's worth subscribing it's called pop race in the 60s and it's by Jack Hamilton who's a professor at UVA and he interviews folks it's only six episodes it's a it's a short series but it's great each episode is about a a white musician or musical group from the 60s and a and a black musical musician or musical group from the 60s and comparing them against each other and they're how they were viewed by society at the time and their legacies and impact and it is so great I love 60s music grew up listening to all of it and and Jack actually wrote a a book his his first book which was I believe it's dissertation PhD dissertation called Just Around Midnight which is basically if you can't listen to the podcasts this is the podcast in book form but Janice Joplin and Aretha Franklin and Jimmy Hendrix and Bob Dylan and the Beatles and the Stones and talking about the importance of race and the the conversations across these groups you know whether it was I didn't realize how often both the Beatles covered Motown songs and Motown artists covered the Beatles they're out there career so super cool and and also I know this is going on for a while about this carve out but I think it's also as I was listening to it really applicable to the tech industry and it made me think about maybe think a lot about San Francisco in the 60s and so much of that music was coming out of there and the counterculture movement and how wow like the tech movement and Silicon Valley really was birthed out of the counterculture movement and huge driving force of change that kind of started in San Francisco in the 60s with that counterculture movement and the legacy you see in that in the tech industry today so super cool worth worth listening to or if you can't listen to it reading the book we'll link to both in the show notes very cool well listeners thanks for joining us again if you aren't subscribed and you want to hear more you can subscribe from your favorite podcast client if you've been a long time listener of the show and and want to leave a review or if you just happen to tune in this one and and like the episode either way we'd love a lover of you on iTunes so thanks so much for listening enjoy the the NBA playoffs go cows go on and that we'll see you next time we'll see you next time