What a potential Celtics sale tells us about NBA ownership right now

When Wyc Grousbeck put the Boston Celtics up for sale this summer, it was just days after Boston won its 18th NBA championship, and Grousbeck was riding high.

His surprising decision to make the franchise available for sale is perhaps less surprising as it falls in line with many of Grousbeck’s peers around the league. There may be no better time to be an NBA owner than now. As revenue grows and team valuations skyrocket, several have decided to spend money, reaping big returns on investments made long ago.

The Celtics’ ownership group will figure out how big their ownership will be after purchasing the franchise for $360 million more than 22 years ago. Efforts to sell the team started last month. According to two sources briefed on the matter, an online data room has been opened for potential investors, following investigations by JP Morgan & Chase and BDT & MSD Partners, the two financial firms that advised on the sale. Stephen Pagliuca, who currently owns about 20 percent of the franchise, has already expressed interest and could be one of the frontrunners to put together a group to gain control. At this point, the sale is likely to close early next year, according to a person familiar with the process.

When they’re done, the Celtics will continue a trend in the league. The NBA has seen more turnover at the ownership level in recent years than any other major professional sports league. The Celtics will be the ninth NBA team to have its controlling ownership change since 2019; the NHL, NFL and MLB have had 10 combined in that time. There doesn’t appear to be an overarching theme behind the trend, say sports investors and former NBA team owners. Instead, they point to something simpler: Franchise valuations have risen so much over the past two decades that it has become a good time to sell.

“We may be reaching a bit of a tipping point,” says one investor said. “Most owners who have been in any of the sports leagues for a while are asset rich and cash poor. I think most long-term owners, if you ask them, in their wildest dreams, never imagined that these teams would become these mini-Disneys as I call them, or these phenomenal entities with enormous economic benefits. capacity.”

The sales wave was underlined by owners who achieved significant returns on their investments regardless of when they purchased their franchise.

Larry Miller purchased the Utah Jazz in the mid-1980s for approximately $25 million; his family sold it to Ryan Smith in 2020 for $1.66 billion. Glen Taylor paid $88 million for the Minnesota Timberwolves in 1994, taking a $1.5 billion offer from Marc Lore and Alex Rodriguez (although control of the team is now in question). Robert Sarver led a group of investors who purchased the Phoenix Suns for a then-record $401 million in 2004; he sold it 18 years later at a $4 billion valuation. Marc Lasry was part of the ownership group that bought the Milwaukee Bucks for $550 million in 2015; eight years later, he sold his 25 percent stake in the team at a valuation of $3.5 billion. Michael Jordan paid $275 million for the Charlotte Hornets in 2010 and sold them for $3 billion last year.

Mark Cuban bought the Dallas Mavericks in 2000 for $285 million and sold a majority stake in the team last year for $3.5 billion. Cuban said he sold the Mavericks because he didn’t know if any of his three children, ages 14 to 20, wanted to eventually run the franchise.

“If they don’t,” he said in an email to The Athletics“It’s a nightmare trying to figure out how to deal with estate issues.”

It’s probably no coincidence that all but one of the eight franchises that have seen a change in control over the past five years were all initially purchased before the current media rights deal, which helped transform the league’s economics. They were also sold just before the NBA finalized its new media rights deal, although the value of that was likely baked into some of the sales prices.

The Celtics are the first team to hit the market after the media rights deal was finalized. The sale already has high expectations across the league, although predictions on the final price vary widely. One NBA owner, who was granted anonymity so they could speak freely, believes the team could sell for nearly $6 billion. One sports banker predicted $5.5 billion. The investor thinks it will cost $4.75 billion. Forbes values ​​the team at $6 billion; Sportico gives the Celtics a valuation of $5.12 billion.

“I think there’s tremendous opportunity,” Celtics minority owner Jim Breyer said. “Both potential new investors, additional purchasing groups. I have no doubt that the sale of the Celtics will go extremely well. I don’t know how well. No one can ever predict. The Celtics are a great franchise.”

The outcome will be closely watched, not only to see if the Celtics set an NBA record, but also what it could mean for the future. If the franchise were to sell for closer to $6 billion, as one NBA owner predicted, he believes it could push the price for a potential expansion franchise, say in Las Vegas, into the $7 billion to $8 billion range.

But this transaction can also prove complex.

Grousbeck is the team’s head governor; he and his father, Irv, own about 30 percent of the franchise, according to sources briefed on the Celtics’ ownership structure. Wyc Grousbeck owns about 2 percent, these sources said. He declined to comment for this story over the summer and did not respond to recent text messages from The Athletics.

The team is now being sold, Grousbeck said in a July statement, for family and estate planning purposes. Irv Grousbeck is 90, and Wyc Grousbeck, 63, has several siblings. They can involve minority shareholders in the sale, but they have their own rights if there is a possible sale.

“It’s a very complicated deal,” said one of the people briefed on the Celtics’ ownership structure.

Grousbeck said he wants to sell the team in stages, with the majority tranche sold in winter 2025, and then retain control until the remainder is sold in 2028. That could prove difficult, especially as NBA commissioner Adam Silver said earlier this year. the league may choose to avoid tiered trades after the current Minnesota Timberwolves saga is resolved. Multiple industry sources indicated that a potential owner would likely not want to spend billions of dollars to wait to make the acquisition.

The Celtics’ sales price could also be affected by the lack of their own arena. They play at the TD Garden, which is owned by Jeremy Jacobs, owner of the NHL’s Bruins. The ability to use professional sports franchises as a real estate vehicle is now a major driver among sports owners. Anyone who buys the Celtics will have to remain a tenant at TD Garden or attempt to build a new arena, which could mean another significant expense.

“How does that balance itself?” said the investor. “Obviously it’s probably one of the biggest brands in all of sports, but when you start to get to this billion-dollar level, revenue and cash flow become more important. It can’t just be about a scarcity value around the IP.”

The NBA’s own bylaws are another factor. The Celtics will be above the second platform of the 2023 Collective Bargaining Agreement this season as they defend their championship. Teams above that salary threshold — set at $188.931 million this season — are hit with draconian team-building restrictions that could prevent them from trading future first-round picks and make it nearly impossible to add to the roster.

But the Celtics also expect to manage a $200 million payroll in the coming years and exceed the luxury tax level. The CBA raised tax rates on the biggest spenders and repeat offenders, with the harshest penalties taking effect next season. A franchise with a payroll at least $20 million above the luxury tax line will pay $4.75 for every dollar this season, but that will increase to $7.25 in the 2025-2026 season.

That could give the Celtics’ new owner an immediate decision on whether to pay to keep a title-winning team together or be the one to try to break it up.

“It’s becoming almost impossible to keep great teams together,” said another NBA owner, who spoke on condition of anonymity so they could speak freely. “It’s no longer just about money. Now it’s about saving draft picks and being able to improve your team while facing a hard cap. No one wants to be an owner who has to break up a championship or a great team because of the (second) apron hard cap. Your fans won’t understand this. They’ll just hate you. I think that’s why Wyc is selling and why he’s even put a timeline on his involvement to coincide with the expiration of their contracts.

Suitors could also benefit from the emerging belief among some sports investors that the growth of NBA franchise values ​​may finally be slowing after two decades of skyrocketing numbers. They still believe valuations will rise, but at a more modest pace. But when and if that will happen is less certain.

The league also faces a champagne problem: As franchise values ​​rise, there are fewer ultra-rich individuals who can buy majority or even minority stakes. The NBA has attempted to address this by allowing private equity firms and sovereign wealth funds to buy up to 20 percent of a franchise and 30 percent overall.

“Prices have risen dramatically in the last 10 to 20 years,” Breyer said. “And the value, both intrinsic and from a league perspective, of NBA franchises will continue to grow, perhaps not at the levels they have grown over the past decade, but the long-term economics are extremely attractive. This is of course reflected in the TV rights.”

Even if values ​​stop rising as much, it is unlikely that selling will stop. Professional sports teams remain attractive assets, and the lure of big promotions can be too hard to resist.

“These teams increasingly represent a large percentage of people’s wealth,” said the sports banker. “If you’re a billionaire on paper, but most of that is illiquid team ownership, then you’re a billionaire but you have little cash. So now you suddenly have the chance to become very rich.”

(Illustration: Meech Robinson / The Athletics; top photos: Streeter Lecka, Billie Weiss, Tim Heitman / Getty Images)