(Welcome to the “Most Important Story of the Week”, my bi-weekly strategy column analyzing the most important (but often not buzziest) news story of the last two weeks. I’m the Entertainment Strategy Guy, a former streaming executive who now analyzes business strategy in the entertainment industry. Please subscribe.)
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It’s been relatively quiet, news-wise, in August, aside from one ongoing story. I speak of the Paramount-Skydance-Warner Bros. Discovery merger, which I expect will generate headlines from now until the trial ends next year. (I am cautiously predicting a trial, yes.) But most of the headlines and stories don’t change the fundamentals that much.
So we start with a buzzy story in the sports space. All that, plus Netflix’s latest movie news, two big measurement changes, and a whole lot more.
Let’s dive in!
Most Important Story of the Week – The Lakers (Even Bigger) Sales Price
Honestly, I’m surprised to find myself writing about basketball again. I wrote one article about how the NBA’s slow revenue last year (only 5.5%) may be why domestic expansion had “chilled”, then I wrote about how it seems like domestic expansion is back on the table. And I wrote about sports and time zones just last week.
That’s a lot of sports talk. And I thought that I’d gotten most of my thoughts out.
Then I woke up earlier this month to the gigantic (and shocking) news that the Los Angeles Lakers unexpectedly sold for a whopping $12.5 billion. They just sold for a whopping $10 billion last year, so that’s up 25% in just a year.1 And the new ownership group was fronted by former Disney CEO Bob Iger.
So I have to write about this topic again.
I know some of my readers really don’t care about sports. But sports really do impact the entertainment industry. And increasingly streaming. Plus, the Los Angeles Lakers run L.A., the home of Hollywood, and hence film & TV (for now). (Yes, some Dodgers fans will say the Lakers share Los Angeles with them, and that’s fair.) And one of their new owners is a legendary Hollywood executive.
So begrudgingly, I’m writing about the NBA for the fourth time in two months. (After this issue, I promise I’ll hold off until a sports league announces a major expansion or rights deal.) But it really is a fascinating topic, since these high sales prices touch on a whole range of topics, from what it means to “value” something to what an asset is “worth” to even what a bubble is in the first place.
Plus, I really want to dig into this issue I’ve been flirting around…
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Question: Are NBA Teams “Overvalued”?
So let’s start with the basic question:
Are NBA teams in a bubble?
That’s always a tricky question to answer, but let me start with my basic rhetorical stance. If someone justifies the value of an asset because “It always goes up in price”, that’s classic bubble talk. I still remember sitting in a field in Kentucky during armor officer training and a fellow soldier pitched me on housing in 2005. “House prices only go up! That’s why house flippers are making so much money!” The same logic extended to stock prices in the late 1990s and crypto/NFTs in the late 2010s.
The joke is often you can point to a very recent time when prices did NOT go up. For the NBA…that was just fifteen years ago! Post-financial crisis, multiple NBA teams went up for sale and didn’t sell for much.
In fact, the NBA took over the New Orleans Pelicans—and refused to trade Chris Paul to the Lakers—until they could find a buyer.
That’s not all that long ago!
The problem with bubbles, though, isn’t predicting them, so much as predicting the timing of when they pop. As I’ve written before, calling out the “what” is easier than calling out the “when” for financial assets. So I won’t make a prediction here. I’m not saying future NBA teams won’t sell for even higher prices in the next few years or that we’ll see a collapse any time soon. I can’t time this market.
But I can keep two contradictory thoughts in my head:
- Clearly, for now, the market is there for outrageous NBA valuations.
- These teams are also incredibly overvalued compared to the financials.
Which means we have a conundrum to explain. Let’s look at this issue from both sides, justifying the prices and the skepticism.
The “Not A Bubble” Case
We’re just getting started with this issue, but the rest is for paid subscribers of the Entertainment Strategy Guy, so if you’d like to find out…
– What makes the current era of NBA revenues different from previous eras…
– Just how long it could take an NBA owner to pay off their team…
– Why the rise of billionaires could help drive valuations even higher…
– The threats that could pop the NBA valuations…
– My thoughts on two big data changes coming to Nielsen and YouTube…
– Netflix’s latest foray into theaters…
– And more…
…please subscribe! We can only keep doing this great work with your support.
