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NBA commissioner, team owners talk league expansion and valuation

At a seminar, NBA Commissioner Adam Silver discussed a possible expansion team and weighed in on reported valuations of the current teams.

NBA Commissioner Adam Silver tempered expectations Tuesday that his league could immediately expand to a city like Seattle but continued to leave the door open about renewed conversations.

Silver, along with four NBA owners, appeared in a morning seminar sponsored by Sportico.com, which recently released a comprehensive valuation of all 30 NBA franchises.

The sports business website's study says three franchises, the New York Knicks, Golden State Warriors and Los Angeles Lakers, are worth more than $5 billion, and the average franchise is valued at nearly $2.4 billion.

It served as a talking point for the value of an expansion franchise. Silver indicated in recent weeks that the league has dusted off the discussion and that Seattle, the former home of the SuperSonics, is at the top of the list.  An ESPN report suggested a Seattle entry fee could be $2.5 billion.

"I think clearly though (Sportico's) evaluations are showing that some of the reported numbers are very low, in terms of a notion of a value at which we expand, I think," said Silver on Tuesday when questioned about expansion. "Remember the other side of the coin is that as we see these valuations go up the math isn't as obvious as many people might think for expansion, because in essence at the end of the day we're selling equity in our league by virtue of expansion, and if you're selling equity, part of the calculation therefore needs to be, what will 1/30th, 1/31st, 1/32nd of our team be in the future?"

Silver continued, "Ultimately, the main driver for expansion should be the ability to grow the pie, not necessarily to bring in, you know, to sell equity, to bring in cash now, you know, as opposed to generating the money later. I don't say there are other significant issues around the pandemic in that related to expansion, and that it doesn't feel necessarily like the right time to be diverting our attention to expansion as we're just doing everything we can to work through the day."

Silver again acknowledged that some franchise owners are struggling, which is what has precipitated more expansion talk and new investors with other teams. 

"Some have speculated that's a reason to expand right now. As I've said it's not something we're looking to do in the middle of a pandemic,” Silver said. “On the other hand, there are real cash needs for many of these teams right now. It's one of the reasons that people often, you know, would sell equity in an enterprise because they do have cash that they need to invest in an ongoing business and what by virtue of bringing in these additional funds."

The more than billion-dollar Climate Pledge Arena is slated to open by October 2021 and will play host to the NHL's Seattle Kraken expansion franchise and the WNBA's Seattle Storm. Developer and Oak View Group CEO Tim Leiweke says his investors spent an additional $50 million in upgrades to the original plan to host an NBA franchise.

Seattle Mayor Jenny Durkan said she has spoken in the past month with Silver and was optimistic about what she was told.

However, NBA owners like Ted Leonsis sounded a bit more cautious on Tuesday. Leonsis owns Monumental Sports and Entertainment, which controls the NHL's Washington Capitals, NBA's Wizards and WNBA's Mystics in addition to the Monumental Sports Network. He's a key power broker with both the professional hockey and basketball leagues and has extensive history in over-the-air game presentation.

"Seattle has built a world class organization," said Leonsis about the Kraken.

But he was hesitant to talk about NBA expansion as a way to solve any COVID-19-related economic problems. 

"I think it's just a matter of time to find the right partners and do the right thing, but no, we should not be planning for expansion to solve these problems,” Leonsis said. “These problems that we have are deep, and they run through our partnerships, through our sponsors, most importantly, our players, our employees, and so I would say the focus right now should be on our partners, our people and our players and that's what we've been trying to do locally and at the league."

Leonsis also provided insight about what the league may be thinking about its next broadcasting deal based on what he has done in his home market. 

"The world's most valuable companies are the digital companies,” said Leonsis. “It's Apple. It's Amazon. It's Facebook. In a way, they've been getting a free ride on our content. They have not really stepped up right now to get our content, and that's what, you know, we have to look at. Should we become, if you will, more an end to end solution? Or should we be doing bigger deals with those companies to stream, both locally and nationally? I know locally there are more Prime subscribers in my media market than there are cable subscribers.”

Seattle-based Amazon has been aggressively pursuing digital sports rights to expand its Prime offering and paid for the naming rights for the new arena. 

"Should we go direct, should we be going directly to the cable company, losing one of the middlemen? That's going to be a huge, huge development over the next decade," Leonsis told the Sportico moderators.

The Wizards owner gave credit to the Seattle area's own Steve Ballmer, who bought the Los Angeles Clippers for $2 billion in 2014, and said he viewed the purchase as "not just a team. It's a platform."

Ballmer, along with the Boston Celtics owner Wyc Grousbeck and Milwaukee Bucks co-owner Marc Lasry, were also part of the Sportico seminar but didn't discuss the expansion proposition.

Don Cornwell of New York's PJT Partners worked on the sale of the Buffalo Bills and Toronto's Maple Leaf Sports and Entertainment, as well as other major sports business deals. He believes the NBA is talking about Seattle because of more than just the immediate influx of an expansion fee. 

"For the other owners it's just a matter of the dilution right, and that's just math, right?” Cornwell said. “We can figure that out. As to how much upfront proceeds they need to get comfortable with the math dilution and the financial revolution, but also understanding what does it mean to have a team back in Seattle. You know for the folks that have been around this league for a long time, I think they get it that like the Seattle SuperSonics are important from a licensing perspective, right. There's obviously a massive market with a lot of wealth that right now the NBA is not servicing in a direct way, and so longterm value that beyond just the pure math of the dilution would have."

He said any franchise fee should be big.

"Because you are effectively having the opportunity to buy, you know, about a 3% stake in the NBA, and that shouldn't be a low number,” Cornwell said. “That should be a very high number."