February 4, 2023

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NBA Record Deal: $4 Billion for Phoenix from Former Basketball Mortgage Player

High Angle View Of Various Sport Equipments On Green Grass

Matt Ishbia is lucky.

The NBA is a league that is constantly breaking records. And it’s not about Doncic’s performance, not about Jokic’s triple-doubles, not about LeBron’s age.

The League is also constantly updating financial records – both its own and general sports. Every year in the news: “record high salary” and “the biggest maximum contract in history.” The largest annual revenue. The most expensive tickets for the final. A record contract with sponsors and partners (for example, a multibillion-dollar television contract: concluded in 2016 – we are waiting for a new record in 2025). Highest club value according to Forbes or Sportico.

Yes, the latter is also updated annually, stable like clockwork, even more regular than salaries and ceilings. Less than 10 years ago, the most valuable clubs in the NBA, the Knicks and Lakers, were valued at $1.4 billion. Five years ago, it was already $4 billion.The Warriors are valued at $7 billion!

And this assessment, of course, is influenced by the financial well-being of the league, and the growth of ratings, but most of all – demand. It far exceeds the offer. And when a rare sale of a club does occur, it exceeds the forecasts of experts, which means that the price tag for other clubs also grows.

One such case is the record deal for the sale of Phoenix, which was announced this week.A team from Arizona changes ownership and is valued at $4 billion: one and a half times more expensive than Forbes estimates!

$4 billion for the club – a record, but not quite

Even the official press release called the transfer of the Suns from Robert Sarver to new owner Mat Ishbia “the biggest deal in NBA history.”

This is true, from a certain point of view.

Ishbia buys not only the Phoenix Suns, but also the Mercury women’s NBA team. $4 billion is their total cost, but WNBA clubs are estimated at only 10-15 million, and are sold even cheaper (according to rumors, Las Vegas was bought for only a million).

And even if you inflate the Mercury price tag 50 times to half a billion, the Suns deal will still seem like a record.

Joe Tsai paid the most for the NBA club in 2019 – 3.3 billion, but that deal also included the Barclays Center.Without the stadium, Brooklyn was valued at 2.35 billion, and that was the new record.Previous leaders are Houston for $2.2 billion in 2017 and the Clippers for $2 billion in 2014.

Prokhorov sold Brooklyn for $2.35 billion (world record). But even more earned on the sale of the stadium

However, Ishbia will not pay 4 billion at all. He is buying only a controlling stake – “more than 50%”, as the statement says, that is, most likely 50% + 1 share. It turns out that Matt (and his brother Justin) will spend a little more than $ 2 billion.

And the former owner will receive even less – Robert Sarver led the team, but since the shares were scattered among minority owners, 30-40% was enough for him to control.Ishbiya buys shares of Sarver and some shares of minority shareholders in order to obtain a de jure controlling stake.

Still, the club’s $4bn sale valuation, even if only half of it – actual payouts – is huge. Here is where it is located:

• Todd Bowley bought Chelsea for $5.3bn, but only 60% of that amount is stock, the rest is a guaranteed investment in the development of the club.

• The Denver Broncos were sold in August for $4.65 billion, while NFL clubs have always been much more expensive than the NBA (the cheapest football club is valued at $3 billion, the cheapest basketball club, New Orleans, at $1.6 billion).

• The Mets baseball sold for $2.475 billion in 2020, which included the stadium, and the Dodgers (second-best MLB franchise after the Yankees by financial valuation) left for $2 billion back in 2012.

• Finally, another deal that added $2 billion to someone’s account was the sale of the Carolina Panthers to the NFL for $2.275 billion in 2018.

• There are no such expensive clubs in the NHL. The record is Toronto in 2012, but the new owners bought for 1.32 billion 80% of the holding, which owns not only the Maple Leafs, but also the Raptors, the Canadian football team, the European football team, and also an arena.

Tsai paid more in 2019 than Ishbia now, but he also received a larger share. Then can we assume that this Phoenix deal is a record valuation of an NBA club when selling a non-100% stake? Neither: Last year, Lakers co-owner Philip Anschutz sold his 27% stake, and the club was valued at $5 billion.

That is, the Ishbia-Sons record is the highest valuation of an NBA club in the sale of a controlling stake.

That’s how difficult it will be to formally determine the record when Phoenix is ​​sold. That’s right, despite the news and press releases, the club hasn’t changed ownership yet. Even when all financial and legal nuances are settled,before the sale, the NBA board of directors would have to review the new owner and approve the deal.

And given the atmosphere in which the Phoenix sale was made possible, Mat Ishbia’s background check will be thorough.

What’s wrong with the former owner?

If you haven’t been following this story, here is a detailed description in two texts:

Compromising evidence was unearthed on the frantic Phoenix boss: a sea of ​​vulgarity and awkward conversations with the players. What will happen to the club now?

The NBA forced another owner to sell the club. The only place where billionaires are shown their moral character

Let’s summarize:

In November 2021, ESPN released an investigative text in whichRobert Sarver was accused of inappropriate behavior in his role as team leader.Here and foul language on racial grounds, and sexism, and in general the creation of an extremely toxic environment in the club. Well, the standard, albeit legal, oversights of not very skillful leaders: interference in basketball management, unreasonable savings, as a result – 10 years without a playoff.

Sarver denied accusations of racism and misogyny, but the league launched its own investigation, interviewed former and current Phoenix employees for six months, and by the beginning of the new season rolled out a punishment for Robert – a one-year suspension from the club.

Formally – temporary; in reality, this meant the need to sell the club. In general, the NBA board (and the NBA is an association of 30 clubs, and not some structure higher than the teams and not an independent organizer of the competition) has the authority to expel one of its members for violating the league charter, and Sarver has accumulated episodes under which you can find article. But, of course, other owners do not want to create a precedent – after all, then they can be squeezed out in the same way.And even if Donald Sterling was allowed to sell the club and get a couple of billion, and not just taken away, then Sarver was kicked out “softly”.

For Sarver himself, such a voluntary expulsion is not the most profitable option: if he was forced to sell the team, and he went to court, he could save on taxes. But Robert’s wallet is still not worth pitying:he bought a stake in Phoenix for 400 million, then sold minority stakes, and now he will receive at least 1.2 billion for the remainder.

Why are Phoenix, which wasn’t even an NBA champion, being sold so high?

For us, 1.2 billion, 4 billion, 2 billion, 2.7 billion are sums of the same order. And yet, it seems strange why Phoenix seems to be worth 4 billion, but Manchester United is estimated by the same Forbes at 4.6 billion.

Yes, Manchester United have not won anything for a long time, but Phoenix never won at all: three lost finals (1976, 1993, 2021), zero titles, and in the era of Sarver missed the playoffs more often than played there, and only in 2020 the situation began to improve.

But appraisal and actual value are two very different things. Yes, the essence of the first is in the forecast, but it is based on many economic indicators, whilethe price of a sports club is often influenced by only one factor – how much you are willing to pay for it.

The Glazers plan to sell the same Manchester United not at all for 4.6 billion, but for 6-7. Because the club is a piece goods, it is sold very rarely.

Over the past 5 years, owning a sports club in the US has become more and more attractive for the super-rich, but we have seen very few deals: two in the NFL, three in MLB, the same number in the NHL, but the price tag is much lower there. And in the NBA, Phoenix is ​​​​also only the third case in this period (except for Brooklyn, it’s also Utah for 1.66 billion in 2021). The fourth is still in question.

The peak of sales in the NBA came in 2010-2015 – it all started with Prokhorov in the Nets, then another 10 clubs changed hands, but each cost no more than half a billion – including the Warriors.

But in 2014, the Sterling scandal rumbled, Steve Ballmer appeared with an offer of 2 billion – and the clubs began to rise in price sharply. Yes, the new economy of the NBA also influenced the revaluation, because before the 2011 lockout, so many clubs were losing money. For example, New Orleans was bought by the NBA itself from the previous owner – count 29 other clubs together – and for a long time could not find a buyer (and also blocked the exchange of Chris Paul to the Lakers, because she managed the team at that moment).

And it’s not just the club’s opulent status as a rare asset that’s driving Phoenix’s price. In recent years, the NBA has been a very profitable business,the revenue of the same “Phoenix” annually exceeds 200 million with an operating profit of 30-50 million in normal years(were in the black even in a pandemic). And ahead of the league, as already mentioned, a new television contract – the previous one increased the income of the league and clubs by almost one and a half times.

Thanks to the system of income distribution between clubs, everyone earns: the cheapest New Orleans has profitability ratios similar to the $ 4 billion Phoenix, the starless Sacramento, which does not win anything, is on par with Milwaukee.

Phoenix has an advantage over many teams: first, it’s an attractive market. Not exactly a magnet for players, like Los Angeles or New York, but a warm climate, a large city, proximity to the same California.

Secondly, the current state of the team also affected the sale price. A year and a half ago, the Suns played in the NBA Finals. One of the best basketball players in the league, Devin Booker, is playing for them. The basis of the club is the same young, but already peaking players Mikal Bridges, Deandre Ayton, Cameron Johnson, and Chris Paul, although he will earn 30 million a year before 2025, has only a partially guaranteed contract – so for sporting achievement, the club is in a good position both in terms of talent and salary cap.

And yet, it is unlikely that the new owner pays billions for the sake of sporting achievements.

Why buy NBA clubs at all?

In ancient times, the NBA club was the only business of the owner. Since then, the belief has remained that guys like Ballmer buy the club like a toy – to translate ideas from computer basketball games into real life.

In fact, this has not been the case for a long time.

NBA club – profit generator: after all, the income of the NBA is divided in half between the players and the owners. Yes, when you have a luxury tax like Ballmer’s Clippers now, you can not make any profit – but, following the example of the Golden State, thanks to the ownership of the basketball club, Ballmer received the right to build an arena that will generate more more income regardless of basketball games.

The NBA club is a growing asset.Perhaps, once the rapid growth will slow down, stop, even teams will start to become cheaper. But this was predicted even when Prokhorov bought Brooklyn and the arena for a whole billion. And he ended up selling three and a half times more.

But the main thing for American multibillionaires is not even the profitability of the club and not the prospect of reselling shares.Sports clubs help them not only earn, but also save hundreds of millions. On taxes.

This is for us silly people, the NBA club is profitable and more expensive. And for smart buyers of such clubs, this is a loss-making business. The new owner buys an asset for several billions, but what about depreciation? US tax law allows you to write down the purchase amount as a loss in future years – as well as transfer the tax deduction received for this to other sources of income. And Ballmer’s billion-dollar income ends up being taxed at a rate three to four times lower than the tax rate for an NBA player.

In short, the rich man spends on the club, says that he has lost billions in losses because of this cash outflow – “adds” them to the profits of the main business and pays less income tax. Profit.

By the way, who is this new lucky Phoenix owner Mat Ishbia?

Mat Ishbia will be the youngest owner in the NBA at 42, originally from Detroit, owns one of the largest mortgage companies in America, and is worth an estimated $5.1 billion.

But not just like that, Bill Simmons suggested Ishbia as a potential buyer in a podcast. Yes, most likely, Bill had an insider, but Mat is not a stranger to basketball.

Michael Jordan is no longer the only major NBA team owner to play basketball himself!Mat Ishbia is also an ex-basketball player, and even an NCAA champion like Mike!

True, if Jordan is one of the greatest athletes in history, then Mat’s playing career ended very quickly. He spent three seasons on the Michigan State University basketball team – the alma mater of Magic Johnson and Draymond Green. Ishbia managed to repeat the achievement of Magic (1979), which did not submit to Draymond (2011, losing in the final) – to become a champion in college basketball. It was Mat with the ball in his hands waiting for the championship siren in the March Madness-2000.

In the team of the legendary coach Tom Izzo, our Mat spent three years on the court… 115 minutes in total. Cutting his highlights looks like this:

How did the 175cm point guard even get on the team? The number of sports scholarships at universities is limited. The rest of the places in the application for the season are filled by “walk-ons” (walk-ons) – students who were not recruited as athletes, they study on a general basis and simply know how to play basketball and were selected for the team. Scotty Pippen was there, by the way.

Matt, of course, did well without a scholarship – his father, Jeff, was not a billionaire, but he had a successful law practice, as well as an additional mortgage business. He was also a Michigan State University “booster” – that is, an active donor.

After graduating in 2002, Ishbia Jr. first wanted to stay in basketball – Tom Izzo even took him as his assistant.And yet, a year later, Mat left this glorious path and descended on another – in his father’s mortgage business.. But he did not forget the principles of basketball even there. To the extent that he published the book “The Game of Corporate Attack”, and Izzo wrote an introduction to it.

In mortgage lending, Ishbiya has achieved even greater success than in college basketball. The father, still a practicing lawyer, essentially gave the second business to his son. By 2013, Mat had officially become president of United Wholesale Mortgage.

The business continued to grow rapidlyUWM has become the second largest mortgage company in the US, and Ishbia’s biggest wealth boom came in 2021.UWM went public and opened on the New York Stock Exchange with a record initial valuation of $16 billion.

Such a high rating was provided by the merger with SPAK-company before entering the stock exchange. The most interesting thing here is another Ishbia connection with basketball: this special company was organized by Alec Gores, brother of Tom Gores, owner of the Detroit Pistons. And six months later, the Pistons signed a sponsorship contract with UWM, and the company’s patch flaunts on the Detroit jerseys for the second season.

(Funny coincidence – at the same time, Tom Gores bought the Phoenix Northern Arizona Suns farm club from Sarver and moved it from Arizona to Michigan)

By the way, the patch is another reason why the Phoenix deal could be delayed. It is unlikely that Ishbia will be allowed to simultaneously own one NBA team and advertise on the uniform of another. He’s not Michael Jordan after all.

Let’s see how Ishbia and Gorse, two Michigan State graduates, agree.

But one Michigan State alumnus the new Suns boss will never get along with is Cleveland Cavaliers owner Dan Gilbert.

Remember when we said that UWC is the second largest mortgage company in the US? So Gilbert’s Rocket Mortgage is the first, and he and Ishbia hate each other fiercely.There is hostility at the corporate level – Mat, for example, forbade his company to work with brokers cooperating with Rocket Mortgage – and on a personal level. When Ishbia donated a record-breaking $32 million to the university in early 2022, Gilbert immediately beat it with a contract to exclusively sponsor the Michigan State basketball team.

Can such a measure of wallets and ambitions lead to the Phoenix-Cleveland finals? Why not, especially since both teams are already young and in the top of their conferences. In the history of the NBA, there have already been confrontations between players, coaches, and even general managers in the final series, but at the level of mortgage owners, we clearly lacked this.