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The Midas Touch

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Written by Chris Barker
Edited by Sarah Mejia

In October of 2011, during the most recent NBA labor dispute, the Philadelphia 76ers were purchased by a group led by Joshua Harris (founder of Apollo Global Management, an investment firm) for an estimated $280 million. The 76ers were damaged goods at the time; poor on-court performance in recent years had diminished one of the NBA’s most powerful brands. Mired in mediocrity, the team had not recorded a profit since the 2001-02 season (espn.com). While at Apollo, Harris built a reputation for buying distressed property and turning it around. This was his intention for the 76ers.

The actual basketball product has become only more dismal in the time Harris has owned the team. Over the past two summers, the 76ers have traded away two all-stars, acquired another all-star who did not play a single game for the team last season due to injuries before bolting for Cleveland in free agency, and have openly declared that they intend to struggle mightily this season in hopes of building through the draft. According to new head coach Brett Brown, “We all know the pain of rebuilding is real” (sportingnews.com).

So perhaps Harris’ magic touch for fixing distressed property has run out? Not so fast. In the two years since the 2011 labor dispute was resolved, the value of NBA franchises has skyrocketed. The same franchise that Harris’ group purchased in 2011 for $280 million is now worth $418 million, according to Forbes (forbes.com). The average NBA franchise has increased in value by 30% since then, with the 76ers having increased in value by 49%. For comparison, the Sacramento Kings were valued by Forbes in 2011 at $293 million, and were just sold for approximately $534 million this spring (usatoday.com).

A number of factors have contributed to this jump. For instance, the league is bringing in more revenue from television contracts than it used to. New, renovated arenas in some NBA cities have added value. Teams rich in revenues like the New York Knicks and the Los Angeles Lakers also now provide more aid to poorer teams like the Kings and the Charlotte Bobcats. Most significantly, however, has been the collective bargaining agreement that ended the labor dispute during which the 76ers sale was completed. Player salaries were reduced from a total of 57% of total revenue to approximately 50%. (forbes.com). It is not difficult to observe the shrewdness in Harris that made him billions in private equity investing. 

Meanwhile, the NHL’s New Jersey Devils have been in financial turmoil in recent seasons. The NHL’s 2012 lockout, like the NBA’s lockout, produced a decrease in the players’ share of league revenue from 57% to 50% (Bloomberg.com). The Devils, recently valued by Forbes at $208 million, were sold to a Harris-led group consisting mostly of the same investors who own the 76ers, for $320 million (Forbes.com). The Devils’ previous owner was operating in the red and was struggling to meet his financial obligations. The finance world will be watching closely to see the movement in the value of the Devils over the next few seasons.

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**Due to technical difficulties, we recently had to switch domains and transfer all of our website content.  Please keep in mind that while we have been publishing articles for two years, the published dates shown may not reflect the initial publish date.

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http://espn.go.com/nba/story/_/id/7117764/joshua-harris-david-blitzer-jason-levien-smith-part-new-philadelphia-76ers-ownership-group

http://www.forbes.com/sites/mikeozanian/2013/08/19/selling-new-jersey-devils-for-320-million-still-leaves-vanderbeek-with-big-loss/

http://www.forbes.com/sites/kurtbadenhausen/2013/01/23/billion-dollar-knicks-and-lakers-top-list-of-nbas-most-valuable-teams/

http://www.forbes.com/lists/2010/32/basketball-valuations-11_Sacramento-Kings_327146.html

http://www.sportingnews.com/nba/story/2013-08-14/76ers-coach-brett-brown-trade-nerlens-noel-jrue-holiday-nba-draft-andrew-wiggins

http://www.usatoday.com/story/sports/nba/kings/2013/05/31/sacramento-sale-vivek-ranadive-official/2377047/

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