Rockets’ potential $2 billion price tag testament to Alexander’s stewardship
For all that remains unpredictable about the sale of the Rockets, industry experts have little doubt about what likely will matter most in the coming months.
The Rockets, several said, are an unusually hot commodity and, when Leslie Alexander, 73, finally sells the team he has owned for 24 years, it likely will go for a price unmatched in NBA history.
With the league’s business booming and few franchises for sale in recent years, industry experts estimated that Rockets president Tad Brown and NBA officials have received roughly a dozen calls a day expressing interest in
the team and that its eventual sales price could break the $2 billion record set when Steve Ballmer bought the Los Angeles Clippers in 2014.
“They’re going to set the record,” said Marc Ganis, a sports business adviser who has been involved in sales of franchises in several sports. “Leslie Alexander’s timing is brilliant. He sees this is a high-water time for the NBA. This will sell at a number that begins with a two.
“The team will sell for more than any ever has because Leslie Alexander is the one selling and the way his business is run. The books are squeaky clean. He doesn’t have to answer to anyone. This is in no way a distressed property so he can sell or keep the team on his timetable. He can do a creative deal, and he’s incredibly smart at this stuff.”
In conversations with three additional individuals who have led the sale or purchase of sports franchises and one with experience as a buyer — each on the condition of anonymity — the Rockets were described as an especially valuable sports property because of an unusual combination of attributes.
“I’m sure phones are ringing off the hook,” one person said. “There will be dozens and dozens and dozens before they start cutting it down.”
Move over, Clippers
While using the term “10-figure sale” as a given, each person agreed with Ganis that the Rockets could top the $2 billion price of the Clippers, despite the unique circumstances of that sale.
As one put it, “Expectations are sky high.”
The three said the initial weeks with the team on the market will bring daily calls to Brown and a scramble of the top five to seven sports investment bankers to align with potential buyers.
Because the Rockets will be sold by the team, rather than handled by an outside group, the top investment banks can only become involved on the buyer’s end. And because each firm can only represent one candidate, conversations have begun to determine the most viable potential candidates and forge relationships.
Each expert said the names of the most serious candidates will not surface early in the process with publicity generally viewed as anathema to those willing to make 10-figure purchases.
Team’s Asian ties a plus
There is even more certainty that the eventual buyer of the Rockets will be an individual capable of purchasing the team on their own, rather than needing to put together a group. But there could be a group involved to put a familiar face on the effort, such as Grant Hill’s involvement with the Hawks’ ownership group led by Tony Ressler. An individual also could seek partners to lighten the financial load. But each industry expert interviewed said a sale this large almost certainly will go to an individual with the means to buy the team without having to seek financial help.
Several people also said the Rockets’ ties to the Asian market could bring an investor from China. Brown has relationships with several top Chinese investors, and the Rockets’ place in the Chinese market, several industry experts said, has not been exaggerated.
“Every time I’m in China, I have been asked about the Rockets,” one insider said.
Less clear is whether the Chinese government would sign off on such a purchase amid a recent crackdown on overseas investments. Several cited reports of measures taken to prevent purchases by Wang Jianlin’s Dalian Wanda Group — a move thought to also send a message to other investors.
Wanda had expanded its entertainment holdings, such as AMC Entertainment Inc., to include several sports properties, including Ironman organizer World Triathlon Corp.
Loans to several other groups involved in foreign investments also are under scrutiny, but experts said it is too soon to know if that could impact interest in the Rockets among Chinese investors.
But Ganis said even the potential of a Chinese investor bidding on the team could drive up the price.
Timetable uncertain
The experts all agree that Brown will know relatively quickly — by the end of August, one said — who can be considered a serious candidate. He likely will winnow more than 100 showing interest to 10 to 12 potential buyers. Those willing to remain in the process at that point assume extensive costs of time and expense — legal and banking fees can run into millions — and will have decided to compete to win, rather than shop, with teams usually choosing three to five finalists.
Several experts said the timetable for a sale is hard to predict with the team running the sale with nothing known to force an urgency to sell. The NBA vetting of a prospective owner would not come until later in the process.
There was uniform consensus the Rockets have an unusual combination of attributes, with the only debate over what drives up the potential price most. A great deal of NBA revenue, particularly from the new television contracts, is shared equally among teams, but each expert cited five factors that combine to make the Rockets an especially attractive property:
• The Houston market is among the top 10 in the nation, ranking fifth in size of metropolitan statistical area and 10th in designated media market. It is the fastestgrowing in metropolitan area population of any market ranked in the top 20. The market also includes a large corporate base, compared to several other markets (Milwaukee and Sacramento), where teams have been sold in recent years.
• Rockets revenue and operating income have consistently ranked in the top five in the NBA with new ticket sales and renewals bouncing back dramatically since last season’s downturn. Although Brown would not release or confirm data, Forbes listed the Rockets as fourth in revenue and third in operating income.
• The Rockets have a highly favorable long-term lease for Toyota Center with the city of Houston with upgrades since its opening keeping it state of the art. The Rockets’ lease runs through 2033 and gives the team control of other events and the revenue generated by them.
• The Rockets have ties to global markets, especially in China, that provide additional potential corporate partners.
• The Rockets, during Alexander’s 24 years of ownership, have had the second-most winning seasons and fifth-best record in the league. They have two of the NBA’s most marketable stars in James Harden and Chris Paul, which provides a new owner the opportunity to immediately contend for a championship as Alexander did when he bought the team and won championships in each of his first two seasons.
High-quality asset
NBA teams come on the market so rarely that experts said prospective owners usually do not worry about the quality of the team or even what city the team is in.
“In the end, every sale is different,” one of the industry experts said. “But this one checks all the boxes. Usually, some of the circumstances leading to a sale are bad. That’s not the case here. There is the building, the market, the revenue potential. Some of it is unpredictable with these (sales). A lot of people will be watching.”