Forbes: Struggling Detroit Pistons Value Declines
When private equity baron Tom Gores bought the Detroit Pistons and its attendant business elements in June for $325 million, there was at least mild surprise in the sports financial world that one of the NBA’s top-tier franchises didn’t sell for more.
Word was, the asking price was $500 million and included an elite venue and other revenue-creating non-basketball operations. The hapless Golden State Warriors sold the year prior for $450 million. Golden State! Most people don’t even know what city they play in (Answer: It’s Oakland, Calif.).
This was a Detroit team playing in a top-flight facility with a history of winning and sold-out crowds. The death of former owner William Davidson, his widow’s desire to divest herself of the team, its recent struggles on the court, questionable player moves and the league’s labor trouble served to drive down the price.
The market dictated $325 million. That’s how capitalism works.
Gores’ steal, and the team’s harsh economic reality, now is reflected in the annual team valuations published today by Forbes (link).
The financial news website put a $332 million value on the Pistons, which is a one-year 8-percent decline. The team is the 17th-most valuable franchise in the 30-team NBA. That doesn’t include Palace Sports.
The team had operating income of $9.7 million on revenue of $141 million last year, compared to $31.8 million and $147 million the season prior.
Forbes defines operating incomes as earnings before interest, taxes, depreciation and amortization.
While Forbes didn’t go into much detail on why the team saw its income plunge, it did put a general blame on the poor regional economy that has sapped ticket and suite sales.
The Pistons are 4-15 after tonight’s 101-98 home loss to the Miami Heat. Through nine home games, Detroit is averaging 11,860 fans at the 22,076-seat Palace of Auburn Hills. That’s dead last in the NBA.
The real shocker: Forbes saddles the Pistons with a 56 percent-debt-to value ratio, which amounts to $186 million. Previously, the debt — traditionally linked to venue construction costs — was listed at zero for the Pistons because the $90 million Palace of Auburn Hills was paid for entirely with private funds in 1988, led by owner Davidson. A further $112.5 million in renovations also was privately funded, leaving the team debt free.
Forbes didn’t provide any explanation of the debt figure for Detroit. It could be representative of the financing Gores did to buy the team.
Also, the Pistons are said to be among the 22 teams losing money and are among 19 to borrow from the league-wide $2.3 billion low-interest credit facility. The league caps borrowing against the facility at $125 million, and most of the teams that have tapped it are thought to have taken up to the limit.
Gores and his Platinum Equity LLC lieutenants have immersed themselves in the business of running an NBA team, the first pro sports team investment by the Beverly Hills, Calif.-based outfit. They have made a number of personnel changes at Palace Sports & Entertainment LLC and the Pistons (outlined here).
Also of interest: Detroit’s Dan Gilbert saw his Cleveland Cavaliers – he bought them as lead investor of a group for $375 million in 2005 — lose 7 percent of their value, falling to $329 million.
Of course, the true value of any team is what someone is willing to pay for it. When the Pistons went on the market officially in early 2010, Forbes had them at $479 million. The Cavs in 2005 were at $298 million.
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