While Boston is in no danger of an early exit from the postseason, one of the Celtics’ owners is calling it a day. Jim Pallotta’s decision to cash out has potential implications for owners of every NBA team.
The Boston Celtics are worth big money
NBA teams have been appreciating in value fairly consistently since the arrival of Magic Johnson and Larry Bird, followed a few seasons later by Michael Jordan. Interest in attending games and watching on TV has improved markedly from the days when playoff games were shown on tape-delay after the late-night news.
Steve Ballmer upped the stakes when he paid a record $2 billion to buy the Los Angeles Clippers in 2014 after the NBA forced Donald Sterling to sell. At the other end of the country, the Boston Celtics have increased in value from $360 million when purchased in 2002 to $3.1 billion, as estimated earlier this year by Forbes. On a compounded basis, that’s better than a 13% percent annual growth rate – a sound investment in an era of largely tame inflation.
One of the people benefitting from that growth has been Jim Pallotta, most recently reported to hold an 8% stake as part of a group headed by majority owner Wyc Grousbeck.
Now, the composition of the Celtics’ ownership stake is about to change somewhat.
Jim Pallotta is divesting his holdings
One of the more significant off-the-field developments in international soccer this summer has been the sale of frequent Serie A contender Roma, one of the big names in Italian and European soccer.
The club announced on Aug. 6 that one American ownership group is exiting while another is arriving. The Texas-based Friedkin Group, headed by Dan Friedkin, is paying $700 million to buy Roma from a group of Boston businessmen headed by billionaire Jim Pallotta, The Associated Press reported.
Pallotta’s group is expected to relinquish control by the end of the month after having purchased the team in 2011 and captured three Serie A championships.
The soccer team isn’t the only sports investment that Pallotta is unwinding. The 62-year-old Massachusetts native, who made his fortune running a private investment company, is also selling his stake in the Boston Celtics for about $225 million, according to Sportico.com.
Pallotta is selling to fellow Celtics minority owner Steve Pagliuca. The price for his 8% of the team is implied by the $2.8 billion franchise valuation that the website reported is the result of the transaction.
The Boston Celtics’ value should be going up rather than down, right?
A minority-stake sale that knocks about 10% off the $3.1 billion value that Forbes placed on the Boston Celtics earlier in 2020 is seemingly a bad development for all NBA teams.
That’s somewhat tricky. As Sportico.com notes, minority stakes in franchises often change hands at a discount because the new owner isn’t acquiring control of the company. In this instance, however, Jim Pallotta is selling to Steve Pagliuca, who already has a stake in the team. If he’s buying at a discount, Pagliuca is, in essence, also diminishing the value of his existing stake in a successful franchise.
It won’t amount to much of a setback for Pagliuca and the other owners if they intend to hold on to the Celtics for the long haul. But it can make a difference for other NBA owners who may be looking to sell soon.
With the COVID-19 virus costing most teams between eight and 10 home dates at the end of the 2019-20 season and no guarantees about what next season will look like, some owners might want to get out or at least reduce their stakes.
Throw in the likelihood that negotiations for the next set of TV contracts will be tricky, as noted by The Athletic, and no current owner wants to see a franchise be perceived as less valuable than it was six months ago.