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The Rockets are for sale, and the NBA team market could explode

We haven’t seen many NBA teams change hands in the last few years. Will the Rockets’ impending sale change that?

NBA: New York Knicks at Houston Rockets Erik Williams-USA TODAY Sports

Until the Houston Rockets announced on Monday that longtime franchise owner Leslie Alexander planned to sell the club, it had been a quiet few years on the lucrative NBA team market.

No teams changed hands in 2016, only a single franchise (the Atlanta Hawks) was sold in 2015, and just two clubs (the Milwaukee Bucks and L.A. Clippers) got new owners in 2014. We saw three franchises change hands in a four-year period, with maybe one more (those Rockets) being added on by the end of the calendar year.

This was quite a shift from the previous four-year period, when a whopping nine teams were sold. The Nets, Hornets, Pelicans, Wizards, Pistons, Warriors, Sixers, Kings, and Grizzlies all changed hands from 2010 through 2013. (The Pelicans were actually sold twice but under special circumstances that will cause us to count it just once.)

Most of those sales early in the decade came at relatively low prices, with two exceptions. The Warriors sold in 2010 for a then-record $450 million — at the time a quite hopeful valuation that has since become an incredible bargain. The Kings sold in 2013 for a then-record $535 million amid a minor bidding war between Seattle interlocutors and Northern California buyers.

The bargain bin

The other seven purchases were at non-notable or outright discount prices. Robert Pera, for example, bought the Grizzlies for $350 million, which isn’t much more than the Bobcats’ expansion fee a decade prior. Michael Jordan bought the Bobcats themselves — now the Hornets, of course — for a reported valuation of $275 million, including apparently just $25 million in cash. That’s just $1.5 million in cash more than what the Hornets will pay Dwight Howard this season, by the way.

Mikhail Prokhorov in Brooklyn, Tom Gores in Detroit, and Josh Harris in Philadelphia also pulled discount purchases. All these sales — some under financial duress, some following the death of family patriarchs — happened in the run-up to and immediate aftermath of the 2011 NBA lockout.

The Kings sale in early 2013 was a capstone of sorts — a veritable report card on how the exclusive club of people wealthy enough to buy major sports franchises felt the league did in collective bargaining. That record price for a mediocre team in a mid-sized market without an arena plan revealed what we now know to be true: The NBA is ascendant.

The next sale — the Bucks, another mediocre team in a mid-sized market without an arena plan — set a new record. Then came Steve Ballmer’s $2 billion for the Clippers, followed by just under $900 million for the freaking Atlanta Hawks.

Then, nothing.

A period of stability

Was it fear of another lockout in 2017 that gave the extremely rich pause? The Timberwolves and Nets have nominally been on the market for the last few years — Prokhorov seems to bounce between taking interest in Nets and forgetting he owns them, and Minnesota’s Glen Taylor has unloaded small slices recently. Otherwise, we’ve heard little about potential franchise sales.

The players’ union raised a lot of ruckus about fighting back against owners’ victories in the 2011 lockout aftermath. The union hired firebrand lawyer Michele Roberts, and superstars took over leadership positions.

But the expected war never materialized: Roberts and commissioner Adam Silver reached a deal six months before the 2011 pact expired, keeping the major items intact. Labor peace is the order of business. The revenue is pouring in faster than ever as teams rack up broadcast dollars and new arenas open, most with heavy public subsidy. Every investment from the 2010-2013 team sale boom has paid off.

A boom to come?

Is this why Alexander is comfortable selling the Rockets now?

His franchise is in great shape with a winning roster, stable management, and a superstar in his prime locked up for years to come. Without being so lucky to own a dynasty, it’s hard to imagine a better position to be in when you decide to cash out of the NBA. It’s likely that the Rockets’ valuation upon sale will beat the Clippers’ record $2 billion.

Alexander bought the Rockets for $85 million 24 years ago. The stock market’s value has tripled over that time span. Yet thanks to the NBA’s massive growth, Alexander will have likely beat the stock market to the tune of $1.6 billion by the time he sells.

How many of the other 11 owners who bought their teams before the year 2000 will be tempted to lock in that profit by selling soon?

How many of the owners who bought on discount before, during, or just after the 2011 lockout will be interested in unloading their teams at huge profits?

In a league where the Warriors look something like a dynasty, is it fun for Pera to sign the checks in Memphis or Gores to keep house in Detroit? Does Harris have his own process to trust in Philly where he might flip a distressed asset after recovering its value? Have the Kings lost their luster for Vivek Ranadive? Is Prokhorov at all invested in the Nets’ recovery to come?

Finding out who thinks the NBA has growth still to come and who is ready to sell high will be fascinating to watch over the next couple of years.