Wednesday, April 30, 2014

Firing the Owner

In the aftermath of Don Sterling's racist comments, Adam Silver, the NBA Commissioner will seek to force him to sell the LA Clippers. This could have at least two Managerial Economics implications.

First, Sterling may be more than willing to comply. If he were still the owner at the start of the next season, we could expect more bad publicity and possible fan boycotts. With fewer fans and fewer ticket sales, the value of the franchise falls. However, if the Clippers are sold to a neutral party, more of these fans might still come to games. The value of the team is undoubtedly lower than it was last week, but the drop in value is a sunk cost. Going forward, selling to a different owner would be moving an asset, the team, to a higher valued use.

Second, the other team owners are likely to be on-board with the forced sale. Not only would the Clipper's tickets sales fall but likely the ticket sales for other teams would fall when the Clippers come to town. That is, the various teams in a league are complements. Local fans like their home team to win. But after accounting for that, ticket sales are higher when both the home and visiting team are strong. Anything that makes fans not like one of the teams diminishes the value of the whole league "platform." For example, the NY Yankees baseball team is consistently a contender for a pennant. So when they visit even mediocre teams, attendance rises.

1 comment:

  1. The controversy and issues that the LA Clippers faced in the aftermath of team owner Don Sterling’s racist comments certainly did prove to be something that the team management and NBA had to really deal with carefully. In the options that the NBA had, as described above, there were costs that had to be recognized. One being the opportunity cost that if Don Sterling remained in place as the team owner and the team remained operating in the same fashion with no changes, the team and even the NBA as a whole would take a hit in game ticket sales and possibly even more. In my personal opinion, their alternative decision to replace him as the team owner was the right decision to make. Whether they are worried about losing money by forcing him out and bringing in a new owner, it is a much better alternative to the possibility of the team ticket sales decreasing for the season, and potentially even the ticket sales of its competitors.

    With the decision to be made, the overall success of the NBA as a whole is one that will be affected. It is essential to look at the big picture and make the decision that will prove to benefit the most people in the end. With new ownership comes new opportunities and it seems that new owner, Steve Ballmer, is making a valid attempt to give a new outlook for the team. The team and its fans have also been given a new positive view of the team and organization because for the first time in thirty years, along with new ownership comes new possibilities.