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The LA Clippers

Season 1, Episode 36

ACQ2 Episode

April 23, 2017
January 6, 2019

In honor of the start of NBA playoffs, Ben & David venture off the beaten path to explore one of Steve Ballmer's most famous acquisitions, his 2014 purchase of the Los Angeles Clippers NBA franchise. Was this landmark purchase a steal or a turnover for the former Microsoft CEO? We speculate wildly!

Topics covered include:

  • The Clippers' founding in 1970 as the NBA expansion team the Buffalo Braves
  • Early ownership changes and the move west to San Diego in 1981
  • Acquisition in 1981 by LA lawyer and real estate developer Donald Sterling for $12.5M
  • Sterling's relocation of the Clippers to LA in 1984 against NBA rules
  • Struggles over the next 25 years as the "worst franchise in professional sports" according to ESPN 
  • Turnaround beginning in early 2010s led by Blake Griffin, DeAndre Jordan, and Chris Paul
  • The bombshell in April 2014, reported by TMZ, of a taped conversation between Sterling and his mistress where Sterling makes hugely offensive and racist comments, directed in particular toward former Lakers point guard Magic Johnson
  • Fallout from the comments, resulting in a lifetime ban from NBA for Sterling, and a forced sale of the team to former Microsoft CEO, Steve Ballmer for $2B
  • Impact of the landmark sale price on NBA and other sports franchise valuations 
  • Clippers performance post-sale, and  prospects for the future 
  • The opportunity for technology and business model innovation in the NBA, and professional sports in general


The Carve Out:



We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.

Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!

10. Marvel

Purchase Price: $4.2 billion, 2009

Estimated Current Contribution to Market Cap: $20.5 billion

Absolute Dollar Return: $16.3 billion

Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…

Season 1, Episode 26
LP Show
April 23, 2017

9. Google Maps (Where2, Keyhole, ZipDash)

Total Purchase Price: $70 million (estimated), 2004

Estimated Current Contribution to Market Cap: $16.9 billion

Absolute Dollar Return: $16.8 billion

Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!

Google Maps
Season 5, Episode 3
LP Show
April 23, 2017


Total Purchase Price: $188 million (by ABC), 1984

Estimated Current Contribution to Market Cap: $31.2 billion

Absolute Dollar Return: $31.0 billion

ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”

Season 4, Episode 1
LP Show
April 23, 2017

7. PayPal

Total Purchase Price: $1.5 billion, 2002

Value Realized at Spinoff: $47.1 billion

Absolute Dollar Return: $45.6 billion

Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.

Season 1, Episode 11
LP Show
April 23, 2017

6. Booking.com

Total Purchase Price: $135 million, 2005

Estimated Current Contribution to Market Cap: $49.9 billion

Absolute Dollar Return: $49.8 billion

Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.

Booking.com (with Jetsetter & Room 77 CEO Drew Patterson)
Season 1, Episode 41
LP Show
April 23, 2017

5. NeXT

Total Purchase Price: $429 million, 1997

Estimated Current Contribution to Market Cap: $63.0 billion

Absolute Dollar Return: $62.6 billion

How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.

Season 1, Episode 23
LP Show
April 23, 2017

4. Android

Total Purchase Price: $50 million, 2005

Estimated Current Contribution to Market Cap: $72 billion

Absolute Dollar Return: $72 billion

Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.

Season 1, Episode 20
LP Show
April 23, 2017

3. YouTube

Total Purchase Price: $1.65 billion, 2006

Estimated Current Contribution to Market Cap: $86.2 billion

Absolute Dollar Return: $84.5 billion

We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”.  With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.

That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.

Season 1, Episode 7
LP Show
April 23, 2017

2. DoubleClick

Total Purchase Price: $3.1 billion, 2007

Estimated Current Contribution to Market Cap: $126.4 billion

Absolute Dollar Return: $123.3 billion

A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...

1. Instagram

Purchase Price: $1 billion, 2012

Estimated Current Contribution to Market Cap: $153 billion

Absolute Dollar Return: $152 billion

Source: SportsNation

When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.

Season 1, Episode 2
LP Show
April 23, 2017

The Acquired Top Ten data, in full.

Methodology and Notes:

  • In order to count for our list, acquisitions must be at least a majority stake in the target company (otherwise it’s just an investment). Naspers’ investment in Tencent and Softbank/Yahoo’s investment in Alibaba are disqualified for this reason.
  • We considered all historical acquisitions — not just technology companies — but may have overlooked some in areas that we know less well. If you have any examples you think we missed ping us on Slack or email at: acquiredfm@gmail.com
  • We used revenue multiples to estimate the current value of the acquired company, multiplying its current estimated revenue by the market cap-to-revenue multiple of the parent company’s stock. We recognize this analysis is flawed (cashflow/profit multiples are better, at least for mature companies), but given the opacity of most companies’ business unit reporting, this was the only way to apply a consistent and straightforward approach to each deal.
  • All underlying assumptions are based on public financial disclosures unless stated otherwise. If we made an assumption not disclosed by the parent company, we linked to the source of the reported assumption.
  • This ranking represents a point in time in history, March 2, 2020. It is obviously subject to change going forward from both future and past acquisition performance, as well as fluctuating stock prices.
  • We have five honorable mentions that didn’t make our Top Ten list. Tune into the full episode to hear them!


  • Thanks to Silicon Valley Bank for being our banner sponsor for Acquired Season 6. You can learn more about SVB here: https://www.svb.com/next
  • Thank you as well to Wilson Sonsini - You can learn more about WSGR at: https://www.wsgr.com/

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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben:                 I have this great, great carve out. I don’t know what it's called but you should go and download it.

David:              Oh, I didn’t write down the title. I wanted to make sure I get it right.

Ben:                 Welcome back to Episode 36 of Acquired, the podcast about technology acquisitions and IPOs. I’m Ben Gilbert.

David:              I’m David Rosenthal.

Ben:                 And we are your hosts. Today’s episode, David and I are venturing away from technology into the world of sports. We’ll be talking about Steve Ballmer’s 2014 purchase of the Los Angeles Clippers. So for full disclosure here, David and I are not huge NBA fans. Well, maybe except for my unapologetic bandwagon fanhood of the Cavs and Lebron James.

David:              And I got to admit the Warriors are pretty fun to watch. We’ll get into that.

Ben:                 Yeah. Well, they’re changing the game. And Steph Curry’s awesome. But we do love digging into the analysis of any acquisition and there’s no shortage of writing an opinion on this one. We’re going to be doing some episodes on the overlap of sports and tech in the near future so we figured we would dive in just absolutely head first and kind of force ourselves to do all the research. And thanks to many Acquired listeners and many of David and my friends who we called in to get their kind of like hardcore sports opinions on all this.

David:              Open invitation, listeners, to get in touch with us by email or jump in the Slack and tell us where we went wrong. But we think this will be really fun. We’ve done a bunch of kind of serious, more hard-hitting episodes in a row. We wanted to do something light and given that the NBA playoffs start literally today, we thought this would be a fun one.

Ben:                 You know, this was a $2 billion purchase by Steve Ballmer and any time there is a $2 billion transaction going on –

David:              Involving Steve Ballmer.

Ben:                 Right. Involving Steve Ballmer whether it’s sports or airlines like we did with the Virgin-Alaska acquisition or any of our standard tech wheelhouse. We can definitely apply the acquired methodology to it and get some good discussion in. So a few things before we dive in. The lifeblood of the show is iTunes reviews. So please help us grow the show and if you’re so inclined, leave an iTunes review for us. We also have a Slack and we’re close to 600 people. So if you enjoy doing analysis of any tech event, there’s people on there talking about M&A events, about IPOs, about new product launches, about Star Wars trailers coming out. If you want to talk with other nerds about this sort of stuff, we are all hanging out in the Acquired Slack which you can join at Acquired.fm. And lastly, before we dive into the acquisition history and facts, SVB (Silicon Valley Bank)) is sponsoring this episode and we caught up with SVB’s managing director out of Orange County, Derek Hoyt. I want to have him tell you a little bit about Silicon Valley Bank.

Most people know Silicon Valley Bank as the bank of the innovation economy. What’s something that you think would be helpful to our listeners even if they’re not looking to open a bank account for their business right now, at this point in time?

Derek Hoyt: “You know, one thing that SVB does have is a number of signature research reports that are for companies across the innovation ecosystem from startup to much later stage. It’s probably fair to say that those insights that we get by being the dominant player in this space can provide real value and timely information for both entrepreneurs and investors. So I would just suggest people head over to SVB.com and look for something that they would definitely find interesting.”

Awesome. Thanks Derek and thanks SVB.

So now, without further ado, David, will you take us into the story?

David:              The history and facts in the wide world of sports. So, the Los Angeles Clippers were actually founded as the Buffalo Braves. Buffalo, New York in 1970. They were one of three expansion teams to join the NBA that year. They had modest success in the first year but in some foreshadowing of things to come for the team and some challenging decades ahead, they were obviously in Buffalo, they found it hard to schedule home games in the first couple of years because there was another basketball team in town. The Canisius Golden Griffins, the well-known and world-famous Golden Griffins.

Ben:                 Oh yeah. It’s just like very similar to their rivalry now with the Lakers.

David:              Yeah. Lakers, Griffins, Clippers.

Ben:                 Both trying to draw millions and millions of people to their –

David:              There as well. The Golden Griffins had pre-existing rates to priority on games in the arena in Buffalo and they were worried about the Braves kind of threatening their popularity in town and so they would always schedule all the best dates at the arena. And as such, the Braves couldn’t really develop much of a fan base. So this was a problem and the team, after just a couple of years, gets sold to the then owner of the Kentucky Kernels which I believe was a basketball team, John Brown Jr. and he really wanted to move the team, for obvious reasons. So what he decided to do in further foreshadowing of things to come for the hapless Clippers, future Clippers, he basically just decimated the team’s roster, traded away all the stars and as a result, attendance plummeted and basically nobody came. That was all his goal so that they could break the lease and move out of town. So a couple more years go by and in 1978, Brown actually, only in the ‘70s could something like this happen, he just trades ownership with the owner of the Celtics. So Brown takes over the Celtics and Irv Levin who lived in Southern California and owned the Celtics at the time, he wanted to move the Celtics to Southern California, but the NBA wasn’t going to let that happen. Levin takes over –

Ben:                 What? I saw that they moved to become the San Diego Clippers but it was via just an ownership swap with the Celtics.

David:              Yup. Via swap. Everybody’s happy and Levin takes over the Braves, moves them the San Diego where they change the name to the San Diego Clippers because of the impressive sailboats that would dock and sail through the bay in San Diego, so thus the Clippers are born or reborn. That was in 1978. But the team unfortunately didn’t get much better and in 1981, the team still struggling and a Los Angeles lawyer and real estate developer by the name of Donald Sterling, the infamous Donald Sterling – we’re not in the business of making judgment calls on people’s character here on Acquired but this one’s pretty unambiguous that Donald Sterling is basically a horrible human being.

Ben:                 Yup. And it is incredible how long it took for that to come to light. Listeners, we’ll get into this but despite lots of rumors and allegations over the years, he managed to scoot by scot-free after it being quite clear he was a huge racist.

David:              Well, we’ll get into it. The clear thing is everybody knew but he just still owned the Clippers. Anyway, he buys the Clippers in 1981 for $12.5 million. This was also I thought hilarious. In the introductory news conference in San Diego where he announces – he lives in LA by the way – that he’s buying the Clippers. He vows to spend “unlimited sums” to build the Clippers into a contender. He later becomes famous for spending no money on the Clippers on players.

Ben:                 It seemed to plague their entire existence.

David:              Then he launches an advertising campaign in San Diego where he puts his face, Donald Sterling’s face, on billboards and on buses around town with a quote under it saying “My Promise: I will make you proud of the Clippers.”

Ben:                 That’s what every fan of every sports team wants to see: a gigantic picture of the owner’s face. Nailed it. Know your audience.

David:              Well, if the owner is Steve Ballmer, then maybe. So that honeymoon doesn’t last long and in 1984, he just up and moves the Clippers to LA against the NBA’s wishes. He basically does it illegally by the league’s by-laws. The way he gets around it is he just sues the league. The league fines him a huge amount of money and he was like, “Okay fine, I’m going to sue you,” and so he sues them for $100 million. They stand down and they reduce the fine to him for basically stealing, absconding with the Clippers from San Diego and moving them up to LA.

Ben:                 Boy, a storied franchise, right? Like all these moves, ownership trades, ridiculous lawsuits.

David:              Sounds just like a tech company.

Ben:                 Yeah, right. Boy, seeming more and more a perfect fit for Acquired than we thought.

David:              Than we thought. So from there, we can basically just fast forward through the next 30-some-odd years because nothing happened.

Ben:                 Hint: they didn’t do very well.

David:              So they go to the playoffs four times in the next 25 years which is pretty bad. Actually, in the whole, so Sterling owns the Clippers from ’80 until 2014 when this horrible event happens that we’re about to descript. The Clippers actually have the worst winning percentage of any team in any major American sport, which is incredible.

Ben:                 That's a feat. That’s more like statistically difficult to achieve than mediocrity.

David:              You have to work really hard to be that bad. In 2009, ESPN names the Clippers “the worst franchise in professional sports”. Sterling continues his Sterling reputation for being a horrible human being. Get this. He’s the owner, he has courtside seats to every game. He at some point in the 2000s, late 2000s just starts heckling his own players.

Ben:                 Classic.

David:              People like Spike Lee. But like for his own team. You can’t make this up.

Ben:                 Classic. I mean, honestly, it’s incredible that they played on the same floor at the Staples Center that the Lakers did. A franchise like that, like it’s a privilege to get to play in the Staples Center and that’s what they did with it.

David:              So after the Staples Center is built in the early 2000s, the Clippers shared it with the Lakers. But again, the Lakers are the marquee team. They have the lease and so just like back in Buffalo, they can’t get the good dates and they’re basically just the second. Not even the second. They’re pretty far down the list of things to do in LA as far as sporting events go. But then magically, really against despite all of Sterling’s efforts to continually sabotage the team, in the early 2010’s, things actually start to get better. So through accommodation of some good draft picks and good trades, they get Blake Griffin, DeAndre Jordan, and Chris Paul. They actually start to build a pretty good team and in 2013, they win the first division title in team history and are off to the playoffs.

Ben:                 Yeah, things are looking up for the Clippers, it seems like. They’ve got momentum on their side. Maybe the organization finally working in lockstep on the business side, you know, after all these years.

David:              ____

Ben:                 Yeah, in the woods. And actually, this is when – what’s their coach’s name? Doc Rivers comes in to coach the team, right? And he’s also, what, president of basketball operations.

David:              I think that's right. I’m not sure if the dates are... if it was that year that he was in it which leads into the next season after their sort of best season in perhaps ever in 2013, for the first time they win the division title. At the end of 2014, they have another good season. They’re bound for the playoffs. And then on April 25, 2014, the LA news channel and website TMZ releases a bombshell. A taped phone conversation with Donald Sterling between him and his mistress, he’s married but estranged from his wife and his open relationship with the mistress – a gem of a human being here. And as Ben mentioned, you know, it was sort of known but swept under the rug that Sterling had been really racist for a very long time. This phone conversation TMZ releases in which he reprimands his mistress for posting an Instagram photo with her and Magic Johnson. And he reprimands his mistress for posting this photo with – there’s a quote here, broadcasting that she is associating with black people and that he did not want her to bring them to the team’s games.

Ben:                 This guy’s office rocker.

David:              Despicable in every sense. But he’s an NBA owner and this is a photo with Magic Johnson. You know, Hall of Famer Magic Johnson. So needless to say, this is not going to end well for Sterling.

Ben:                 No. As you can imagine, the NBA is not too pleased about this.

David:              No. Nobody is pleased about this.

Ben:                 In fact, this is awesome. The Clippers players are so displeased about this that on the 27th, so this comes to light on the 25th, on the 27th they warmed up for their playoff game on Sunday afternoon against the Warriors with their shooting shirts worn inside out to obscure the team logo, to not represent Donald Sterling and sort of the logo that he owns.

David:              Yeah. And it’s incredible. And they considered before they decided to play the game, they considered boycotting the game and forfeiting the game.

Ben:                 Oh man.

David:              Which was playoff game. And a playoff game for the Clippers is such a huge event.

Ben:                 Yeah. You got to imagine the team’s like, “No, we’ve worked way too hard for this.”

David:              But that's how serious this was obviously. Most of the major sponsors with the team announced they were severing ties. Then really, the NBA handled this horrible situation as well as you could commend them for it. And Adam Sterling the commissioner, I think deserves –

Ben:                 Adam Silver.

David:              Adam Silver, sorry, yes. Adam Silver the NBA commissioner at the time and still currently deserves huge credit for this. So less than a week later on April 29, after an investigation that the NBA launched right away, the NBA issues a lifetime ban of Donald Sterling from the game and fines him $2.5 million, bars him from attending games, practices, any event involving any NBA team, bars him from being present in any Clippers office or facility and from participating in any team business, player personnel decisions or any league activity.

Ben:                 And that $2.5 million fine is the maximum allowable fine by the NBA. You could imagine that could be much higher if there wasn’t guidelines there.

David:              Yeah, absolutely. And then in a press conference following announcing this band, Adam Silver the commissioner states that he is planning and he will try to force Sterling to sell the Clippers and that they are going to basically kick him out of the league which the league can do with a ¾ vote of the other 29 team owners, which they do.

Ben:                 Yeah. That's super interesting. I think so when this all went down, I remember reading about it briefly but diving into all the details has been super interesting to understand how the mechanics of all this go down. So when you open an NBA franchise, it’s truly that – a franchise. I mean, you can imagine it’s like owning a McDonald’s where yes, you’ve put all this money into this thing and you own this asset but there’s actually a corporate governance structure above you that can force a lot of decisions with, in this case, a ¾ vote like yes, you own that team but if ¾ of the other owners don’t want you to own that team, then you don’t get to own that team.

David:              Yeah. It would be like if they were like a social network council that if Snapchat or Instagram did something horrible and Facebook and Google and Twitter could make themselves a company. So this is now where we sort of pick up from the Acquired standpoint where things get interesting. So obviously this is a distressed sale. You have a terrible situation going on.

Ben:                 You would think it would be like – okay, we’ll get more into this. But like it should be a little priced, right? Because it’s like a fire sale.

David:              So fire sale, team has to get sold. It’s the Clippers, right? I mean, they are literally the punchline of every joke about being a bad team is like well, at least you’re not as bad as the Clippers. You would think that this is going to be–

Ben:                 It’s like the Cleveland Browns of basketball.

David:              Yeah, even worse. You would think this would be a fire sale. But there are quite a few people who are interested in buying the team, including reportedly Oprah Winfrey, Floyd Mayweather, Magic Johnson himself, several other bidding groups and Steve Ballmer, our hero, he is also very interested. He has at this point left Microsoft, retired as CEO. Satya Nadella has succeeded him. That happened just a couple months earlier in February of 2014. And Ballmer has been a lifelong basketball fan. Twice in Seattle he tried, be part of a group to save the Sonics from leaving Seattle. A dark, dark day in Seattle history when the Sonics left the company Oklahoma City Thunder right after they drafted Kevin Durant too. Terrible. And then once more, as part of another ownership group that attempted to buy the Sacramento Kings and move them to Seattle. So this is Ballmer’s third bite at the apple to own an NBA franchise and he is not going to be denied in true Steve Ballmer fashion.

Ben:                 To be a homer here, it’s such a shame that he can’t get it done in Seattle. I mean, I really thought that that ownership group to move the Kings up here and a build the new Sonics arena was going to happen. Shed a tear.

David:              Well, I think if there’s any solace, it's that it does seem to be at least according to Bill Simmons, the Oracle and all such matters, I think there’s a good chance that Seattle will get an expansion team at some point in the next couple of years which it absolutely deserves.

Ben:                 Yeah, still a basketball city.

David:              Yeah. People love the Sonics. You see people wearing Sonics gear all over the place still. So, Steve comes in with a pretty over the top bid. So Forbes Magazine does an annual valuation of all and it’s just, you know, numbers they make up but it’s kind of the best source of valuation of sports franchises across all sports. And they had that year valued the Clippers at 575 million which was 13th in the NBA and well behind the number one valued team, the highest valued team which was the Knicks in New York which they had at 1.4 billion. So Ballmer comes in with a bid of 2 billion.

Ben:                 It's amazing how much the market matters, right? It’s the Clippers. I mean, for sure they’ve gotten some great players. Recently they’ve started having some momentum, you know, Blake Griffin, DeAndre Jordan, Chris Paul. But like they’re still the Clippers in the Lakers market and they’re in the top half of the NBA teams because LA is just a ridiculous market.

David:              But this kind of blows everybody out of the water. No NBA team had ever sold for anywhere near that amount of money. The Milwaukee Bucks had sold earlier that year for 550 million. So, you know, just over a quarter of that purchase price. And at the time, everybody was pretty astounded by this.

Ben:                 Yeah. I think it’s 3.5x the largest ever price tag for an NBA team before and it’s really interesting to note that this all sort of started happening recently where when you look at – my count for everything is the Cavs – when you look at –

David:              For listeners, if you aren’t long-time listeners or don’t know Ben, regardless, he is a proud Ohio native.

Ben:                 That's right. Cleveland till I die. So Dan Gilbert bought the Cavs for 185 million. But that was in 2005 and so when you start to look at like the escalating price tag of NBA franchises, it’s all been in recent years and it’s something that I kind of want to get to later in this episode and try and dissect why is that happening, why is any NBA team potentially a good pickup right now because of the direction and the growth.

David:              Absolutely. Again, at the time, people, which was only a couple years ago, three years ago now, people thought Ballmer was crazy and so we’ll dive into that a minute. But just to wrap up, the Clippers have continued their, if not dominance, not being the Clippers of old, at this point they are in the playoffs again this year. It's their sixth straight year going to the playoffs after only doing it four times in 25 years in California. And it’s their fifth straight year with over 50 wins in a season which is pretty great. I mean, at this point they are one of the best teams certainly in the western conference, if not in the whole NBA.  

Ben:                 Well, I think I have a little bit more bearish take on this. We’ll end up getting to this in the way that we grade the acquisition. But I mean, they have incredible starting 5, like they’ve done a nice job especially with Ballmer ponying up to retain DeAndre Jordan. But there’s no depth to that bench, like their whole roster is not filled out with stars and what I want to get to too is, why is that the case? Why haven’t they made the right player moves throughout the league to make that the case? And then on top of that, they still haven’t made an appearance in a western conference final. So like it’s definitely the story of incredible starting players, no depth.

David:              Potential. Yeah, that’s not yet realized.

Ben:                 They’re definitely not a winning team yet in terms of playoff appearances and finals appearances.

David:              So, just to wrap up the history and facts, just recently this year, the 2017 version of the Forbes NBA franchise valuations came out. The Clips are up to #6 but still at 2 billion, the same mark, the same price that Ballmer paid for them 3 years ago. But the rest of the list is pretty interesting. So the Knicks are still #1 and remember in 2014 they were 1.4 billion, I believe. And yeah, in 2014 they were 1.4 billion. They are now valued at 3.3 billion. So for all the other owners in the league, this was a pretty nice mark. They’re all pretty happy right now.

Ben:                 Yup. And I want to make a few points while we’re still in acquisition history and facts. I just have to read this clip to underscore what a ridiculous transaction this was when Steve bought from the Sterlings. “As part of the deal Shelly Sterling gets the titles of "Owner Emeritus" and "Clippers' Number 1 Fan", as well as ten tickets in sections 101 or 111 for all Clippers games, two courtside tickets for all games in Los Angeles, six parking spots in Lot C for each game, 12 VIP passes that include access to the Lexus Club, Arena Club, or Chairman's Lounge and Media room or equivalent, for each Staples games, three championship rings following any Clippers title, and will run a yet to be named charitable foundation.” So like, why is that part of the transaction and why does she gets Clippers rings or championship –

David:              She is Donald Sterling’s estranged wife for, I don’t know if we clarified that earlier. And she kind of ran the sales process on behalf of the team because Donald himself actually was super resistant, ended up suing the NBA, suing everybody involved but fortunately has pretty much ridden off to the sunset at this point.

Ben:                 Yeah. And I think it's really worth like to me a big sticking point of this whole transaction is it should have been a fire sale, it was under intense duress, there was still incredible bidding for this thing and Ballmer paid almost 4x the highest transaction ever.

David:              They gave up 6 parking spaces in perpetuity.

Ben:                 That's right. And think about the diamonds on those championship rings, you know. But the thing that sticks with me about that is, it’s a limited supply thing. Like this is a team in a major market with a sport that has risen dramatically in popularity. And in 2014 looked like it was only going to continue to have more lucrative TV deals to come and that leads itself to, you know, with incredible supply constrain, there’s a lot of 5+ billionaires out there that would like to own a team and there’s a very limited number of big market teams that they could own. So in considering this, in grading this acquisition later, like one thing that we should keep in mind is whether or not it’s actually the best place to park your money, it’s a very exclusive club of people that own teams like this and not every billionaire can get in.

David:              Yeah. And it actually reminds me a lot of the other non-technology, well one of the other non-technology episodes we’ve done on this show which was Alaska buying Virgin America. And what we realized in that show is how important the “real estate” of gate access and gate control at airports was and there’s just a limited number of gates at airports and that was probably the biggest reason we concluded why Alaska bought Virgin. And it’s a similar situation here. There’s just a limited real estate.

Ben:                 Yup. And they don’t often come up for sale.

David:              Yup. And a bunch of other themes that we’ll get into later in the show.

Ben:                 Here’s another thing that I found really interesting in the Forbes list. I would not have projected this at first and it started to make more sense when I was thinking about it. But NBA teams on average, I mean this is kind of eyeballing, I should crunch the numbers, but it looked like the valuations of these teams are about 10x their revenues and about 15x their operating income. For anybody who’s building a software business, you’re thinking, “Oh my SaaS business is probably going to get like a 3x to 5x revenue multiple.” Or I guess I just wouldn’t have expected that these sports teams would like have a 15x operating income multiple and in kind of talking through with other friends before the show, it kind of makes sense because you would think like okay, am I sure that this B2B SaaS company is going to be around in 15 years? No. Am I pretty sure that this NBA franchise is going to be around and generating somewhere in this neighborhood of operating income that it is right now, give or take 20 percent? Yes. Like sports franchises are such an enduring part of the fabric of a city and the fabric of American culture that, you know, we just trust that these things are going to continue to be around and continue to be popular.

David:              Yeah. I think there’s another really key element to analyzing this transaction, which let’s get into now and we can continue to discuss throughout the show which is growth. Right? I mean, when you’re talking about multiples, multiples whether it’d be of EBITDA or operating income or revenue, what they really are in terms of valuations is a proxy for your expected cash flows over the future, the discounted cash flows in the future which is the theory of how you value companies. And multiples are just sort of putting your finger in the air and guessing kind of how much growth you’re going to have in your cash flows over the next several years and how much that's going to be worth to your bottom line in terms of the valuation of the company. What’s really interesting is the growth in the NBA over the last few years and how much. I wish I had harder numbers on this. I don’t know if you do, Ben, or if our listeners do.

Ben:                 Hopefully we can pop into the Slack after and chat with listeners.

David:              Yeah, hop in the Slack. But to me, the most interesting part of this storyline is that the NBA has emerged really since Ballmer acquired the Clippers. I don’t think this is the causal but maybe he might have seen this as I think the most innovative league sport in the world and that has been experiencing the most growth and experiencing the most growth among young viewers, which is the future. The data I do have is that according to Nielsen, the NBA has the youngest audience of any of the major sports in America and has almost half of its viewers under 35 which is definitely the case with baseball, it's probably the oldest, but not football, not hockey. There is a lot of growth happening in the NBA right now and it would be fun for us to dig into why.

Ben:                 Yeah. I mean I’d caveat all this with the youngest age and the fastest growth of any physical sport, I’d say League of Legends and Counterstrike.

David:              Right.

Ben:                 I think I’d love to do a future episode on e-sports, but we’ll scope it to traditional sports for this episode. I think yeah, that makes a lot of sense.

David:              So Ben, acquisition category.

Ben:                 Yeah. This is a business line. It’s kind of hard to fit our structure to it.

David:              You could argue it's asset.

Ben:                 Yeah, yeah. And actually, from a technical perspective, the way that – let me see if I can find this. There’s a quote from... I think it's a Forbes article. “Mr. Ballmer, 58, is likely to enjoy significant personal financial benefits. When an investor purchases a sports team, he can attribute a large part of the purchase price to the player contracts he is acquiring. As those contracts expire, their depreciation can offset income.” So it kind of is interesting to think about it like you’re buying something that largely consists of depreciating assets.

David:              Interesting.

Ben:                 I’m still calling it a business line because I think all the future growth is being able to turn that flywheel of the franchise and leverage that brand to get more players, to get more fans and just turn that flywheel on that. That all is part of one business line. But you know, I think it is interesting that from a technical perspective as players age, they’re depreciating assets.

David:              Well, this will lead right into one of my tech themes in a minute. But should we stop for a moment on what would have happened otherwise? I mean, it was clear the sale was going to happen.

Ben:                 Wait, real quick. Are you saying business line also?

David:              Am I saying business line or asset? Yeah, I think I’ll say business line because I think these are sports teams traditionally have been viewed as assets. You don’t buy sports teams to make money. It’s the traditional view on this space. It’s billionaires who want to play and have fun and have a retirement gig. But I think that might be changing. I mean, with the growth and the tech themes we’ll talk about, I think there’s a bright future ahead for sports franchises as businesses and as global businesses that we’ll get into in a minute. So yeah, business line.

Ben:                 Cool. Moving into what would have happened otherwise, I think we should focus more on the team than on what Steve Ballmer could have done with his money. But it is interesting that according to that Forbes list at least, the business hasn’t appreciated at all and if he just parked it in an S&P index fund from that day that he bought it until today, the day that we’re recording, it would have been a 20.8% return. So like you’re saying, at least in the short-term so far from what we can see in terms of actual appreciation of the estimated value of the asset that is the team that he bought, not the best place to park your money for an investment.

David:              All right. Should we move on into tech themes?

Ben:                 Yeah. It’s probably worth what would have... one thing that I also had in what would have happened otherwise is, what has Steve Ballmer done for the team that another owner couldn’t? Like what if it did fall into the hands of another bidder, like would we see the diving save to re-sign DeAndre Jordan, stop him from going to the Mavericks. Like would we see... I think one thing that's interesting about or potentially advantageous for the Clippers of having Steve Ballmer own the team is that number one, he’s ridiculously involved and much more so than I think most owners are and probably maybe even to a fault.

David:              Are you speaking to the experience with Microsoft though?

Ben:                 No, no, I’m not. I really think this was, chatting with someone that has a close friend in the Clippers organization and just that it was a little disruptive in the operations of the business when he took over, that he was just involved in so much of it. So, for better or for worse, he’s much more involved than another owner would be, but also, he employed a similar strategy to the one that he employed at Microsoft for M&A in making an over-the-top bid for Skype to just end all negotiations. Like he did the same thing with the Clippers here in bidding 20% over the next highest bidder. And you know, the man has $19 billion, and this is what he’s going to do for maybe the rest of his life and he has expressed over and over again that he has always wanted to own an NBA team but he couldn’t because his day job kept him too busy before. And I think that his willingness to go above and beyond even when it may not make like obvious financial sense or if you really, really dig into it, like he’s able and willing to write really big checks because it could have really big payoff. Like if he can win the Clippers a championship ring, then he’s a total hero and he may actually, like all this may turn out to be a great investment for him.

So I think that one thing to think about is like his liberal sort of the looseness with the purse strings especially compared to previous ownership is really beneficial for the team.

David:              Well, it’s interesting. Let’s talk about Ballmer’s personality here for a minute which we can’t in this show without talking about. But I want to talk about Ballmer’s personality and compare it to Mark Zuckerberg’s who is as we’ve talked about on this show, probably the acquirer, the CEO of an acquiring company whose style we’ve analyzed most on this show. And Zuckerberg is equally very, very aggressive and willing to come in with very high prices. But he’s sort of like the silent killer type. He doesn’t say a lot. He kind of comes down. He flies down. He likes to buy Southern California companies or try to buy Southern California companies, flies down to the meeting and he says, “Hey. Well, I’m going to crush you or I’m going to help you. And here’s the number, it’s a lot of money. Let’s get this done.” But the thing about Zuckerberg, I think with some potential missteps thus far as we talked about on Oculus in the last episode. Like his judgement is generally pretty spot on. He’s been right a lot more than he’s been wrong with these things. Ballmer, is a very... I wouldn’t say that his judgment is bad but he takes a very different stylistic approach to being an aggressive acquirer. He is loud, he is boisterous. We will link to it in the show notes. Very famous for his public persona and his “developers, developers, developers” chant, his jumping up and down onstage. That’s just him, too. We’ve both cross paths with him in Seattle and elsewhere in our travels. You have a conversation with him and he just oozes enthusiasm. That’s what he’s bringing to the Clippers.

Ben:                 Yeah, you’re absolutely right on that. I think he actually jumped on a trampoline and dunked when they were announcing the new Clippers mascot. He still does the standard Ballmer lean-back in the middle of an arena full of people and yell and fling his arms around and talk about “I love the Clippers! I love this company!”

David:              “I love this company!” So good. Drenched in sweat. Steve is the best.

Ben:                 Yes. He is true to his style. And you know, love him or hate him, his passion is infectious. I think one other point that I wanted to make before moving out of this what would have happened otherwise is basketball fans will note that there’s not unprecedented but uncommon thing going on within the Clippers organization where Doc Rivers is both the head coach and sort of the president/GM role. And typically, the president/GM role handles making the right player acquisitions, signing the right contracts, making the trades, doing a lot of the work on the draft to fill out the roster and kind of handle sort of the business of the team and the business of making sure the team is in a place that can win and then the coach is in charge of actually dealing with the players and the strategy and working with the GM. In this case, Ballmer gave Doc kind of all of that power as coach and president. What that probably ends up looking like since he’s so involved is Ballmer making a lot of the business decisions and then also having Doc potentially split his time too much. So I would say what would have happened otherwise, a different owner may have actually brought in a GM and add a little more depth to the roster and potentially just had a little more basketball expertise in there.

David:              Yup. But that is not Steve’s style.

Ben:                 It is not. It is not. So, should we move on to themes?

David:              Let’s do it. Okay. So, here’s my theme for this episode. And again, listeners that are closer to the basketball world, we’d love your input. I think this purchase certainly as we’ve talked about, it reset the landscape of valuations for NBA franchises and there is a kind of real estate component to it and that there are a limited number of NBA teams and a lot of billionaires out there with a lot of time and a lot of ego. But here’s what’s really interesting I think going on in sports and perhaps even more so, well certainly in the game in basketball more than any other sport right now, there is a ton of innovation happening and I think there is business model innovation that is happening in sports right now, in American sports. For the last 50+ years, 50-60 years, there’s been this huge – and Ben Thompson has written about this – this huge symbiotic relationship and flywheel between the television industry, the sports industry and the advertising industry, the auto industry, the beer industry, the retailer industry. That has been a very tight coupling where you have sports being the biggest TV events, literally the Super Bowl moments that bring huge scale, mass scale audiences that advertisers of mass products advertise on. That’s starting to break down today as the internet is pushing farther into entertainment, we’ve talked about this a lot, and our various Facebook episodes and Snapchat of course and the opportunity to disrupt TV.

But what’s happening at the same time over the last few years is in one sense that’s very threatening to the business model of sports because the vast majority of the revenue comes from TV. But they’ve been developing streaming and direct subscription revenue and direct customer relationships as part of the product on the side. And I think that is a huge opportunity. Ben and I talked a lot about, we debated doing this episode on Major League Baseball Advanced Media which changed its name to BAMTech that provides the technology for streaming behind this and we want to do a future episode on it. But the ability for Major League Baseball, the charge is I believe it’s $150 a year for this incredible product where you can stream any game at any time anywhere in the world. They make so much money off of that from their engaged customer base and have a direct customer relationship. That's a bright future for sports and I wonder if Ballmer came in and bought this team for what seems like a huge amount of money at the time. But if and as this transition happens, this might be the path for sports teams to become real businesses.

Ben:                 I don’t know exactly why there’s so much more money in the TV rights for these teams than there was 5 years ago. I mean, one thing I could speculate is that with most shows, people cord cutting means that live doesn’t matter as much and that they’re down to watch almost all programming on Netflix, Amazon, HBO–

David:              To be clear, I think there are two things going on. The TV rights are staying the same and growing as sports are becoming the only thing that people keep their TV subscriptions for. But the leagues themselves on the back of BAMTech are disrupting themselves in that business model and offering these direct subscription packages to customers with this big revenue stream that they still sell advertising on but now they’re basically disrupting ESPN, and ESPN makes so much money. It’s by far the largest and most profitable cable channel on the back of sports. And the leagues I think are starting to realize that they can cut ESPN right out of that and make both the advertising money 100 percent of it and the subscription money.

Ben:                 Right. Because in that subscription money, they’re commanding more power in the bundle as they are the reason that people want linear television and want that live experience. They’re winning on two fronts there.

David:              The point I'm trying to make is they’re still getting the ESPN juice and they are also getting a ton of money from people that are buying league pass. And those people are also buying cable and paying money to ESPN too, right? So these sports leagues for the next couple of years are just going to be raking in the money.

Ben:                 Yeah, I think you’re right. I have the exact same tech theme as you on this one. I think I have it much more high level as just that the NBA’s broadcast rights are getting more valuable but I think you nailed exactly why that is.

David:              So, the one other tech theme I want to cover quickly that I feel very unqualified to opine on other than I see it happening and it’s so fun to watch is how the product held the game on the court. It's also had so much innovation over the last couple of years and seemed driven – well, there’s the whole money ball aspect and what the Rockets started doing and bringing kind of statistical analysis to front office management of teams. But then there’s also literally the game on the court which the warriors have just completely changed and I love watching that, and that's what’s so rare in sports I feel these days, and to me, the many reasons why but I grew up loving baseball, playing baseball and I still love baseball, but it’s hard to watch because there’s so little innovation in how the game is played. But basketball is so dynamic right now.

Ben:                 It’s funny, probably 10 or 15 years ago I was saying I don’t really love the NBA. I like watching college basketball more because it’s real basketball and watching the NBA is watching a few superstars travel all over the place, dunk and then have – like wait around at the top of the keep for the shot clock to stick down, drive and then dunk. It’s like okay, we know what’s going to happen every time. The refs are going to be really nice to these few players. And I think what we’ve seen happen is it’s just a much more fast-paced, dynamic game where there’s a lot more. They’re passing the ball around, there’s a lot more ball movement. They are optimizing for exactly the three-pointer that they should be taking, not taking the ones that they shouldn’t be taking. There’s a lot of data science applied to this from a technical perspective. But then from an intuition perspective, you just have your Steph Curry’s that come together on a team like the Warriors to really change how the game is played. And if I have any gripes about my own team like about the way that the Cavs play, is that they’re very, very fortunate to have LeBron and it’s unclear if – I mean, they’re still kind of playing that older style of play.

David:              Yeah, they are. I think again with avoiding the temptation to dive too deep into analyzing these aspects of the game because I’m not qualified.

Ben:                 David and I are so far off of what we should be talking about right now.

David:              I really hope that other sports and certainly I am much more qualified to talk about baseball and football, having played both myself for close to 15 years, there’s just been no innovation in either of them really, in terms of how the game is played. And I hope these other sports and managers and coaches in other sports at all levels can look at the NBA and say there is so much value and power in not feeling like we have to stick to tradition in the way that’s always been done in how these games are played and that fans will react super positively and love new innovations. I mean, stuff like in baseball, like you should never bunt. It’s statistically proven that bunting is terrible. Just like football, like you should go for it on fourth down way more often than people do but there’s such conservative environments that people don’t do these things. And I hope the NBA is going to drive some more innovation than other sports as well as people see how well audiences react to it.

Ben:                 I think the NFL had an amazing 20-year run up to call it five years ago where they really turned the NFL into a family sport. It’s not the thing that dad does and drinks beer on the weekend with buddies at the game. Like it’s a thing that like they’ve really turned it into a family product where you have people over and the whole family gets into it and the broadcast is much more tailored around entertainment than it is like a gridiron sport. The Super Bowl is the best implementation of that. But I don’t think we’ve seen much evolution beyond that yet. I think the NFL is riding high now but the NBA is more the stock that I would buy right now.

David:              Yeah. Well, the NFL has a huge liability on their hands that I don’t see any way out of it with the concussion issues. I played football for over 10 years myself throughout middle school, high school, college and loved it. But if I could go back and make those decisions again back at every level, I would not play. It’s just not worth the risk.

Ben:                 Yeah. Honestly, watching some of your investment decisions, it’s pretty clear to me that it wasn’t worth the risk.

David:              Yeah. Just imagine how good I’d be if I hadn’t played football.

Ben:                 Oh man, shall we go into grading it?

David:              Yeah, let’s go to grading it.

Ben:                 All right. Well, one thing I want to bring up is that from one listener and friend of the show that – I’ll just read his quote because he had a really interesting insight here that we haven’t even talked about yet and that’s “The most interesting phase is coming soon when JJ Redick is likely to sign for more money elsewhere, Blake and CP3 (Chris Paul) are free agents. And how will the franchise move on if one or both of those guys leave? That’s the challenge for Ballmer.” And I think David and I are not probably here to speculate about the future player moves of the team but it is interesting to think about something that's going to knock some points off my grade is definitely the lack of a true president/GM in place here to keep a good handle on a good pipeline on all these depth chart moves.

David:              But I think this will be the true test for Ballmer as an owner like we reserve the right to – with tech companies if we reserve the right to change our grades in the future would be his reaction to this, I think it gets back to management and lessons that are equally applicable to tech companies and startups which is it's not always up into the right. Things happen, right? Like your star players become free agents and they leave. Like you can’t change that. That just happens. That’s life in a company. The test of a management team and the company is how you react to that and do you either give up and start heckling your players like Donald Sterling, like that’s one end of the spectrum. Or do you support your employees and your staff and your team and make the decision sometimes hard to continue to do your best to put the team out there that's going to win and do that really thoughtfully and strategically like we saw Facebook do throughout their IPO and afterwards when they realized it was like they lost their stars and free agency as the mobile wave was about to wash over them and they went out and they fixed it.

Ben:                 Agreed. I’ll take a first stab at the grade. We normally on Acquired grade with the lens of was this a good financial decision for the acquiring company to acquire the company. The tech that I want to take on it for this episode is to take out the word “financial”. So we can say, was this a good decision for Steve Ballmer to acquire the Clippers? I think the guy had $20 billion and the rest of his life in front of him. I had another friend bring up this idea that it’s incredibly rare that an opportunity like this comes on the market and when you’re already a billionaire, buying and running a sports team is like it’s the only hard thing remaining for you to do. You’re instantly famous when you do this, right? Jerry Jones made all of his money in oil but then now he’s famously the Dallas Cowboys owner. Like you can be a billionaire but not have your name in lights. I think Ballmer had a good amount of that already, but for him, what are you going to do with the rest of your life? This is a really fun thing to do and you’re in this very, very exclusive tier one market owners of franchises.

So there’s some amount of my grade that’s going to come from – it’s like an A in terms of how do you want to spend the rest of your life and that is not necessarily a financial decision. On the financial decision, he really is bringing some innovation here. He’s putting a lot of effort into it. I disagree with them not having a president. On the execution of actually doing this thing and kind of furthering the turnaround of this team, I’ll give it a B. But if you have that much money and you want to buy an NBA franchise and make this your second foray of life’s work, certainly a fun way to do it.

David:              Yeah. I think I’m going to try and resist temptation to think about it outside of business decision and think about it solely in terms of the price Ballmer paid. He certainly probably could have gotten this team for a lot worse. I mean that was coming in hot with that price. But he reset the market and it’s risen to that level and for all the reasons I talked about in tech themes and before I think he is kind of catching this wave at the right time where the leagues and the teams as components of these sports leagues have a big technology-enabled opportunity in front of them to change their business model, disrupt themselves into something more valuable. So, given that, I’m going to go with B+ because I think he’s gotten all the fundamentals right. There’s execution that remains to be seen both on the product, on the team side and quite honestly, on the business model for the league side too. It’s early days. And I think he probably could have gotten the team for a lot less. But to your point, Ben, he did not want to misfire on this one; he wasn’t going to lose. And that is classic Steve Ballmer.

Ben:                 Yup.

David:              All right. Follow-ups and Hot Takes, we’ve got a few this week. Instagram Stories – it was reported that Instagram Stories now has more than 200 million DAU which is more than all of Snapchat, at least until we see Snapchat’s growth numbers for Q1 which they’ll be reporting their earnings soon here. That will be a big, big day for Snap’s stock. And associated with that, I want to give a big shout-out to a listener named Ross who very kindly wrote Ben and me, correcting us on our definition of DAU that we’ve used a few times on this show where we implied that wrongly that DAU meant people or users using it every single day. It doesn’t necessarily mean that. It’s just a percentage of the user base, the total user base that any product has that uses it on any given day. So if half the user base uses it one day and half the user base uses it on another day and then they mix up and various portions of them on the third, you can still have 50 percent DAU to MAU ratio, but with nobody using it on every single day. So, an important distinction. Thank you, Ross, for pointing that out.

Ben:                 One other –

David:              Yeah, I think we do have one other follow-up from our early episodes. There was a little trailer that was released on the internet this week.

Ben:                 Yes. I’m excited, I’m scared, I’m nervous. I don’t know what to do with myself other than watch the new Star Wars trailer over and over and over again and wonder if it is Christmas yet.

David:              The Last Jedi. Is it Christmas yet is going to take on a whole new meaning. I’m so excited.

Ben:                 Yeah. No spoilers on the trailer, but like it all changes at the end, so it’s worth watching multiple times and then reinterpreting it through that lens after seeing the end of the trailer. I can’t believe I’m giving spoiler alerts for a trailer but like it’s so well done.

David:              It's that big. I can’t wait.

Ben:                 Yeah. Another one is a little quick piece of follow-up from the Starbucks episode. One reason that the Starbucks IPO is so successful that we didn’t really touch on in grading it is because they delivered on a consistent basis financially for like many quarters after the offering and they had like tens and tens and tens or I think it was maybe even a hundred months of month over month growth on average in same-store sales. And so if we ever do a similar analysis in the future of an expanding chain of stores, that’s an interesting mark to keep in mind.

And David, one of the reasons we do this show is to try and understand what makes an acquisition successful, what makes an IPO successful and zooming in on that metric of even though you’re opening multiple stores because you have more free cash flow to keep reinvesting the average of your same-store sales across all stores continuing to rise. It’s a really interesting piece to zoom in on and thing to shoot for.

David:              Indeed, it is incredibly impressive. Tens and tens and even up to a hundred consecutive months of same-store growth. It does help when you’re literally selling drugs to your customers as Starbucks does.

Ben:                 Any time you can sell a legal drug, it’s probably a good business.

David:              It’s probably a good business. But as we talked about on the episode, there are so many more great lessons from Starbucks that everyone can learn. Should we move on to Carveouts?

Ben:                 Yeah, let’s do it. So I’ll take a stab. As you know, we love recommending podcasts. Bill Gurley was on Jason Calacanis’ This Week in Startups this week and any time you get a chance to read some of Bill’s writing on his blog or hear him speak on a podcast, it's a treat because he just has such incredible clarity of thought and he walks through sort of the benchmark business model of really only investing in a couple of companies per year and spending just an incredible amount of time embedded with those companies. And actually, I didn’t know that much about Bill’s background. We had touched on when we had Tom Alberg on for the Amazon IPO episode, he had mentioned that Bill Gurley and Frank Quattrone did to the IPO. And I didn’t really know that Bill was a computer science major before that and it’s really interesting to hear about –

David:              Compact.

Ben:                 That's right. It’s super interesting to think about the decisions that guy made and the risks that he took and the way he looks at the world and the way he looks at investing. So if that's your cup of tea or any of those things are your cup of tea, I highly recommend listening to Bill because he is a sage.

David:              He is. He and all folks at Benchmark, they are one of the best and a joy to work with and very, very good at what they do. My carveout for the week is also a podcast, a really great one. Jenny my wife and I were on a road trip recently and Jenny’s a member of Slate Plus podcast that you have to be a subscriber to but it’s worth subscribing, it’s called Pop, Race & the '60s and it’s by Jack Hamilton who is a professor at UVA and he interviews folks. It’s only six episodes. It’s a short series but it’s great. Each episode is about a white musician or musical group from the ‘60s and a black musician or musical group from the ‘60s and comparing them against each other and how they were viewed by society at the time and their legacies and impact. And it is so great. I love ‘60s music, grew up listening to all of it. Jack actually wrote a book, his first book which was I believe his dissertation, PhD dissertation called Just Around Midnight which is basically, if you can’t listen to the podcast, this is the podcast in book form. But Janis Joplin, Aretha Franklin, Jimmy Hendrix, Bob Dylan, the Beatles, the Stones, and talking about the importance of race in the conversations across these groups whether it was – I didn’t realize how often both the Beatles covered Motown songs and the Motown covered the Beatles throughout their careers. Super cool. Also, I know this is going on for a while about this carveout, but I think it’s also as I was listening to it really applicable to the tech industry. It made me think a lot about San Francisco in the ‘60s and so much of that music was coming out of there and the counterculture movement and how like the tech movement and Silicon Valley really was birthed out of the counterculture movement. Huge driving force of change that kind of started in San Francisco in the ‘60s with that counterculture movement and the legacy you see in that in the tech industry today. Super cool. Worth listening to or if you can’t listen to it, read in the book. We’ll link to both in the show notes.

Ben:                 Very cool. Well, listeners, thanks for joining us again. If you aren’t subscribed and you want to hear more, you can subscribe from your favorite podcast client. If you’ve been a long-time listener of the show and want to leave a review or if you just happen to tune in this one and like the episode, either way we’ve love a review on iTunes. So, thank so much for listening. Enjoy the NBA Playoffs. Go Cavs!

David:              Go Warriors!

Ben:                 Thank you to our sponsor Silicon Valley Bank. Other than that, we’ll see you next time.

David:              We’ll see you next time.

Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

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