Malcolm Gladwell On Franchise Value And Psychic Benefit

In his debut Grantland piece, Malcolm Gladwell brings some more context to the point I’ve been making about the high franchise values of allegedly money-losing NBA teams. Not only are these teams expensive to buy, they regularly sell for more than their estimated value:

Forbes valued the Detroit Pistons at $360 million. They just sold for $420 million. Forbes valued the Wizards at $322 million. They just sold for $551 million. Forbes said that the Warriors were worth $363 million. They just sold for $450 million. There are a number of reasons why the Forbes number is consistently too low. The simplest is that Forbes is evaluating franchises strictly as businesses. But they are being bought by people who care passionately about sports — and the $90 million premium that the Warriors’ new owners were willing to pay represents the psychic benefit of owning a sports team.

The point, recall, is that despite the profit/loss talk surrounding the NBA lockout, accounting issues aside, the owners are clearly doing well by themselves. Each and every person who owns an NBA franchise is in possession of an extremely valuable financial asset. In a world with only 30 NBA franchises, it’s possible to sell even the relatively lowly Warriors for hundreds of millions of dollars.