NEW YORK (Reuters Breakingviews) - An American casino mogul is making a timely bet on Houston. The owner of both the Golden Nugget gaming enterprise and the Landry’s restaurant empire will pay $2.2 billion for the Houston Rockets basketball team. Buying a trophy asset as the city rebuilds from Hurricane Harvey makes for awkward timing. And yet the deal also suggests an abiding faith in a recovery.
It was Steve Ballmer who reset the NBA market some three years ago. As he decamped from his role as chief executive of Microsoft, he splashed out $2 billion for the Los Angeles Clippers in August 2014. That was nearly four times as much as the price paid for the Milwaukee Bucks in the same year.
For a long time, sports franchises were considered little more than vanity acquisitions. Lucrative television contracts have changed the calculus a bit. Leslie Alexander purchased the Rockets in 1993 for $85 million. On that basis, he generated a healthy internal rate of return of 15 percent, Breakingviews estimates, assuming he didn’t collect any dividends along the way.
For Tilman Fertitta, the local businessman buying the Texas team, the transaction comes at a hefty premium. Alexander outbid him 24 years ago by $4 million, according to ESPN. What’s more, he is paying nine times the $244 million in revenue that Forbes magazine estimated for the Rockets. That’s less than the assessed multiple Ballmer shelled out for the Clippers, but well more than what the globally recognized Manchester United soccer club fetches on public markets.
For Fertitta to match the current seller’s return, the Rockets would need to go for some $60 billion in 2042. That may not necessarily be the aim, however, for what the Houston resident called a “life-long dream come true.”
As America’s fourth-largest metropolis confronts a cleanup that could cost more than $100 billion, a luxury purchase like this might look unseemly. The team acknowledged as much, calling the timing “truly unfortunate” while noting that the process started in July. Even so, Fertitta’s deal implies a long-term expectation that Houston will stage a successful comeback.
He may be right. New Orleans in some ways marked its resurgence from Hurricane Katrina in 2005 with the Super Bowl victory by the Saints five years later. Sports have a way of uniting a community. A big local investment by an enthusiastic new owner might deliver unexpected returns.
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