The LA Clippers

In honor of 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! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Topics covered include: The Clippers’ founding in 1970 as the NBA expansion team the Buffalo BravesEarly ownership changes and the move west to San Diego in 1981Acquisition in 1981 by LA lawyer and real estate developer Donald Sterling for $12.5MSterling's relocation of the Clippers to LA in 1984 against NBA rulesStruggles 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 PaulThe bombshell in April 2014, reported by TMZ, of a taped conversation between Sterling and his mistress where Sterling makes hugely offensive and racist comments https://en.wikipedia.org/wiki/Donald_Sterling#Racial_remarks_and_lifetime_ban, directed in particular toward former Lakers point guard Magic JohnsonFallout 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 https://www.youtube.com/watch?v=I14b-C67EXY for $2BImpact 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 Followups: Instagram Stories passes 200 million users per day http://www.theverge.com/2017/4/13/15279266/instagram-stories-facebook-200-million-users-snapchat-clone (including correction on the definition of DAU)The Last Jedi trailer http://www.theverge.com/2017/4/13/15279266/instagram-stories-facebook-200-million-users-snapchat-clone! Clarifying Starbucks’ same store sales performance post-IPO The Carve Out: Ben: Bill Gurley on This Week in Startups http://thisweekinstartups.com/bill-gurley-benchmark/David: Pop, Race & the '60s https://slate.janrainsso.com//static/server.html?origin=http%3A%2F%2Fwww.slate.com%2Farticles%2Farts%2Fpop_race_and_the_60s%2F2016%2F09%2Fjack_hamilton_presents_pop_race_and_the_60s_a_slate_academy.html podcast and Just Around Midnight https://www.amazon.com/dp/B01L7NJNVU/ by Jack Hamilton

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Rosenthal?

  Okay.

• 0:00Ben Gilbert?

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

• 0:05David Rosenthal?

  I didn't write down the title. I wanted to make sure I got it right.

• 0:20Ben Gilbert?

  Welcome back to episode 36 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

• 0:28David Rosenthal?

  I'm David Rosenthal.

• 0:29Ben Gilbert?

  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.

• 0:53David Rosenthal?

  And I gotta admit, the Warriors are pretty fun to watch.

• 0:55Ben Gilbert?

  Yeah, well, they're changing the game. So Steph Curry is awesome. But we do love digging into the analysis of any acquisition and there's no shortage of writing and opinion on this one. And 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 headfirst and kind of force ourself to do all the research. And thanks to many Acquired listeners and many of David and my friends who we, we called in to get their kind of like hardcore sports opinions on, on all this.

• 1:28David Rosenthal?

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

• 1:48Ben Gilbert?

  Yeah. And I think, you know, this was a $2 billion purchase by Steve Ballmer. And anytime there's a $2 billion transaction going on.

• 1:57David Rosenthal?

  Involving Steve Ballmer.

• 1:58Ben Gilbert?

  Right. Involving Steve Ballmer. You know, whether it's sports or airlines, like we did with the, the Virgin Alaska acquisition, or any of our, you know, standard tech wheelhouse, we can definitely apply the. 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 are close to 600 people. So if you enjoy doing analysis of any tech event, there's people in 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,

• 2:44Ben Gilbert?

  we are all hanging out in the acquired Slack, which you can join at acquired.fm. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF. Then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 3:08David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote unquote "shadow AI" running with no security review at all.

• 3:29Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes and cuts the time that you'd spend on vendor assessments in half.

• 3:51David Rosenthal?

  In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 4:09Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A.com/acquired for $1,000 off and just tell them that Ben and David sent you. So now, without further ado, David, will you, uh, will you take us into the story?

• 4:42David Rosenthal?

  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. And they had modest success in the first year, but in some foreshadowing of, of things to come for the team and, and some challenging decades ahead, they were, they were obviously in Buffalo. They, they found it hard to schedule home games in the first couple of

• 5:22David Rosenthal?

  years because there was another basketball team in town, the Canisus Golden Griffins, the, the well-known and world famous Golden Griffins.

• 5:33Ben Gilbert?

  Oh yeah. It's just like, uh, very similar to their rivalry now with the Lakers where, you know, they're, they're.

• 5:38David Rosenthal?

  You know, Lakers, Griffins, Clippers.

• 5:40Ben Gilbert?

  Both trying to draw millions and millions of people to their, their.

• 5:44David Rosenthal?

  Their as well. The Golden Griffins had pre-existing rights 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, uh, and as, 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 Colonels, uh, which I believe is a basketball team, was a basketball team, John Brown Jr. And he really wanted to move the team

• 6:27David Rosenthal?

  for obvious reasons. And so what he decided to do in further foreshadowing of things to come for the, the hapless Clippers, uh, future Clippers, he basically just decimated the team's roster, traded away all the stars and, um, and, and as a result, attendance plummeted and basically nobody came. And that was all his. Goal so that they could, they could break the lease and move out of town. So a couple more years go by and in 1978, Brown, actually he did, he, he swayed. Only in the seventies could something like this happen. He, 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.

• 7:12David Rosenthal?

  He wanted to move the Celtics to Southern California, but the NBA wasn't going to let that happen.

• 7:18David Rosenthal?

  Levin takes over.

• 7:19Ben Gilbert?

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

• 7:26David Rosenthal?

  Everybody's happy and, and Levin takes over the Braves, moves them to San Diego, where they changed the name to the San Diego Clippers because of the impressive sailboats that would, would dock and sail through the, the bay in San Diego. So thus the Clippers are born or reborn. So 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.

• 8:05David Rosenthal?

  We don't really talk much about like, we don't really, 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, is basically a horrible human being.

• 8:18Ben Gilbert?

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

• 8:35David Rosenthal?

  Yeah. Well, we'll get into it and. The crazy thing is like, everybody knew, but he just still owned the Clippers. Anyway, he buys the Clippers in 1981 for 12 and a half million. And he, this was also, I thought hilarious. In the introductory news conference in San Diego where, where he announces, he lives in LA, by the way, that he's buying the Clippers. He vows to spend, quote, unlimited sums to build the Clippers into a contender. He later becomes famous for like, spending no money on the Clippers, on, on players.

• 9:07Ben Gilbert?

  You know, it seemed to plague their entire existence.

• 9:09David Rosenthal?

  Yeah. And then he launches an advertising campaign in, in San Diego. Where he puts, 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."

• 9:29Ben Gilbert?

  Well, yeah, that's what every fan of every sports team wants to see. A gigantic picture of the owner's face.

• 9:34David Rosenthal?

  Yeah.

• 9:35Ben Gilbert?

  Nailed it. Know your audience.

• 9:37David Rosenthal?

  Well, if the owner is Steve Ballmer, then maybe, but.

• 9:42David Rosenthal?

  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, the league's bylaws. And, and the way he gets around it is he just sues the league. The league, you know, fines him a huge amount of money and he's like, okay, fine. I'm going to sue you. And so he sues them for a hundred million dollars. And they stand down and they, they reduce the fine to him for, for basically stealing, absconding with the Clippers from San Diego and moving them up to LA.

• 10:13Ben Gilbert?

  Boy, storied franchise, right? Like all this, all these moves, ownership trades, ridiculous lawsuits.

• 10:20David Rosenthal?

  Sounds just like a tech company.

• 10:21Ben Gilbert?

  Yeah, right. Boy, seeming more and more a perfect fit for a choir than we thought.

• 10:25David Rosenthal?

  Than we thought, than we thought. So from there, we can basically just fast forward through the next 30 some odd years because.

• 10:34Ben Gilbert?

  Hint, they didn't do very well. Yeah.

• 10:36David Rosenthal?

  They, they, so they go to the playoffs four times in the next 25 years. Which is pretty bad. And, and actually in the whole, so Sterling owns the Clippers from 81 until 2014, when this horrible event happened that we're about to describe. The Clippers actually have the worst winning percentage of any team in any major American sport, which is, which is incredible.

• 11:02Ben Gilbert?

  Well, that's a feat. It's like, that's, that's more like statistically difficult to achieve than mediocrity.

• 11:09David Rosenthal?

  You have to work really hard to be that bad. In 2009, ESPN names the Clippers the worst franchise in professional sports. And Sterling, you know, continues his Sterling reputation for being a horrible human being. He actually, get this, you know, he's the owner, right? He has courtside seats to every game. He, at some point in the 2000s, late 2000s, just starts heckling his own players.

• 11:36Ben Gilbert?

  Class move.

• 11:37David Rosenthal?

  Like Spike Lee, but like for his own team.

• 11:41Ben Gilbert?

  Jeez.

• 11:42David Rosenthal?

  You can't make this up.

• 11:43Ben Gilbert?

  Class act. I mean, honestly, it's, it's incredible that they played on the same floor at the Staples Center as that, uh, that the Lakers did. Franchise like that, like it's a privilege to get to play in the Staples Center and that's what they did with it.

• 11:54David Rosenthal?

  Yeah. So after the, the Staples Center is built in the early 2000s, the Clippers share it with the Lakers. But again, the Lakers are the marquee team. They have the lease. And so just like, just like back in, back in Buffalo, they can't get the good dates and, and they're basically just the second, you know, 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 2010s, things actually start to get better. So they, through a combination of some good draft picks and, and good trades,

• 12:34David Rosenthal?

  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, in team history and, and are, and are off to the playoffs.

• 12:49Ben Gilbert?

  Yeah. Things are, things are looking up for, for the Clippers. It seems like they've got momentum on their side. Maybe the organization finally is working in lockstep on the business side, um, you know, after all these years in the, yeah, in the woods, uh, you know, and actually this is when, um, what's their coach's name? Doc, Doc Rivers comes in as, uh, as, to coach the team, right? And he's also what? President of basketball operations.

• 13:14David Rosenthal?

  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 the 2014, they have another good season. They're bound for the playoffs. And then on April 25th, 2014, the LA news channel and website TMZ releases a bombshell, a taped phone conversation with Donald Sterling and between him and his mistress. He's married but estranged from his wife and his open relationship with a mistress.

• 13:59David Rosenthal?

  Again, gem of a human being here. And as Ben mentioned, you know, it was sort of, you know, known, but swept under the rug that Sterling had been really racist for a very long time. This, 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, you know, this is 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.

• 14:43Ben Gilbert?

  This guy's office rocker.

• 14:45David Rosenthal?

  Despicable in every sense, but he's NBA owner. And this is a photo with Magic Johnson, you know, Hall of Famer Magic Johnson. So needless to say, this, this is not going to end well for Sterling.

• 14:57Ben Gilbert?

  No, no, you know, as you can imagine, the NBA is not too pleased about this.

• 15:02David Rosenthal?

  No, nobody is pleased about this, so.

• 15:05Ben Gilbert?

  In fact, in fact, this is, this is, uh, 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, their shooting shirts worn inside out to obscure the team logo, to not represent Donald Sterling and, and sort of the logo that he owns.

• 15:33David Rosenthal?

  Yeah, it's incredible. And, and that was. They decided to, they considered before they decided to play the game, they considered boycotting the game and forfeiting the game, which was, you know, playoff game and a playoff game for the Clippers is such a huge, huge event.

• 15:49Ben Gilbert?

  Yeah, you got to imagine the team's like, no, we've worked, worked way too hard for this to, you know?

• 15:53David Rosenthal?

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

• 16:15Ben Gilbert?

  Adam Silver.

• 16:16David Rosenthal?

  Adam Silver, sorry, yes. Not Adam Sterling, Adam Silver, the NBA commissioner at the time and still currently deserves huge credit for this. So, less than a week later, on April 29th, after an investigation that the NBA launched right away, the NBA issues a lifetime ban of, 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 from, and from participating in any team business, player personnel decisions, or any league activity.

• 16:56Ben Gilbert?

  And that $2.5 million fine is the maximum allowable fine by the NBA. You could imagine

• 17:03Ben Gilbert?

  that could be much higher if there wasn't guidelines there.

• 17:06David Rosenthal?

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

• 17:30Ben Gilbert?

  Yeah, that's super interesting. And I, you know, I, I think I remember, 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 own an NBA franchise, it's truly that, a franchise. I mean, you can imagine, it's like owning a McDonald's where, um, yes, you've poured all this money into this thing and you own this asset, but there's actually a, you know, corporate governance structure, uh, above you that can force a lot of decisions with, uh, you know, in this case, a three quarters vote. Like, yes, you own that team, but if three quarters of the other owners don't want you to own that team, then you don't get to own that team.

• 18:09David Rosenthal?

  Yeah, it'd be like if there were, uh, like a social network council that, uh, you know, if Snapchat or Instagram did something horrible and Facebook and, and Google and Twitter could, could make them sell the company. And this is, so this is now where we sort of pick up from the acquired standpoint and where things get interesting. So obviously this is a distressed sale. Um, you have a terrible situation going on.

• 18:36Ben Gilbert?

  Well, you, you would think it'd be a, like, okay, I will get more into this, but like, it should, it should, it should be a low price, right? Cause it's like a fire sale.

• 18:44David Rosenthal?

  Fire sale, team has to get sold. It's the Clippers, right? I mean, they're, they are literally the joke, the punchline of every joke about being a bad team is like, well, at least you're, you know, not as bad as the Clippers. You would think that this is gonna be-

• 18:58Ben Gilbert?

  It's like the Cleveland Browns of basketball.

• 19:00David Rosenthal?

  Even worse. You would think this would be a, a, 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. Um, that happened just a couple of months earlier in February of 2014. And Ballmer's been a lifelong basketball fan. Twice in Seattle, he tried to first save, be part of a group to save the Sonics from leaving

• 19:45David Rosenthal?

  Seattle. A dark, dark day in Seattle history when the Sonics left to become the Oklahoma City Thunder, right after they drafted Kevin Durant, too. Terrible. And and then 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 Bombers' third bite at the apple to own an NBA franchise, and he is not going to be denied in true Steve Bomber fashion.

• 20:12Ben Gilbert?

  To be a homer here, it's such a shame that he couldn't get it done in Seattle. I mean, I really thought I really thought that that ownership group to move the Kings up here and build the new Sonics Arena was going to happen, but

• 20:23David Rosenthal?

  Well,

• 20:24Ben Gilbert?

  you know, shed a tear.

• 20:25David Rosenthal?

  I think if there's any solace, it's that it does seem to be, at least according to Bill Simmons, the oracle on all such matters. I think there's, 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.

• 20:42Ben Gilbert?

  Yeah, it's still a basketball city.

• 20:44David Rosenthal?

  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 of valuation of of sports franchises across all, 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

• 21:27David Rosenthal?

  in New York, which they had at 1.4 billion. So Bomber comes in with a bid of 2 billion. So not just

• 21:34Ben Gilbert?

  It's amazing how much the market matters, right? Like, it's the Clippers. Now, I mean, for sure, they've gotten some great players recently. They've started to have some momentum, you know, Blake Griffin, DeAndre Jordan, Chris Paul, but like, they're still the Clippers in the Lakers market, and they're, you know, in the top half of the NBA teams because LA is just a ridiculous market.

• 21:53David Rosenthal?

  Yep, yep. And and but 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,

• 22:09David Rosenthal?

  Just over a quarter of that purchase price. And, and at the time, everybody was pretty astounded by this.

• 22:16Ben Gilbert?

  Yeah, I think that it's three and a half X the largest ever price tag for an NBA team before. And it's really interesting to note that, you know, this all sort of started happening recently. Where when you look at, you know, my comp for everything is, is the Cavs. When you look at.

• 22:35David Rosenthal?

  Note for listeners, if, if you, if you aren't longtime listeners or don't know Ben, regardless, he is, he's a proud Ohio native.

• 22:43Ben Gilbert?

  That's right. 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, it's, it's something that I kind of want to get to later in this episode and, and try and dissect, you know, why is that happening? Why is, you know, any NBA team potentially a good, a, a, a good pickup right now because of the direction and the growth of the league?

• 23:15David Rosenthal?

  Absolutely. Well, this is, you know, again, at the time, people, which was only a couple of years ago, three years ago now, people thought Bomber was crazy. And, and so we'll dive into that in a minute. But, but just to wrap up, the Clippers have continued their, you know, if not dominance, not being the Clippers of, of, you know, 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, they are one of the best teams, certainly in the Western Conference, if not in the whole NBA.

• 24:01Ben Gilbert?

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

• 24:44David Rosenthal?

  Potential, yeah, that's not yet realized.

• 24:46Ben Gilbert?

  But like, yeah, yeah, they're, they're definitely not a winning team yet in terms of, of playoff appearances and, and, you know, finals appearances. All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

• 25:10David Rosenthal?

  Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks are real.

• 25:24Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 25:34David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 25:52Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 26:08David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 26:24Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 26:45David Rosenthal?

  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 number six, but still at 2 billion, the same mark, the same price that Bomber paid for them three years ago. But the rest of the list is pretty interesting. So the Knicks are still number one. 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.

• 27:26Ben Gilbert?

  Yep. Yep. And I want to make a few points where we're still in acquisition history and facts. The, this is like, I just have to read this, this clip to, to underscore what a ridiculous transaction this was when, when Steve bought the team from the Sterling's. As part of the deal, Shelly Sterling gets the titles of owner emeritus and Clippers number one fan, as well as 10 tickets in section 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

• 28:10Ben Gilbert?

  following any Clippers title, and will run a yet to be named charitable foundation. So like, what, why is that part of the transaction? And why does she get Clippers rings? Like, or championship rings?

• 28:24David Rosenthal?

  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 the behalf of the team. Cause, cause Donald himself actually, you know, was super resistant, ended up suing the NBA, suing everybody involved, but fortunately has pretty much ridden off to the sunset at this point.

• 28:49Ben Gilbert?

  Yeah, 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 they, you know, and Ballmer paid almost 4X the highest transaction ever.

• 29:08David Rosenthal?

  And gave up six parking spaces in perpetuity.

• 29:13Ben Gilbert?

  That's right. That's right. And think about the diamonds on those championship rings, you know?

• 29:17David Rosenthal?

  Yeah.

• 29:17Ben Gilbert?

  But the thing that that sticks with me about that is it's a limited supply thing, right? 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 constraint, that there's, there's more, there's a lot of five plus 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, I mean, in grading this acquisition later, like, one thing that

• 29:59Ben Gilbert?

  we should keep in mind is whether or not it's actually the, you know, 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.

• 30:13David Rosenthal?

  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, the quote unquote, real estate of, 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 limited real estate.

• 30:48Ben Gilbert?

  Yep, and they don't often come up for sale.

• 30:51David Rosenthal?

  Yep, and a bunch of other themes that we'll get into later in the show.

• 30:55Ben Gilbert?

  Yeah. Well, David, 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. And for anybody who's building a software business, you're thinking, oh, my SaaS business is probably going to get like a 3 to 5x revenue multiple. Or my, I guess I just wouldn't have expected that these sports teams would like have a 15x operating income multiple.

• 31:39Ben Gilbert?

  And in kind of talking through it with other friends before this show, it kind of makes sense because you would think like, okay, what, 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%? Yes. Like this is such a, 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.

• 32:22David Rosenthal?

  Yeah. Well, I think there's another really key element to analyzing this transaction, which we, well, 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, you know, multiples, whether it be of EBITDA or operating income or revenue, what they really are in terms of valuations is a proxy for, you know, your expected cash flows over the future. You know, 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, you know, kind of how much growth you're going to have in your cash flows

• 33:05David Rosenthal?

  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, and I wish I had harder numbers on this. I don't, maybe, I don't know if you do, Ben, or if our listeners do.

• 33:25Ben Gilbert?

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

• 33:29David Rosenthal?

  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 causal, but maybe he might have seen this as, I think, the most innovative sports 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, you know, definitely not the case with,

• 34:12David Rosenthal?

  with baseball's probably the oldest, but not football, not hockey. There is a lot of growth happening in the NBA right now, and it'd be fun for us to dig into why.

• 34:20Ben Gilbert?

  Yeah, I mean, it's, I, I'd caveat all this with the youngest age and the fastest growth of any physical sport. I'd say League of Legends and Counter-Strike.

• 34:29David Rosenthal?

  Well, right.

• 34:32Ben Gilbert?

  Yeah, I think I'd love to, love to do a future episode on esports, but we'll scope it to traditional sports for, for this episode.

• 34:39David Rosenthal?

  Yeah.

• 34:39Ben Gilbert?

  I think, yeah, that, that makes a lot of sense.

• 34:41David Rosenthal?

  So, Ben, acquisition category.

• 34:44Ben Gilbert?

  Yeah. This is a business line. I mean, it's, it's like, it's kind of hard to fit our, our normal structure to it. Like, it's, it's.

• 34:52David Rosenthal?

  I mean, I guess the other thing you could argue is asset.

• 34:55Ben Gilbert?

  Yeah, yeah. And actually, from a technical perspective, the way that, let me see if I can find this, is 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.

• 35:25David Rosenthal?

  Interesting.

• 35:27Ben Gilbert?

  I'm still calling it a business line because I think all the, 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, and turn that flywheel and that, that all is, is part of one, one business line. But, you know, I think it is interesting that from a technical perspective, as players age, they are depreciating assets.

• 35:50David Rosenthal?

  Yeah. Well, and, um, well, this is, this will lead right into one of my tech themes in a minute, but, um, should we stop for a moment on what would have happened otherwise? I mean, it was clear the sale was going to happen. Um, and, uh,

• 36:05Ben Gilbert?

  Wait, where are, real quick, are you saying business line also?

• 36:08David Rosenthal?

  Um, am I saying business line or asset?

• 36:13David Rosenthal?

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

• 36:51Ben Gilbert?

  Cool.

• 36:53Ben Gilbert?

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

• 37:31David Rosenthal?

  Yep. All right. Should we move on into tech themes?

• 37:35Ben Gilbert?

  Yeah. I mean, it's probably worth what would have, uh, one, 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, you know, fall into the hands of another, another bidder? Like, would we, would we see the? Diving save to re-sign DeAndre Jordan and stop him from going to the Mavericks. Like, what do we see? I think one thing that's interesting about, 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.

• 38:16David Rosenthal?

  Are you speaking from experience at Microsoft?

• 38:20Ben Gilbert?

  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 he 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 gonna do for maybe the

• 39:05Ben Gilbert?

  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, when you, like, if you really, really dig into it, like, he's able and willing to write really big checks, because it could have a really big payoff. Like, if he can win the Clippers a championship ring, then, you know, he's a total hero, and he may actually, like, all this may turn out to be a great investment for him. So I

• 39:46Ben Gilbert?

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

• 39:59David Rosenthal?

  Well, it's interesting, you know, Bombers, let's talk about Bombers' personality here for a minute, which we can't end the show without, without talking about.

• 40:09Ben Gilbert?

  No.

• 40:10David Rosenthal?

  But, but I want to talk about Bombers' personality and compare it to Mark Zuckerberg's, who is, as we've talked about on this show, probably the acquirer, the CEO of, 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. You know, he doesn't say a lot. He kind of comes down, he flies down to say, he likes to buy Southern California companies, or try to buy Southern California companies, flies down to the meeting, you know, and he says, you know, hey, well, I'm going to crush you, or I'm going to help you. And like, you know, here's the number, it's a lot of money, like, let's get this done. But, but the thing about Zuckerberg,

• 40:55David Rosenthal?

  you know, I think with some potential missteps, as far as we talked about on Oculus in the last episode, like, his judgment and, and is generally pretty spot on. He's been right a lot more than he's been wrong with these things. Bomber is a very, I wouldn't say that his judgment is, is bad, but, but he takes a very different stylistic approach to being an aggressive acquirer. He is loud, he is boisterous, he is, you know, there is, we will link to in the show notes, very famous for his public persona and his developers, developers, developers, developers chant, his, his jumping up and down on stage. And that's just him, too. I mean, we've, we've both, you know, crossed paths with him in,

• 41:40David Rosenthal?

  in Seattle and elsewhere in our, in our travels. And, you know, you have a conversation with him and he just oozes enthusiasm.

• 41:47Ben Gilbert?

  Yep.

• 41:48David Rosenthal?

  And, and that's what he's bringing to the Clippers.

• 41:52Ben Gilbert?

  Yep. And one, yeah, you're absolutely right on that. I mean, he's, you know, he's still, I think he actually jumped on a trampoline and dunked when they were announcing the new Clippers mascot. I mean, he still does the, the, the standard Bomber lean back in the middle of an arena full of people and yell and, you know, fling his arms around and talk about it. I love the Clippers. I love this company.

• 42:16David Rosenthal?

  I love this company. So great. Trenched in sweat. Oh.

• 42:21Ben Gilbert?

  Yes, yes. He is true to his style. And you know, he's, his, uh, love him or hate him, his, his, uh, passion is infectious. And I think, um, one other point that I wanted to make before moving out of this, what would have happened otherwise is, basketball fans will know, or will note that, um, there's a, uh, not unprecedented, but uncommon thing going on within the Clippers organization where, Doc Rivers is both the head coach and sort of the, the president GM role. And typically the, the president GM role handles, you know, making the right player acquisitions, signing the right contracts, making the trades,

• 43:06Ben Gilbert?

  doing a lot of the work on the draft to, to fill out the roster and, and kind of handle the, 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, of, of, you know, the, um, actually dealing with the players and the strategy and, and working with the GM. And in this case, uh, Ballmer gave Doc kind of all of that power as coach and president. And what that probably ends up looking like, since he's so involved is Ballmer making a lot of the, the business decisions. And then also having, you know, Doc potentially split his time too much. So, you know, I would say, what would have happened otherwise, a different owner may have actually brought in a GM and, um, you know, and, and added a little bit more depth to the,

• 43:51Ben Gilbert?

  depth to the roster and potentially just, you know, had a little bit more basketball expertise in there.

• 43:56David Rosenthal?

  Yep. Um, but that is not Steve's style.

• 44:00Ben Gilbert?

  It is not. It is not. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Legora, the agentic operating system that is redefining how the world's best legal teams work.

• 44:16David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 44:32Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 44:47David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 45:11Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 45:30David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 46:00Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 46:25David Rosenthal?

  So let's move on to themes. Let's do it. Okay, so here's my theme for this episode. And again, listeners that are closer to the basketball world would 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, you know, kind of real estate component to it in 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, perhaps even more so, well, certainly in the, in the game, in basketball more than any other sport right

• 47:07David Rosenthal?

  now, there is a ton of innovation happening. And, and I think there is business model innovation that is happening in sports right now, in, in American sports. For the last 50 plus 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, you know, the auto industry, the, the beer industry, the, the retailer industry. And, and that has been a very tight coupling where you have sports being the, the biggest

• 47:51David Rosenthal?

  TV events, you know, the, literally the Super Bowl moments that bring huge scale, mass scale audiences that advertisers of mass products advertise on. And that's starting to break down today as the internet is pushing farther into entertainment. We've talked about this a lot in 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

• 48:35David Rosenthal?

  relationships as part of the product on the side. And I think that is a huge opportunity. You know, we've, Ben and I talked a lot about, we debated doing this episode on Major League Baseball Advanced Media, which, 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 charges, I believe it's $150 a year for this incredible product where you can stream any game at any time, anywhere in the world. And they make so much money off of that from their engaged customer base and have a direct customer relationship.

• 49:13David Rosenthal?

  That's a bright future for sports. And I wonder if Bomber came in and bought this team for what seemed 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.

• 49:29Ben Gilbert?

  Yeah. And I, you know, I don't know exactly why the, um, there's so much more money in the TV rights for these teams than there was five years ago. I mean, one, one thing I could speculate is that with most shows, uh, people cord cutting means that live doesn't matter as much. And that they're down to watch almost all programming on, you know, Netflix, Amazon.

• 49:54David Rosenthal?

  Well, to be clear, I think there are two things going on. The TV rights are staying the same or, or, and growing as sports are becoming the only thing that people keep their TV subscriptions for.

• 50:06Ben Gilbert?

  Yes.

• 50:07David Rosenthal?

  But the leagues themselves on the back of BAMTech are end around, you know, 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 also, they're basically disrupting ESPN. You know, and ESPN makes so much money is 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, they can cut ESPN right out of that and make both the advertising money, 100% of it, and the subscription money.

• 50:49Ben Gilbert?

  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, and, you know, want that live experience. And, uh, yeah, that's so it's, it's they're, they're winning on two fronts there.

• 51:04David Rosenthal?

  Yeah. Yeah. Cause, cause the point I'm, I'm trying to make is they're still getting the ESPN juice. And they are also like all getting a ton of money from people that are buying League Pass. Who are, and those people are also buying cable and paying money to ESPN too, right? So like. These sports leagues for the next couple of years are just gonna be raking in the money.

• 51:28Ben Gilbert?

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

• 51:44David Rosenthal?

  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, how the game on the court is also had so much innovation over the last couple of years.

• 52:01Ben Gilbert?

  Yes.

• 52:02David Rosenthal?

  And driven, well, there's the whole Moneyball 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, why, many reasons why, but you know, 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.

• 52:40Ben Gilbert?

  Yeah. And you know, when, it's funny, probably 10, 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, you know, like wait around at the top of the key for the shot clock to stick down, drive, and then dunk. And it's like, okay, we know it's gonna happen every time. The refs are gonna be really nice to these few players. And I think that what we've seen happen is it's just a much more fast paced, dynamic game where there's a lot more, you know, they're passing the ball around, there's a lot more ball movement. They're optimizing for exactly the three pointers they should be taking, not taking the ones that they shouldn't be taking. And they're really, I mean, there's a lot of data science applied to this from a technical perspective, but then from an intuition perspective,

• 53:25Ben Gilbert?

  you just have, you know, your Steph Currys that, that, you know, 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, it's 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.

• 53:47David Rosenthal?

  They are. And I think. Again, without avoiding the temptation to dive too deep into analyzing these aspects of the game because I'm not qualified.

• 53:56Ben Gilbert?

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

• 53:59David Rosenthal?

  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, there's just been no innovation in, 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, in not feeling like we have to stick to tradition and the way it's always been done and how these games are played and that, that fans will react super positively and love new innovations. I mean, stuff like, you know, in baseball, like you should never bunt.

• 54:43David Rosenthal?

  It's like statistically proven that bunting is, is terrible. Just like in football, like you should go for it on fourth down way more often than people do, but, but they're such conservative environments that people don't do these things. And I hope the NBA is, is going to drive some more innovation in other sports as well as, as people see how well audiences react to it.

• 55:04Ben Gilbert?

  Yep. And I think the, the NFL had an amazing 20 year run up to call it, you know, 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 know, you have people over and the whole family gets into it and they're the, the broadcast is much more tailored around entertainment than it is like a gridiron sport. And, you know, the Superbowl is the, the best implementation of that, but I don't think we've seen much evolution beyond that yet. Like, I think the NFL is riding high now, but the basketball, but the NBA is, is more the stock that I would buy right now.

• 55:46David Rosenthal?

  Well, and the NFL has a huge liability on their hands that I don't see any way out of it with the concussion issues.

• 55:55Ben Gilbert?

  Yeah.

• 55:56David Rosenthal?

  You know, I mean, I, I played football for over 10 years myself throughout middle school, high school, college and loved it, but if I could go back and, and, you know, make those decisions again, back in, at every level, I would, I would not play. It's just not worth the risk.

• 56:12Ben Gilbert?

  Yeah. And honestly, watching some of your investment decisions, it's, it's pretty clear to me that

• 56:17David Rosenthal?

  Yes, seriously.

• 56:18Ben Gilbert?

  It wasn't worth the risk.

• 56:19David Rosenthal?

  Just imagine how good I'd be if I hadn't played football.

• 56:25Ben Gilbert?

  Oh, man. Should we, uh, should we go into grading it?

• 56:27David Rosenthal?

  Yeah, let's go into grading it.

• 56:29Ben Gilbert?

  All right. Well, uh, one thing I want to bring up is that from one, uh, listener and friend of the show that, uh, I'll just, I'll just read his quote because he had a really interesting insight here that we haven't talked about yet. And that's that, uh, the most interesting phase is coming soon when JJ Reddick 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, you know, not, David and I are not probably here to speculate about the, 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, is definitely, um, the,

• 57:10Ben Gilbert?

  the lack of a true president GM in place here to, to, you know, keep a good handle and a good pipeline on all these, these, uh, depth chart moves.

• 57:19David Rosenthal?

  Yeah, but I, I do think, I think this will be the true test for Ballmer as an owner, right? Uh, and where if we're gonna, like we reserve the right to with tech companies, if we reserve the right to change our grades in the future will be his reaction to this. I think it gets back to management and lessons, you know, that are equally applicable to tech companies and startups, which is, you know, it's not always up and to the right. Things happen, right? Like your, your star players become free agents and they leave. Like you can't, you can't change that. That just happens. That's life in a company. The test of, of a management team and the company is how you react to that. And do you either, you know, give up and start heckling your players like Donald Sterling? Like that's, that's one end

• 58:02David Rosenthal?

  of the spectrum. Um, you know, or do you, do you support your employees and your, your staff and your team and make the, uh, decisions, sometimes hard to continue to do your best to put the, put the team out there that's, that's going to win and, and do that really thoughtfully and strategically like we, like we saw, you know, Facebook do throughout their IPO and afterwards when they realized, you know, there, uh, it was like they lost their stars in free agency as, as the mobile wave was about to wash over them and they went out and they fixed it.

• 58:38Ben Gilbert?

  Yep.

• 58:40Ben Gilbert?

  Agreed. Well, so I'll take it for a stab at the grade. We normally unacquired grade with the lens of was this a good financial decision for the acquiring company to acquire the acquired company? And the tack 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? And I think that, you know, the guy had $20 billion and the rest of his life in front of him. And 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, you know, buying and running a sports team is

• 59:23Ben Gilbert?

  really only like the hard, it's like the only hard thing remaining for you to do. You're instantly famous when, when you do this, right? Like you're, you know, Jerry Jones made all his money in oil, but then, you know, now he's, he's famously the Dallas Cowboys owner. And like, you can be a billionaire, but not have your name in lights. And I think that, you know, Ballmer had a good amount of that already, but, but for him, you know, 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, you know, exclusive club of, of, you know, tier one market owners of, of franchises. And so there's like 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?

• 1:00:06Ben Gilbert?

  And that, that is not necessarily a financial decision. On the financial decision, he really is bringing some innovation here. I mean, he's, he's putting a lot of effort into it. I disagree with them not having a, a president. So, you know, on the execution of actually doing this thing and kind of furthering the turnaround of this team, I'll give it a B. But, you know, if you, if you have that much money and you want to buy a, an NBA franchise and make this your, your, you know, second foray of life's work, it's certainly a fun way to do it. Yeah.

• 1:00:39David Rosenthal?

  I think I I'm going to try and resist temptation to think about it outside of business decision and think about it solely in terms of, you know, the price bomber paid. He certainly probably could have gotten this team for a lot worse. I mean, that was that was coming in hot with with that price. But he reset the market and and it's risen to that level. And for all the reasons I talked about in tech themes and before, you know, I think he is kind of catching this wave at the right time where the leagues and the teams as as components of these sports leagues have a big technology-enabled opportunity in front of them to, you know,

• 1:01:23David Rosenthal?

  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 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, you know, he he did not want to miss fire on this one. He wasn't going to lose and that is that is classic Steve Bommer.

• 1:01:58David Rosenthal?

  Yep.

• 1:02:00David Rosenthal?

  All right. Follow-ups and hot takes. We've got a few this week. Instagram Stories 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'll be a big, big day for SnapStock. And associated with that, I want to give a big shout out to listener, 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.

• 1:02:43David Rosenthal?

  Where we implied that wrongly that DAU meant people, users using it every single day, doesn't necessarily mean that. It's just the percentage of the user base that the total user base that a product has that uses it on any given day. So if half the, half the user base uses it on 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% DAU to MAU ratio, but with nobody using it on every single day. So, an important distinction. Thank you, Ross, for pointing that out.

• 1:03:20Ben Gilbert?

  Yep.

• 1:03:21David Rosenthal?

  And

• 1:03:21Ben Gilbert?

  One other

• 1:03:22David Rosenthal?

  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.

• 1:03:33Ben Gilbert?

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

• 1:03:45David Rosenthal?

  Is it Christmas yet is going to take on a whole new meaning. I'm so excited.

• 1:03:50Ben Gilbert?

  Yeah, and I, no spoilers on the trailer, but like, it all changes in the, at the end. So like, 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 getting spoiler alerts for a trailer, but like, it's so well done.

• 1:04:05David Rosenthal?

  It's that big.

• 1:04:06Ben Gilbert?

  Yeah.

• 1:04:07David Rosenthal?

  Yeah, I can't wait.

• 1:04:09Ben Gilbert?

  Yep. 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, after the offering. And they had like, tens and tens and tens, or I think it was maybe even 100 months of, of month over month growth on average in same-store sales. And so, you know, it's, it's, if we ever do a similar analysis in the future of, you know, an expanding chain of stores, that's a, it's an interesting mark to keep in mind. And, you know, one, David, one of the reasons we do this show is to try and understand what makes an acquisition successful, what makes

• 1:04:53Ben Gilbert?

  And IPO successful and zooming in on that 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 is a really interesting piece to zoom in on and thing to shoot for.

• 1:05:14David Rosenthal?

  It indeed it is incredibly impressive, tens and tens and even up to 100 consecutive months of same-store growth. It does help when you are literally selling drugs to your customers, as Starbucks does, but.

• 1:05:28Ben Gilbert?

  Any anytime you can sell a legal drug, it's probably a good business.

• 1:05:30David Rosenthal?

  Probably a good business, but there, 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 carb outs?

• 1:05:40Ben Gilbert?

  Yeah, let's do it. Let's do it. So I'll take a stab. You guys know, we love recommending podcasts. Bill Gurley was on Jason Calacanis's This Week in Startups This Week. And anytime 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 were, when we had Tom Alberg on for the Amazon IPO episode, he had mentioned that

• 1:06:24Ben Gilbert?

  Bill Gurley and Frank Quattrone did the IPO. And I didn't really know that, you know, Bill was a computer science major before that. And it's just really interesting to hear about. That's right. That's right. It's super interesting to think about the decisions that guy made and the risks that he took and the way that he he looks at the world and the way that he looks at investing. So if you're, if that's your cup of tea, or if any of those things are your cup of tea, I highly recommend listening to Bill because he is a sage.

• 1:06:53David Rosenthal?

  He is. He and all the folks at Benchmark, they are, they are one of the best and a joy to work with and very, very good at what they do. My carve out for the week is also a podcast, a really great one. Jenny, my wife and I were on a road trip recently and this is a Jenny's a member of Slate Plus. So this is a Slate Plus podcast that you have to be a have to be a subscriber to, but, but it's worth subscribing. It's called Pop Race in the 60s and it's by Jack Hamilton, who's a professor at UVA. And he interviews folks, it's only six episodes.

• 1:07:37David Rosenthal?

  It's a, it's a short series, but it's great. Each episode is about a, a white musician or musical group from the 60s and a, and a black musical musician or musical group from the 60s and comparing them against each other and their, 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. And, and Jack actually wrote a, a book, his, his first book, which was, I believe it's dissertation, PhD dissertation called Just Around Midnight, which is basically, if you can't listen to the podcasts, this is the podcast in book form, but Janis Joplin and Aretha Franklin

• 1:08:22David Rosenthal?

  and Jimi Hendrix and Bob Dylan and the Beatles and the Stones and talking about the importance of race and the, the conversations across these groups, you know, whether it was, I didn't realize how often both the Beatles covered Motown songs and Motown artists covered the Beatles throughout their careers. Oh, cool. Super cool. And, and also I know this is going on for a while about this carve out, but I think it's also, as I was listening to it, really applicable to the tech industry. And it made me think about, 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, wow, like the tech movement and Silicon Valley really was birthed out of the counterculture

• 1:09:07David Rosenthal?

  movement and 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. So super cool, worth, worth listening to, or if you can't listen to it, reading the book, we'll link to both in the show notes. Very cool.

• 1:09:29David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:09:35Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:09:46David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you ship next.

• 1:10:06Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:10:19David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:10:30Ben Gilbert?

  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 longtime 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'd love a lover of you on iTunes. So thanks so much for listening. Enjoy the NBA playoffs. Go Cavs.

• 1:10:51David Rosenthal?

  Go Warriors.

• 1:10:52Ben Gilbert?

  Other than that, we'll see you next time.

• 1:10:54David Rosenthal?

  We'll see you next time.