Animal Spirits Return to Sports Market in Warriors Sale

Earlier this year, major sports teams were sold at a loss for the first time since the 1970s. Last week, the Golden State Warriors were sold for $450 million, an NBA record. So what gives? Perhaps the most important factor is a return of Keynes' animal spirits to the sports market. Just as investors in financial markets have regained their appetite for risk, so have investors in sports teams.

The Warriors have made the playoffs only once in the last 16 years and almost certainly are unprofitable. Owner Chris Cohan, a cable TV entrepreneur, was only expected to get $360 million-$390 million for the team. Joe Lacob, managing partner at venture capital titan Kleiner Perkins, and Peter Guber, CEO of Mandalay Entertainment, made the winning bid.

And Cohan could have garnered even more than the $450 million that duo put up. Oracle CEO Larry Ellison topped the winning bid after a handshake agreement already had been reached. Two other parties also made offers.

There are some special factors at work. Silicon Valley has an enormous concentration of wealth (the Warriors play at Oracle Arena in Oakland). That means the team has the potential to make a lot of money through ticket sales and sponsorships. Despite the mismanagement under Cohan, as evidenced by losing records, attendance has remained strong -- more than 18,000 fans a game. So obviously there's a strong fan base.

And there was no shortage of tech moguls in the area with cash to make the purchase. If it was Ellison buying the team for $450 million, he'd be spending a paltry 1.6 percent of his estimated net worth.
Another positive factor is the NBA's rebound from hard times, with season-ticket revenue now running 5 percent ahead of last year's levels. Most of that increase can be attributed to the economy's gradual recovery over the past year.

Clearly it's this economic stability that has loosened up financial markets. With banks and other entities still holding billions of dollars of bad debt, who would have thought junk bonds would produce double-digit returns over the past year. And with municipalities around the country in dire financial condition, who would have thought that muni bonds would do the same?

Investors are eager for strong returns, and many are putting aside worries of renewed market downturns to snap up securities they hope will provide those returns. The philosophy apparently is the same for at least two wealthy individuals who seek the psychic and financial rewards of owning a sports team.