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Slam Dunk: Add an NBA Team to Your Portfolio?

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June 14, 2016

With the NBA finals under way, have you thought about diversifying your portfolio with a professional basketball team? All it takes is that few hundred million or couple of billion laying around.

The average team is worth $1.25 billion, which is up 13% from last year, according to Forbes. And get this: the average team value grew by an astounding 74% the previous year thanks to new partnerships with Nike (NKE), PepsiCo (PEP), and multiple media deals (among many others), according to Forbes.

This dramatic increase in team values last year reflects a new media deal signed in October 2014 with ESPN/ABC (DIS) and TNT (TWX) worth $24 billion over nine years. As a result of the deal, advertisers are signing up with the NBA to tap into its global reach, which is the widest among the four major U.S. sports.

Nothing but Net: NBA Teams with the Highest Value

The highest valued team is the New York Knicks at $3 billion. Despite years of underperforming on the court, the Knicks' new 20-year TV deal with Madison Square Garden (MSG), the cable network that broadcasts games, is worth $100 million a year. In addition, revenue from their premium seating is worth $90 million.

Coming in at number two is the Los Angeles Lakers, valued at $2.7 billion. The Lakers became one of the most storied franchises with 10 championships, but they've been lagging lately. Fan interest was high this season because of Kobe Bryant’s farewell tour, which brought legions of fans to every arena the Lakers visited. But fear not for the Lakers in a post-Kobe era. The Lakers have a deal with Time Warner Cable Sportsnet LA worth $3.6 billion for 20 years.

The Chicago Bulls are the third most valuable team at $2.3 billion. Even in the post-Michael Jordan era, the Bulls still lead the league in merchandise sales. Apparently kids still want to "Be Like Mike."

Rounding out the top five highest valued teams are the Boston Celtics (fourth) at $2.1 billion and the Los Angeles Clippers (fifth) at $2 billion, which is what Microsoft’s Steve Ballmer paid for the team in 2014.

Russian billionaire Mikhail Prokhorov bought the New Jersey Nets (seventh) in 2010 for $200 million. The team is now worth $1.7 billion and resides in Brooklyn.

Mark Cuban bought the Dallas Mavericks (ninth) from H. Ross Perot in 2000 for $285 million. The Mavs are now worth $1.4 billion. Clearly NBA teams as an "asset class" have generated a substantial return on investment over the years.

Ready to Take a Shot?

There are only 30 teams, so there aren’t many options.

Can't afford those big market teams at the top? Some small market teams may be worth performing some due diligence.

The two teams with the lowest values are the New Orleans Pelicans (30th) at $650 million and the Milwaukee Bucks (29th) at $675 million.

Hedge-fund managers Marc Lasry and Wesley Edens bought the Milwaukee Bucks in 2014 for about $550 million from former senator Herb Kohl, so they’ve already made a $125 million profit.

Just a few weeks ago, a minority ownership interest in the Cleveland Cavaliers came up for sale, according to Bloomberg. The stake in the Cavs is estimated to be worth about $160 million. 

Don't have that kind of money sitting around in a money market account? So maybe the next best way to gain exposure to the trend in NBA team values is by looking to the companies partnering with the association.

On the other hand, if you decide to take the plunge and invest in an NBA team, you'll join an elite group of magnates from industry and entertainment, which apparently gives you license to do things like this: