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Steve Ballmer's purchase of the Los Angeles Clippers, explained

Microsoft CEO Steve Ballmer
Microsoft CEO Steve Ballmer
Mario Tama

Media reports suggest that Steve Ballmer has inked a deal to buy the Los Angeles Clippers for $2 billion. The sale is still subject to approval from the owners of other NBA teams.

Who are the Clippers and why are they for sale?

The Clippers are a major-league basketball team based in Los Angeles. Founded in 1970, they are owned by 80-year-old Los Angeles real estate mogul Donald Sterling.

Sterling is effectively being forced to sell his team after his fellow National Basketball Association owners voted to ban him for life from the NBA. The owners ousted Sterling after some of his racist comments were caught on tape and released to the media.

Sterling has vowed to fight his ban from the NBA, but he has simultaneously allowed his wife, Shelly Sterling, to entertain bids for the team, sparking a furious bidding war.

Who is Steve Ballmer?

Until earlier this year, Steve Ballmer was the CEO of Microsoft. Ballmer was one of Microsoft's earliest executives, having joined in 1980. He succeeded Bill Gates as Microsoft's CEO in 2000. But he has struggled to find a new direction for Microsoft in the post-PC era and was replaced by Satya Nadella in February.

Ballmer was Microsoft's third-biggest shareholder, and retired from Microsoft with a net worth of $20 billion. That made it relatively easy for him to afford the Clippers' $2 billion sale price. While other bidders for the team were mostly groups of rich people, Ballmer is expected to own the entire team himself.

How can a sports team be worth $2 billion?

Sports is becoming a big business. In recent years, television networks have gotten into bidding wars for the right to host major-league games. Right now, for example, NBA games are shown on ESPN under an 8-year contract that earns the NBA almost a billion dollars per year. Sports teams also make a lot of money selling tickets and merchandise.

The Clippers are especially valuable because they're based in Los Angeles, one of the biggest media markets in the country.

Still, it's not obvious that these factors alone can justify paying $2 billion for a basketball team. A more fundamental factor is just supply and demand. Rich people like owning basketball teams, and there are only so many teams to go around. And the incomes of the richest people in America have been soaring.

These same factors contributed to one of the least valuable teams in the NBA, the Milwaukee Bucks, being sold for $550 million last month. And they helped drive the 2012 sale of the Los Angeles Dodgers for $2 billion.

Will Steve Ballmer move the Clippers to Seattle?

Ballmer lives in Seattle. In 2013, he tried to buy the Sacramento Kings in hopes of bringing that team to Seattle. But that bid didn't succeed.

But Ballmer says he's not planning to move the Clippers. "If I get interested in the Clippers, it would be for Los Angeles," Ballmer told the Wall Street Journal earlier this month. He also said that moving the team to a smaller city wouldn't make financial sense.

And even if he did want to move the team, he probably couldn't get the other NBA team owners to go along with the plan.

Then why does Ballmer want the Clippers?

Ballmer told the Wall Street Journal his retirement makes him less tied to Seattle. According to ESPN, Ballmer "has told friends he is moving to Los Angeles," making it easier to see his team play.

Owning the Clippers would also be a way to keep up with Ballmer's fellow Microsoft billionaire Paul Allen, who owns the Portland Trailblazers.

Update: This story was originally written when the deal was still being negotiated. It has been updated to reflect its completion. I also added some other details from ESPN reporting, including rumors that Ballmer might move to Los Angeles.

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