The Story Behind The Phoenix Suns $4 Billion Sale
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“[Mat] Ishbia is well known and well regarded within the league office, including with commissioner Adam Silver, and has developed relationships with a number of NBA owners,” says NBA insider Adrian Wojnarowski. “He will have to undergo a background check and a vote of approval from the board of governors, but that’s expected to be a formality, sources said.” Mat Ishbia will become the youngest principal owner in the NBA at 42 years old, passing Robert Pera, who bought the Memphis Grizzlies for $377 million in 2012 at just 34 years old (but is now 44 years old).
So who is Mat Ishbia? Well, he has a basketball background. Mat grew up in the suburbs of Detroit, Michigan, and attended Michigan State University. He walked on the basketball team and only played about 40 minutes of live-game action throughout his career. Still, he won a National Championship under Tom Izzo in 2000 and attended three consecutive Final Fours during his collegiate career. Mat then joined his dad’s company, United Wholesale Mortgage. The business only had twelve employees at the time and didn’t get much bigger over the next decade. But Mat took over as President and CEO in 2013, and the business exploded. United Wholesale Mortgage (UWM) underwrites loans for mortgage brokers, banks, and credit unions. They are the #1 wholesale lender and #2 overall purchase lender in the country, and they went public last year via SPAC at a $16 billion valuation. United Wholesale Mortgage now has more than 8,000 employees, and his brother Justin Ishbia owns a 22% stake in the company — along with being the founding partner of a private equity firm in Chicago called Shore Capital Partners.
But the real question is: why does a Michigan guy want to buy the Phoenix Suns? The truth is Mat has been circling the wagons for quite a while. His name came up when the Denver Broncos went up for sale earlier this year, and many people around the sports business industry expected him to get involved at some point. So here we are — Mat and his brother are buying the Suns at a $4 billion valuation. Not only is that $1 billion higher than the team’s current $3 billion valuation, but it signifies a 13x multiple on the Suns’ projected revenue of $300 million this year. Phoenix Suns Overview
For context, the average professional sports team trades at a ~6-8x revenue multiple, and software companies might trade around ~12x, depending on the business. Add in the fact that the Utah Jazz sold for $1.6 billion in 2020 and the Minnesota Timberwolves sold for $1.5 billion in 2021, and many people are already saying that Mat and Justin Ishbia overpaid for the Phoenix-based NBA franchise. But I would argue this isn’t an overpay at all — let me explain. You see, the Phoenix Suns have a lot of positives. The Phoenix metro area has nearly five million people, making it the 10th-largest metro area in the country. They recently completed a $230 million renovation of their downtown arena and opened a brand new state-of-the-art practice facility last year that is worth $45 million. And sure, the city of Phoenix technically owns the arena that the Suns play in, but the team controls the master lease. That contractual language allows them to book concerts and other events at the arena and simply pay a percentage of all proceeds back to the city of Phoenix. That’s a distinct advantage, rather than just paying rent. But the essential part of this equation is the NBA’s media rights. The NBA signed a new nine-year, $24 billion television deal with ESPN and TNT in 2014. That was a 200% increase over their previous deal, and since each team receives a share of national TV money, it doubled franchise valuations overnight. Average NBA Franchise Valuations
And this is precisely what is going to happen again. For example, reports have been flying around for months that the NBA is seeking $75 billion for its next media rights package. That’s more than 3x its current $24 billion deal, and it should significantly increase franchise valuation around the NBA. The league has also recently changed its bylaws to allow private equity firms, sovereign wealth funds, pension funds, and endowments to invest in teams. There are two main rules: PE firms/funds can’t own more than 30% of a team, and one single PE firm/fund can’t own more than 20% of a team. But still, increasing the demand while keeping supply constant will only drive valuations higher. 
BREAKING: The NBA will now allow sovereign wealth funds, pension funds, and endowments to invest in teams, per @Sportico. The NBA was the first major US sports league to allow private equity investors, but with valuations continuing to rise, they will now broaden the scope.
But perhaps the most entertaining aspect of this deal is that Mat Ishbia and current Cleveland Cavaliers owner Dan Gilbert hate each other. They both grew up in Detroit and attended Michigan State University. Dan Gibert runs Rocket Mortgage, UWM’s biggest competitor, and the two have been at war for years. Mat Ishbia called it “disgusting” when Rocket Mortgage reduced its workforce by 2,000 people during the pandemic, and he later issued an ultimatum to brokers, saying he would no longer work with brokers who sent loans to Rocket Mortgage. This business feud has also spilled over to their alma mater, Michigan State. For example, Ishbia donated $32 million to the Michigan State University athletic department last year. But just a month later, and a week after the ultimatum was announced, Dan Gilbert agreed to a five-year deal that made Rocket Mortgage the presenting sponsor of Michigan State’s basketball team. So while this is probably just a fun little caveat to the story, don’t expect the Phoenix Suns and Cleveland Cavaliers to be making any trades in the future. Have a great day. I’ll talk to everyone tomorrow. Enjoy this content? Subscribe to my YouTube channel. Your feedback helps me improve Huddle Up. How did you like today’s post? Loved | Great | Good | Meh | Bad If you are not a subscriber of Huddle Up, join 73,000 other professional athletes, business executives & casual sports fans that receive it directly in their inbox each morning — it’s free.
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