Tuesday, December 7, 2010

Did the NBA just Bail Out the New Orleans Hornets?


Every now and then the Big Business aspect of professional sports gets juiced up enough that it actually becomes interesting. The money extends beyond the trivialness of salaries and enters a realm where the real players think not in millions but in billions. Where the sweaty athletes chasing balls fade to black as men in suits slice, dice and mend the world into a better, more competitive balance sheet.

Today, the financial arm of the NBA confirmed its impressive plan to purchase the New Orleans Hornets from the squabbling ownership of George Shinn and Gary Chouest. Under the rock steady leadership of Commissioner David Stern, the NBA will, for the first time in its history, assume ownership of one of its teams.

While the circumstances and eventual consequences of the deal remain uncertain and opaque, this morning's slew of interviews and press releases has cleared up a few things.

1) While the NBA has yet to make a detailed offer for the Hornets, Stern and his legion of investment banker have valued the team at upwards of $300 million; an amount the league has made clear they're more than willing to pay.

2) The league was essentially forced into the deal after negotiations between Chouest and Shinn fell through, leaving the financially floundering Hornets on the brink of either collapsing or being relocated to another city.

3) The NBA will maintain ownership of the Hornets until a buyer emerges who intends to keep the team in much belaguered New Orleans. Had the NBA not stepped in with its offer, the Hornets would have likely been sold to business interests with plans of moving the team to either Anaheim, Kansas City or Seattle.

5) The league has been working closely with city officials and the Governor of Louisiana, Bobby Jindal, to ensure that the Katrina-ravished New Orleans maintains a professional sports team as it reconstructs itself.

6) The NBA is going to make hundreds of millions of dollars off this deal. Because anybody who knows anything about buying assets, (whether they be basketball teams or securities) knows that the best time to buy is in crappy, repressed markets at low prices and the best time to sell is in booming, bullish markets at high prices.

At the tail end of a one of the most pesimistic markets in history, the NBA has has just scooped up a huge asset at a bargain price.  It also helps that during this period, the NBA will likely sign a collective bargaining agreement designed to maximize ownership profits and institute a revenue sharing system which essentially guarantees  a minimum of $10 million in profit for each and every team. Compound the new CBA with a robust economic climate and the value of the Hornets franchise will soar.

The strategy, while new to the NBA isn't unprecended for professional sports leagues. In 2002 the MLB scooped up the tanking Montreal Expos for the bargain rate of $120 million and  quickly sold it to the Washington National for $450 million only 4 years later.

The NBA and do the same thing. And make sure New Orleans keeps a team in needs in the process.

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