Louisiana taxpayer subsidies not enough for the NBA's Hornets
By Evan Weiner
December 5, 2010
(new York, N. Y.) -- Louisiana residents both in the New Orleans area and in other parts of the state should be keeping a close eye on the future of the National Basketball Association's New Orleans Hornets. The team owner George Shinn has decided he doesn't want to own the franchise anymore and is apparently about ready to sell the franchise back to the league.
The NBA has not lost a franchise since November 27, 1954 when Baltimore went out of business. The original NBA franchise in town, the New Orleans Jazz, had a five year run between 1974 and 1979. The franchise left because of financial strains and relocated to Salt Lake City, Utah. In 1983, the league probably saved a few franchises from extinct by agreeing to a new collective bargaining agreement with the players that included a salary cap.
This is just more than an owner handing the keys to the franchise back to the league for Louisiana residents as they have a vested interest in the team. The state has been giving subsidies to Shinn since he decided to leave Charlotte and relocate his team in New Orleans in 2002. Louisiana was also subsidizing Tom Benson and his National Football League Saints to keep his franchise playing in the Superdome.
Benson received $186.5 million between 2002 and this year as a gift from Louisiana Governor Mike Foster and the two statehouses in 2001. Benson decided to remain in New Orleans despite having years left on his Superdome lease.
Louisiana is heavily invested in "Major League" sports with taxpayers shelling out millions upon millions of dollars annually to satisfy Benson and Shinn. Benson has a new lease with the state thanks to Governor Bobby Jindal to play in the Superdome that reduces annual subsidies from $23.5 million to up to $6 million but the state gave up a building near the Superdome which Benson will redevelop and then rent out space for state offices in the building. Benson and the state agreed to create a sports development district and there will be upgrades at the Superdome which was renovated after Hurricane Katrina flooded out the city in August 2005.
Meanwhile Shinn was also giving subsidies by Louisiana elected officials.
The Shinn-Louisiana 2002 agreement included a clause that required the state to reimburse the team if Shinn was unable to sell naming rights to New Orleans Arena or didn't reach certain thresholds for advertising and sponsorship sales. Shinn could have received as much as $6.5 million annually if New Orleans ticket buying community failed to scoop up tickets.
The arena never did get a corporate name. New Orleans is a small market with limited corporate dollars and an even more limited television marker, two of the three absolute necessities required for a successful sports business. Dallas Mavericks owner Mark Cuban expressed reservation about moving the Hornets to New Orleans in 2002. New Orleans was a shrinking city before Katrina hit in 2005 as the city has been losing population since the 1960s.
In January 2008, Governor Kathleen Blanco and Shinn rewrote the original lease after the Hornets franchise returned to the Crescent City following a two-year exile to Oklahoma City after the devastation caused by Katrina. There were still subsidies included in the new deal and the state picked up some of the costs of a training center for the team but Blanco and Shinn extended the lease by two years with 2014 as the final year of the agreement. But Shinn did have an escape clause if the team did not average 14,735 people a game in the arena.
So far, the team has averaged 13,826 people in nine games in 2010-11 but there is a 13-game test that started on December 1 that could tell the tale of the Hornets future in New Orleans. In those 13 home games between December 1 and January 17, according to the New Orleans Times-Picayune, the franchise needs to draw an average of 14,213 per opening and if the number is below that on average, the team can opt out of the Blanco-Shinn 2008 agreement. Shinn, if he continued as owner, could have broken his lease as early as March 1, 2011 and would have been required to pay a $10 million exit fee.
Shinn was hoping to sell his majority ownership in the club to minority partner Gary Chouest but those talks have gone nowhere over the past eight months.
Interestingly enough National Basketball Association Commissioner David Stern, who is in the midst of negotiating a new collective bargaining agreement with the National Basketball Players Association, has suggested that the NBA might drop a financially ailing team or two. It was thought that Stern was using the threat of contraction to get the players attention that the league was in serious in Stern's desire to tighten the league's budget and that was his way of getting association concessions.
Louisiana decided to partner with sports franchises for the same reason states and cities subsidize pro teams. Politicians like "big league" status and think by rolling out the red carpet for sports franchises it will bring other corporate businesses to their cities and states. That isn't the case but it is a good tale for a politician to spin. When Shinn moved from Charlotte to New Orleans, Charlotte officials scrambled to get a new arena built in the city to replace a 14-year-old building that was "obsolete" because it didn't have luxury suites and club seats, the high ticket items.
Charlotte's mayor at the time, Pat McCrory, said the city needed an NBA team because Charlotte highlights would appear on ESPN's SportsCenter and that was advertising for the city.
Sports teams around the United States get all sorts of tax breaks and handouts from elected officials. Louisiana handed out cash to Benson for his Saints and Shinn for his Hornets. Apparently the legal payoffs are not enough for Shinn or Chouest and once again, Louisiana may have to go to the well and bailout a sports franchise.
Evan Weiner, the winner of the United States Sports Academy's 2010 Ronald Reagan Media Award, is an author, radio-TV commentator and speaker on "The Politics of Sports Business." His book, "The Business and Politics of Sports, Second Edition is available at www.bickley.com or amazonkindle. He can be reached at firstname.lastname@example.org