Wednesday, January 12, 2011

New Jersey might have shot at New Orleans Hornets when N.J. Nets move
WEDNESDAY, 12 JANUARY 2011 11:55
There was a rather interesting sports business interview on WWL Radio in New Orleans last week that occupied some of my time during the drive from New Orleans to Daphne, Alabama. Doug Thornton, who is SMG's senior vice president and de facto head of the New Orleans Superdome and New Orleans Arena, was talking about the $85 million publicly funded expansion of luxury seating at the Superdome (which is designed to put more money into New Orleans Saints owner Tom Benson's pockets despite NFL owners claiming they need to reduce expenses and players salaries because they need to cut salaries and expenses — the NFL seems to be awash in money) and the future of the New Orleans Hornets and the NBA's need to find a new financial model so that New Orleans and other small markets can survive.
It is a conversation that you will never hear on the sports radio talk shows in New York or Philadelphia or read about in area newspapers. It is an issue that never gets discussed on cable TV sports talk shows. The NBA's big market teams are in decent financial shape; the New York Knicks have to be rolling in dough with sellout crowds, not paying New York city property tax and owning a cable TV regional sports network. Mikhail Prokhorov must think the New Jersey Nets will be a goldmine once the franchise moves to Brooklyn and it would be fascinating to take a look at Comcast's real books when assessing the Philadelphia 76ers finances given that the country's largest cable TV multi systems operator owns the team, the arena and the regional cable TV network in Philadelphia.
The National Basketball Association now owns the small market New Orleans Hornets.
There are reports that the Maloof brothers are thinking about moving their Sacramento Kings franchise after failing to secure a new arena in the California capital and having financial problems with their core businesses. Indiana's ownership claims mounting losses despite playing in an Indianapolis arena and paying virtually no rent. There are similar stories in Charlotte, Memphis and other NBA outposts. Louisiana is pumping money into the Hornets operation. The state is used to handing out paychecks to major league sports owners.
The Saints Benson received in the neighborhood of $185 million in state handouts between 2002 and 2010 as a thank you for not moving the team. Benson has a new deal with the state that lessens the amount of direct handouts (from about $23 million to as much as $6 million annually) but includes other perks like giving him an office building (the Benson Tower which is across from the Superdome) for a small amount of money (the building has been renovated) and a guarantee of a number of leases for office space for state agencies.
Benson is not getting quite the same state bailout under the new deal but Louisiana is paying him in other ways to keep him happy through 2025. Louisiana Governor Bobby Jindal, one of these let's cut everything to the bone including laying off municipal employees and not raise any taxes to pay for services, boasted that the new deal saved the state hundreds of millions of dollars. What Jindal should have said is simple, we are moving money around and we are still paying. NBA Commissioner David Stern knows the Saints deal and since he and 29 NBA owners run the Hornets, he probably will try to get Jindal to give him a "deal" that will "save" Louisiana millions of dollars before attempting to sell the team to an owner who will decide whether to stay in the Crescent City or take the business elsewhere.
The NBA has run out of North American cities to move franchises. The Las Vegas arena that was supposed to open in 2010 was nothing more than a mirage in the desert, San Diego has no arena, and Pittsburgh has no interest in an NBA franchise. Seattle has no arena, Louisville has an arena but it would be just a small market and most small markets in the NBA with the exception of San Antonio are in bad financial shape.
Newark is "hosting" the New Jersey Nets until a Brooklyn arena is open. Newark might be the best open market the NBA will have but that will not happen for a few years.
The New Orleans situation is dire. The former owner George Shinn reached a deal with Louisiana that included an attendance clause and if certain benchmarks are not hit by the end of the month, the Hornets former ownership and presumably the NBA can tell Louisiana that they plan to move the franchise to another city. The team has a clause in the lease that allows the franchise to pay $10 million to Louisiana at the end of March and leave if the attendance does not average 14,735 per game. The team needs an average of 14,915 people per game by January 24 to insure that the Hornets franchise will be in the city in 2011-12. But the Hornets-Louisiana lease is done in 2014 and presumably Prokhorov's Nets will be in Brooklyn by that time leaving Newark open as a relocation possibility.
The New Orleans business community is buying up tickets to make sure the Hornets attendance meets the benchmark but according to Thornton even if this year's version of the Hornets does exceed the benchmark there is a serious question as to the financial viability of the team going ahead in a small market without help from the NBA. That help would be a new collective bargaining agreement, which would reduce salaries and significant revenue sharing from the big market owners (the Knicks-Dolan family) to the lesser revenue generating markets like New Orleans.
New Orleans is a small market with limited cable TV revenues and that is a major problem for the franchise. Shinn could not get Knicks TV money or Los Angeles Lakers TV money.
The NBA owners and players are trying to negotiate a new collective bargaining agreement. NBA Commissioner and more than likely chief negotiator David Stern has left open the possibility of contracting teams. If the owners and players do not come up with a collective bargaining agreement by July 1, the owners will more than likely lockout the players, which means that all NBA business will stop.
The free agent market will close, which is why there is pressure on Carmelo Anthony to get a new contract now instead of going into an uncertain free agency period where he might find different rules and lose millions of dollars.
The NBA has been given a free ride by the sports media who seem to love to bang on Gary Bettman and NHL financial problems in Phoenix, Atlanta, Columbus, Nashville and other cities. Stern has not received the criticism that has been directed at Bettman even though like Bettman he has been forced to take over a franchise, New Orleans (Bettman ended up with Phoenix and presided over bankruptcies in Ottawa, Buffalo and Pittsburgh). Major League Baseball took over the Montreal Expos in 2002. Stern has a good number of problem franchises, which is why he will play hardball in talks with the players although he has not taken care of the revenue sharing issue that has been floating around for years at owners meetings.
If New Orleans can no longer support a franchise and Sacramento fails, where do those franchises go? There is a suggestion that the Maloofs will look at Anaheim and San Jose but the problem in those cities is the NHL. The Amaheim Ducks ownership and the San Jose Sharks ownership get the lion share of the revenues out of the arenas in those cities and the ownership groups probably would not welcome an equal partner in the buildings unless they become part of an NBA ownership group.
Louisville is college basketball country. Does the area have the financial wherewithal to support what really is elitist entertainment for the people who like to watch games in an arena? Neither Seattle nor Las Vegas have an NBA state of the art building, Kansas City doesn't seem to be a viable option even though the city has a new arena. Vancouver had an NBA team and might be more viable financially with the Canadian dollar on par with the US greenback but no one is pushing for an NBA return in western Canada, at least not yet.
If the Hornets franchise is sold and the new ownership is forced to stay in New Orleans until 2014 under the terms of Shinn's lease but wants out when the agreement ends, would New Jersey be a viable option if Prokhorov's Nets are finally in Brooklyn? That's a good question. David Stern's three legged stool theory of being financially successful requires a city to provide government support (an arena, tax breaks, etc.), a strong cable TV money deal and corporate support.
Newark and New Jersey Devils owner Jeffrey Vanderbeek built an arena. So there is government support and Vanderbeek is now housing the Nets. The New York area has three regional cable TV networks. An owner could come into New Jersey and get a large cable TV deal with SNY. Why SNY? Because the Comcast-Time Warner-New York Mets owned entity does not have an NBA or NHL presence in the late fall-winter-early spring. The Dolan's MSG Network has the Knicks, Rangers, Devils, Islanders and college basketball. The YES Network has Prokhorov's Nets.
The third leg of the stool is the problem. Corporate support. Neither the Nets nor the Devils have been able to get a high level of support (if attendance figures are a true barometer) of corporate backing over the decades that the franchises have been in the Garden State. Would New Jersey business leaders embrace a new NBA team in Newark in 2014 if that scenario plays out?
Would the Dolans and Prokhorov want a third team in the New York area? The NBA could block any attempt by a prospective New Jersey team owner to put a franchise in Newark in 2014 even though there is the Los Angeles Clippers precedent. Donald Sterling moved his team in 1984 without league permission. Eventually Sterling and the NBA resolved their differences. The NBA blocked the sale of the Minnesota Timberwolves to boxing promoter Bob Arum and his group in 1994. Arum wanted to move the franchise to New Orleans.
The NBA owners and players have to get a new collective bargaining agreement and after the dust settles, there will be assessments. If the owners cannot get rollbacks in salaries, some owners may throw in the towel and sell off money losing franchises. Newark might be in line for a failed franchise under the right set of circumstances.
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, Barnes and Noble or amazonkindle. He can be reached at

No comments: