As you may be aware, the Green Bay Packers are the only non-profit, publicaly owned professional sports team in major American leagues. Given the Hornets’ ownership situation, I was curious to see how public ownership could apply to the Hornets.
Note: Current NFL rules limit a team to 32 owners with one owner having a minimum 30% stake in the team (20% if a family member owns another 10%). The Packers situation was grandfathered in. I’m unsure of the NBA’s ownership rules (I tried to see if there are any but couldn’t find them), but I’d be willing to bet that something similar is in place.
The Hornets being publicaly owned would make them a non-profit organization. This prevents a horrible-owner-Donald-Sterling-type of situation. Sterling for years kept the Clippers payroll and expenses low and kept any profit the team made for himself. Take a look at the Forbes rankings of NBA teams. The Clippers had a profit of $10 million and I bet most of that went into Sterling’s pocket (it helps that the team has no debt). Should the Hornets as a non-profit organization finish an operating year in the black (which every team will do after the new CBA is finished and revenue sharing is in place) then the profit would be reinvested into the team. That means more money to pay coaches, more money to spend on marketing and more money to upgrade the New Orleans Arena.
The team would also need to have transparent financials (unlike having them leaked) which mean, as Patrick Hruby from ESPN says, they “can’t shake down their city by hiding their finances and pretending to cry poor, a la the Florida Marlins. Nor can they threaten to leave to get what they want. Instead — novel concept! — they have to work with their surrounding community.” Not that the team is doing that to New Orleans, but working with the city and state only entrenches the Hornets in New Orleans more.
Without an owner, Dell Demps has no one breathing down his neck and he is allowed to develop a long-term plan for the team. Oh and there wouldn’t be the constant fear of a new owner buying the team from the NBA and moving the Hornets out of New Orleans. Public ownership creates stability which the franchise hasn’t seen for some time.
So how would this all work? Let’s assume the NBA will sell the team for $350 million. The team is also saddled with about $111 million in long-term debt. The debt wouldn’t all need to be paid off at once since the team is making yearly payments on it, but if they can raise the money to pay it off that would only be a smart move. So the team is looking at raising $461 million.
Just like the Packers in 1923, the Hornets would issue a stock sale to raise money. These shares would not be traded on any stock exchange and they would not pay dividends. There would also be no ticket benefit associated with being a shareholder and the most shares a single person could own is 90,000–to prevent anyone from taking control of the team. The Packers have historically sold their shares at $200 so that is the number I’m going with. In order to raise $461 million the Hornets would need to issue 2,305,000 shares. That is less than half 4,750,937 shares the Packers have issued. The Packers have 112,158 share holders who on average own slightly more than 42 shares per person. Going by those numbers the Hornets would only need 54,428 people to buy shares. If the NBA just wanted to sell the team for $350 million then only 1,750,000 shares need to be sold. The economy may be hurting right now but those are very feasible numbers.
Should the team ever face more financial difficulty (highly doubtful under a new CBA), want to raise money for Arena renovations or any other projects then all they would have to do is issue another stock sale (the Packers have done it four times). Normally this would dilute the shares of a company but since the Hornets’ stock doesn’t appreciate in value and it can’t be sold there is no harm in simply issuing more. Imagine the Hornets having their own Champion Square area right outside the arena. If the team was publicaly owned projects like that become more feasible.
The Hornets would also hold a yearly shareholder meeting which sounds like a lot of fun. At the meeting, anyone who owns shares of the team would vote on the board of directors. From the board of directors an executive committee is selected. The executive committee would run the Hornets much like how they are currently structured.
Now, this public ownership model would not work under the current CBA since the team is currently losing money. But once the new CBA is finished, public ownership could be a great way to go for the Hornets. That is, of course, if David Stern allows it. Let us know if you’d buy a share of the Hornets and any other comments you have in the comments below or on twitter @nolajake.
Enjoy your Monday; don’t push yourself too hard, you have the whole week ahead of you, but let’s all get off to a good start. I’ll leave you with this…