Statewide: Feeling buzzed
When Michael Jordan bought majority ownership of the Charlotte Bobcats in March 2010, the prevailing sentiment was that he couldn’t mess things up more than previous owner Bob Johnson. The following year, after the Bobcats went 7-59 — the fewest wins in NBA history, provided one doesn’t count the 1948 Providence Steam Rollers, who won six — some wondered if maybe Johnson wasn’t so bad after all. Five years later, the team has recovered both on and off the court, rebranding itself as the Hornets, winning 76 games in the last two years and earning a slot as one of six finalists for the Sports Business Journal’s best U.S. professional sports franchises in 2015. Forbes magazine estimates the Hornets are worth $725 million, or about 2.6 times the value in 2010, buoyed by more television-rights revenue and an improved business operation.
From the start, Jordan, the Wilmington native and UNC Chapel Hill star who won six NBA championships with the Chicago Bulls, knew his celebrity and wealth could not immediately fix all that ailed the Bobcats. It had been broken before former owner George Shinn moved Charlotte’s team to New Orleans in 2002 amid various personal scandals. Long gone were the glory days, 1988 through 1996, when Charlotte led the league in attendance. By 2002, home games attracted a league-worst 11,312 per game.
Johnson, co-founder of Black Entertainment Television Network, brought renewed hope to the Queen City when he led a group investing $300 million in a new franchise in 2004. Jordan joined as a minority investor in 2006. The optimism fizzled as the Bobcats failed to make the playoffs in five of the next six years. By the time Johnson put the company on the sales block, he had absorbed $80 million of losses, according to The New York Times. At least $100 million of the proceeds of Johnson’s sale went to pay off debt.
In his first year, Jordan could have ignored NBA restrictions on payroll expenses, paid the so-called luxury tax for excessive spending, and recruited a few highly paid stars to Charlotte. That’s been the strategy of some NBA owners looking for a quick turnaround. Jordan opted to patiently build the team through lottery and draft picks and trade for players with relatively modest contracts. The strategy didn’t pay off in 2011 — the 7-59 debacle in a lockout-shortened season — but it appears to be working now, with the franchise’s fortunes clearly on the upswing.
Four factors contributed to renewed financial stability, according to Hornets President Fred Whitfield:
• Holding the line on pay — Charlotte spent less on payroll than all but nine of the 30 NBA teams during the last year. The total team payroll was $66.8 million, just above the league’s salary cap of $63.1 million. (In its mystifying system, the NBA required teams spending more than $76.8 million to pay a “luxury tax.”) Al Jefferson, the highest paid player at $13.5 million, did not rank among the league’s top 30 earners in 2015. Two other players, Tyrus Thomas and Lance Stephenson, each made at least $9 million.
• Soaring television fees — The NBA signed a new TV deal with ESPN and TNT in 2014 that will increase annual revenue from $930 million to $2.6 billion over the next decade. Each team will receive an additional $30 million a year and be able to spend more than $100 million on its players by the 2017-18 season. The Hornets have among the lowest regional TV revenues, even after Whitfield negotiated a new arrangement that has tripled viewership to 3.7 million homes via Fox Sports South.
• Revenue sharing — In 2012, the NBA signed an agreement geared toward leveling the playing field between teams in large and small cities. The Charlotte metropolitan area’s population is the fourth smallest in the league at 1.5 million. The shift helped the Hornets earn $7 million in 2012-13, after losing $13 million the previous year, Forbes reports. Hornets officials decline to disclose financial results.
• Return of the Hornets — After New Orleans Hornets owner Tom Benson changed his team’s name to the Pelicans, Charlotte seized the old moniker. Once league officials approved the change, the new Hornets spent $5 million on rebranding. “We all agree that it was a wise investment,” says Whitfield. “The business results have been through the roof.”
Statistics reflect increased enthusiasm for the team. Paid attendance gained 11% from the previous year, and the Hornets ranked 19th among the 30 NBA teams with an average of 17,192 per game. The 19,000-seat Time Warner Cable Arena hosted 11 sellouts, compared with three during the previous year, when the team had a much better season, winning 10 more games and making the NBA playoffs. (The city of Charlotte is investing about $34 million for improved bathrooms, a new scoreboard and other upgrades.) Preseason hopes for even more success were dashed early in the year with Jefferson, Kemba Walker and other key players hobbled by injuries. Expectations by coach Steve Clifford, a longtime NBA assistant coach hired in 2013, that Stephenson’s addition would boost the Hornets’ fortunes didn’t pan out as he averaged 8 points per game.
Meanwhile, season-ticket sales jumped 27%, the second biggest increase in the league behind the Cleveland Cavaliers. The Ohio team had the good fortune of signing LeBron James, the league’s marquee player. The Hornets also added 26 new corporate sponsors, including McDonald’s and Mercedes-Benz, while sales of apparel and other retail products jumped 150%. “The transition made us a much more attractive brand and made it easier for some of these large corporations to partner with us,” Whitfield says. The team is confident enough to raise average ticket prices about 5% for the 2015-16 season.
Although the Hornets missed the playoffs, their rebranding appears to be paying off, says Craig Depken, a professor at UNC Charlotte who studies sports economics. “From all appearances, the NBA is very healthy overall,” he says, citing the staggering increases in TV revenues. “I would suspect that the Hornets are on solid ground.”
Now if Jordan could deliver a playoff-caliber team, it would surely bolster team profitability and make fans happy. Says Whitfield: “Wish us luck in the [June 25 draft] lottery.”