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Johnson covered $80 million in Bobcats losses
Published March 8, 2010
Charlotte Bobcats owner Bob Johnson absorbed roughly $80 million in operating losses over the course of his NBA investment, driving the billionaire founder of BET to sell the team earlier this month to Michael Jordan.
According to a source familiar with the deal, the team has suffered about $100 million in operating losses since Johnson bought it for $300 million in 2003. Johnson’s ownership stake was about 80 percent at the time of the sale, up from the 65 percent when he first bought the franchise. Last season, the team lost about $30 million, and as losses mounted, Johnson assumed more ownership as some partners diluted their shares instead of funding capital calls.
The NBA put the sale price of the franchise between $275 million and $290 million, short of Johnson’s $300 million original investment. “It used to be that you’d never lose money on a sports team because you could make it up on the sale,” said Marc Ganis, president of Chicago-based sports consultancy SportsCorp Ltd. “That conventional wisdom is no longer the case.”
“It is not common where you will see a team sell for less than it was bought for,” agreed Rob Tilliss, a former sports banker who now runs advisory Inner Circle Sports. He added that Johnson was hurt by the NBA collective-bargaining agreement. “What we have seen recently is that player costs have grown at a higher rate than the ability to drive revenue.”
Sal Galatioto, president of Galatioto Sports Partners, who represented Johnson in the sale of the team to Jordan, refused to comment.
“Johnson happened to own the team at a time when the imbalance between player salaries and revenue was at its worst, and you combine that with a series of bad business moves and an absentee owner and you have shot yourself in both feet,” Ganis said.
Johnson, who saw his net worth soar to more than $1 billion after selling BET to Viacom in 2000, operated the Bobcats under his privately held RLJ Cos., which includes holdings in banking, private equity and automobile dealerships, industries hit hard by the recession.
The NBA was pushing for the deal to Jordan, who as a previous limited partner in the team had the right of first refusal of a sale. A group led by former Houston Rockets president George Postolos had a deal in place to buy the team if Jordan failed to meet a Feb. 26 sale deadline.
One indication of Johnson’s — and the NBA’s — desire to complete the sale is a statement from NBA Commissioner David Stern that he expected the deal to be completed by the end of March. It’s rare that a sale of the team is put on such a fast track, but given that the Bobcats could have an operating loss between $30 million and $40 million this year, selling the team was critical to Johnson. Consider that the New Jersey Nets announced a sale agreement to Russian oligarch Mikhail Prokhorov last September for $200 million, and the NBA has yet to approve the deal.
“The NBA has been working on this for months and they are in a position to respond to it more quickly,” Ganis said. “And it is not like they don’t know Michael Jordan very well.”