SBJ/April 23-29, 2012/Franchises

Sale allows NBA to break even on Hornets

The NBA’s deal to sell the New Orleans Hornets to New Orleans Saints owner Tom Benson for $338 million is a break-even result for the league.

According to sources familiar with the sale, the Hornets last year posted an $18 million loss but were able to stop the financial bleeding after cutting player payroll while greatly increasing full-season-ticket sales from 6,000 to more than 10,000 and boosting sponsorship revenue. The team is expected to break even for the shortened 2011-12 season, the first time it will do so since the NBA bought the team for $318 million in December 2010 from former owner George Shinn. Though the NBA sustained an operating loss last year on the team, the league was made whole by its deal with Benson.

Incoming Hornets owner Tom Benson is paying $338 million for the team.
Photo by: NBAE / GETTY IMAGES
The Hornets’ turnaround was led by Hornets Chairman Jac Sperling and by team President Hugh Weber.

While Benson will run the Hornets separately from the Saints, the specific management structure of the Hornets likely won’t be determined until after the NBA’s board of governors approves the deal. The deal is expected to close by late May or early June.

Sperling was hired by NBA Commissioner David Stern to run the team after the league bought the Hornets in late 2010 and is unlikely to continue in that role. Weber’s future with the team is also unclear; he has worked as president of the Hornets since 2006 and is a well-respected operator.

Hornets and Saints officials declined to comment on any organizational plans under Benson.

“There will be some commonality with Tom and with the office of the owner,” said Marc Ganis, president of SportsCorp Ltd., who represented Benson on the deal. “But the NBA is a retail business and it will have its own operation. Because of the Saints’ dominance in the market, there will be benefits to the Hornets as a result.”

The financial structure of Benson’s $338 million purchase of the team includes a $25 million down payment, which was wired by Benson to the NBA on April 13. Benson is also assuming $125 million in debt on the franchise and will pay the remaining $188 million, most of which will be paid at closing.

Benson and the NBA began to have serious conversations in January and the deal gained momentum in the past month. An agreement was completed around midnight on April 12 as the league owners met in New York.

After he takes control of the franchise, Benson is expected to change the team’s name and begin a state-funded renovation of New Orleans Arena.

A bill to provide $42 million for arena upgrades is working its way through the Louisiana Legislature and should be approved in June, said Doug Thornton, senior vice president of stadiums and arenas for SMG, the facility’s management firm.

A master plan for the project covers building new bunker suites, reorienting the club level entrance to provide for a “better arrival experience” for Hornets premium seat holders, and technology improvements, Thornton said. The bulk of the work will be done after the next two seasons.

Considering the tight budget, the scope of the arena renovation will be similar to how officials handled the restoration and upgrades to the Mercedes-Benz Superdome across the street, Thornton said. At the dome, SMG and its client, the Louisiana Sports and Exposition District, the owner of both facilities, saved $400,000 by developing their own in-house digital network. Their goal is to do the same thing revolving around the installation of new digital menu boards in the arena, he said.

The state previously approved about $8 million to install new video screens and LED ribbon boards on the arena’s exterior, and that work will be completed this summer.

“The focus is on revenue generation, to brand the arena in a distinctive way and have it more connected to Champions Square,” Thornton said, citing the Champions Square tailgate plaza outside the dome with food and drink concessions and live music. Zelia, Benson’s real estate company, owns the 60,000-square-foot space and leases the property to the stadium district for $20 million annually. SMG and Centerplate, the food provider for both the dome and the arena, operate Champions Square.

The Hornets retain the right to sell the arena’s naming rights and keep 100 percent of that revenue. The Louisiana Seafood Promotion and Marketing Board is reportedly interested in signing a deal to include Zatarain’s, a 123-year-old New Orleans food brand, in the title.

No deal has been signed, Thornton said. Zatarain’s, a maker of New Orleans-style cuisine mixes, already has a presence outside the dome. Its brand is displayed on banners attached to the stadium’s giant cooling towers that are visible from two highways in town.

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