Blog Entry

New Orleans Hornets were bleeding money

Posted on: December 7, 2010 5:25 pm
Edited on: August 14, 2011 9:19 pm
 
The New Orleans Hornets' audited financial records have leaked online, and they paint a horrific financial picture of the franchise's ownership group. Posted by Ben Golliver Audited financial documents concerning the New Orleans Hornets have been published by Deadspin.com, and the numbers are not pretty. Earlier this week, commissioner David Stern and the NBA stepped in to purchase the Hornets after a long-anticipated sale to Gary Chouest fell through. As Ken Berger of CBSSports.com noted yesterday, the move may wind up being a death blow to basketball in New Orleans, because the Hornets were such a money pit and because deep-pocketed owners would be more likely to find a sustainable business model in a different market, as happened when the Seattle SuperSonics moved to Oklahoma City. The documents published by Deadspin, an audit conducted by KPMG, only reinforce these grim predictions. They show that, despite turning a profit from June 2008 to June 2009, the ownership group led by George Shinn was up to its eyeballs in deficits. This sheet, for example, shows the ownership's total deficit on June 30, 2009, topping out at more than $83 million. Deadspin also notes...
The team's net cash in operating activities, which represents the "measurement of money [owner George Shinn] is being asked to take out of his pocket to keep operations going," according to sports economist Andrew Zimbalist. In 2008, that amount was $7.4 million; in 2009, $1.4 million (slide 12). Zimbalist points out that "things got much more problematic for the franchise" the following year.

The two obvious questions that arise after reading this document are... 

1) Did George Shinn just fleece the NBA by selling this franchise for, reportedly, up to $300 million? 

2) Can any prospective buyers in Louisiana reasonably be expected to do so much better than Shinn that these huge deficits could be avoided?

To the first question, the league has a vested interest in propping up its franchise sale prices, keeping the buy-in price high to ensure maximum milking from the overseas billionaires who represent the league's future owners. The Hornets might not be worth $300 million, especially after reading these documents and after all star point guard Chris Paul inevitably skips down, but the right to own one of only 30 NBA teams surely hovers around that price. Contingent, of course, on being able to relocate.

To the second question, these numbers paint a pretty grim reality, one that was always assumed, and probably known by those who needed to know or who were interested in purchasing the team. For the general public, however, it casts a cold cloud over the city's chances to enjoy NBA basketball indefinitely into the future.

The only hope for basketball in New Orleans now is for an ownership group to arise that is not only happy to keep basketball in New Orleans out of the goodness of its heart, but is willing to do so while sustaining heavy losses while playing in front of hit-or-miss fan support. Good luck with that. 

This team is as good as gone.

Comments

Since: Sep 8, 2007
Posted on: December 8, 2010 6:56 pm
 

New Orleans Hornets were bleeding money

Joakim's Hair, you are correct, David Stern is a businessman. 

Do people want the NBA to make money or not? Do people want the NBA stronger or not? How on earth can anyone advocate to force owners to lose money? Who's going to make up the difference if the Hornets (or any other team in the NBA) can't make a profit? Is it going to come out of thin air? Do people think David Stern has a printing press spewing Benjamins faster than Ben Bernanke? Where on earth do people think the money comes from to pay these athletes their salaries? From purgatory or somewhere? Thin air? Perhaps osmosis? Global warming?

The Hornets have been in N.O. since 2002 except for a brief stint in Okc in 2005-2006. Is that not enough time to make a profit quickly enough? Shouldn't an owner have the right to sell/get out and let the chips fall where they may beyond that rather than prop up a losing market forcing him to lose money? NBA teams are not charitable organizations. They are not public utilities. They are not rights. They're, ummm, businesses.

Spare me the "not understanding the people who makeup his league [see: Seattle Supersonics]" and realize dollars control eveything. I can assure you David Stern understands the NBA better than you. He understands he can move this franchise to another market and get exactly what he wants from them. Yes, Joakim's Hair, dollars control the long-term viability of a franchise. NBA teams are not public utilities. Understand this, and then post again sometime once you've digested this fact. NBA teams are not like Yellowstone National Park. They're businesses. If they're losing money and/or not getting enough (or zero) civic/local corporate support, they're going to move elsewhere. It's called the free market. Learn it, live it, know it.










Since: Jun 24, 2010
Posted on: December 8, 2010 6:05 pm
 

New Orleans Hornets were bleeding money

Stern is a business man who cares about profit margins, salaey excess and owner happiness first and foremost. He has never understood his players or the majority of fans who pay for the Jeserys, games, and set aside time to watch games on TV. He's great at making dough, not at understanding the people who makeup his league (SEE: SEATTLE SUPERSONICS). Thus he will more the Hornets to somewhere else because they have made a profit quick enough...New Orleans is not at an economical level to find any consistency in supporting an NBA team for 82 games.



Since: Mar 2, 2008
Posted on: December 8, 2010 5:36 pm
 

New Orleans Hornets were bleeding money

But no relocation viable city even has a 21st century stadium as New Orleans had, as has been stated numerous times.  So moving is not really an immediate option, but contraction makes sense right now.  Either someone/group shows up or contraction away.

Someone can simply buy the ownership rights, pre-contraction, get an new expansion team years later in a city that builds that new stadium.



Since: Mar 23, 2008
Posted on: December 8, 2010 4:44 pm
 

This Post gives incomplete iinformation!

Shinn's deficit was in large part due to huge interest on loans he had taken out.  The deficit included relocation fees he still owed for moving from Charlotte.  A new owner would not have to shoulder these burdens.  The team made money not too long ago.  Attendance is not great, but it's also not so low that the team can not succeed.  Don't paint basketball in New Orleans as doomed yet just because you'd like to see a team in KC or Seattle!



Since: Oct 10, 2006
Posted on: December 8, 2010 3:55 pm
 

New Orleans Hornets were bleeding money

This team never should have been placed in NO to begin with. The fan base is marginal at best. The city just can't support and NBA team.I wonder how many other NBA teams are bleeding $$$ like this. Watch David Stern spin some kind of NBA good deads here as well. So commish how many more NBA teams are you prepared to buy that are going belly up. I think this is a huge mistake for the NBA to prop up this bleeding team.



Since: Nov 7, 2010
Posted on: December 8, 2010 1:48 pm
 

New Orleans Hornets were bleeding money

years after years it will be harder to find someone willing to  lose money with sports team!!!in Europe the situation is already precipitated...it is going to happen in usa too...(also put in the mix that the financial situation of european households are better than in usa)...usa sports revenue had already reached the top...now they are decreasing quickly as expected...about 5-6 years the sport world will be very very different...ThE ERA OF FAT COWS (for evrybody..owners, players, leagues..agents..)will be over sooner Than expected



Since: Jul 17, 2008
Posted on: December 8, 2010 8:24 am
 

New Orleans Hornets were bleeding money

Start by unloading overpaid athletes. Lower the ticket prices. Find some mainstream reality. Who wants to see a basketball game made up of overpaid whiny brats that that cant make a FREE THROW. Lower the cost of a beer and a hot dog..And I'll  go. As it is now, I hope the NBA fails. Even
 the wealthy with all the "not new" tax breaks from Obama: can keep a easy business to run(NBA franchise)  profitable. lol

Yeah this team is gone.



Since: Sep 8, 2007
Posted on: December 8, 2010 3:40 am
 

New Orleans Hornets were bleeding money

TJKK, you are correct that things visibly fell apart in Seattle, but you are dead wrong to blame the Sonics' departure on "false hope" from the league and the Bennett group as well as the whole "good faith effort' stuff. Your blame should be primarily cast toward two people, both Seattle residents:  Previous owner, Starbucks CEO Howard Schultz (who sold the team to Bennett) and Seattle Mayor Greg Nickels (who allowed Bennett to buy his way out of the lease). Those are the two people you should blame for why the Sonics left... not Clay Bennett and David Stern. Schultz decided to put the team up for sale and did not care to whom he sold, and no one in Seattle stepped up to buy it. NO ONE. Not even the deep pockets of Steve Ballmer over at MSFT. Schultz wanted out, and he decided to sell the Sonics to an out-of-state ownership group from Oklahoma. Without Howard Schultz's actions, the Sonics would be in Seattle today. Schutlz sold because he played in a terrible arena and had a terrible lease with the city of Seattle, and he was tired of losing money especially while seeing the Seahawks and Mariners get brand new stadiums. When Bennett bought it, how can people in Seattle be so naive to think Bennett wanted to keep the Sonics in Seattle? Bennett had all the leverage. If he gets a new arena, he makes billions in Seattle. If he does not get a new arena, he gets to move to OKC and makes billions there. Bennett did as little as possible to stay within the "good faith effort" to find a new arena deal in Seattle for one year after purchasing the team, but no one in Seattle or Washington budged to try to get him a new arena either. Bennett met with Indian tribes and constructed plans for a new state-of-the art facility in Seattle, but the Legislature would never even let it come up for a vote. Schultz sued to try to save face with Seattle fans on that good faith effort, but explain to me why he decided to drop the lawsuit? I'll be waiting for that explanation. Finally, the Seattle Mayor Greg Nickels let Bennett buy his way out of the lease, thereby sealing Seattle's fate. Did Nickels have to do that? No. But he did. If he doesn't, the Sonics would once again still be in Seattle today. So to blame Bennett and Stern for the fact pivotal residents in Seattle sold the Sonics fans out is highly irresponsible. NBA teams are not public utilities or rights. They're privileges. If Howard Schultz never sells, no one else can buy. If Greg Nickels never lets Bennett buy his way out of the lease, there is no buy out. That is undeniable. If you are going to blame people for why you lost a team you loved, at least blame the right people that sold you guys out.  



Since: Apr 6, 2007
Posted on: December 8, 2010 12:26 am
 

New Orleans Hornets were bleeding money

If they do not have to pay off the debt, someone can buy this team for a song. 
The calculation of cash from operations does not include the costs to make capital investments or the cost to service debt.  In other words, even if the current company had no debt, they would still be operating in the hole.  Unless someone has a magical idea on how to generate more revenue or the current owner is an idiot, the viability of an operating profit does not seem likely.  You can make a whole song and dance about it and setup this that and the other, but if your core business doesn't make money the only thing its good for is a tax writeoff.



Since: Nov 21, 2006
Posted on: December 7, 2010 10:34 pm
 

New Orleans Hornets were bleeding money

It really is a tough spot.  Being a season ticket holder since post Katrina, it's been great to watch this team.  I've always wanted to support this team, and have for the past few years.  The problem is, the rest of the people in this town don't feel the same way.  And you know, there are enough people down here with enough money to go to the games, whether it be a full season or splitting it with a friend.  They just choose not to.  Like it or not, it's a Saints/football city.  And I'm a die hard Saints fan.  But when you have the fortune of having a pro team in your city, you have to support it, and many people here choose not to.  It's really a shame.  I've enjoyed watching this team the past few years, and will continue to do so until the time comes when they leave, and it could be soon.

I just hope that whatever city they go to supports them like they deserve to be supported.


The views expressed in this blog are solely those of the author and do not reflect the views of CBS Sports or CBSSports.com