Michael Jordan isn’t hurting for cash flow. His estimated net worth is $1.9 billion.
Then why choose now to sell a piece of the Charlotte Hornets to two hedge-fund executives from New York? As first reported by the Observer, Jordan has agreed to sell a large piece of his equity in the Hornets to Gabe Plotkin and Daniel Sundheim. It hasn’t been revealed how much those two are buying or at what price. But Jordan isn’t giving up majority equity or control over the franchise.
Why now? That’s the first of four questions worth discussing:
Q. It’s nearly a decade since Jordan bought most of the Hornets from Bob Johnson. Why take in new partners now?
A. Jordan didn’t give his reasoning for doing this in a short statement the Hornets released Saturday, after the Observer’s story was published. But the numbers provide some context:
Jordan invested less than $180 million in 2010, in cash and debt-assumption, to buy roughly 65 percent of the NBA expansion team’s equity from Johnson. That means the franchise was valued at about $287 million, after Johnson agreed to pay the NBA a $300 million expansion fee seven years earlier.
At the time Jordan took over, the then-Bobcats (later re-branded to Hornets) were losing money annually. When cash calls were made to cover those losses, the team’s minority investors often passed on kicking in additional funds. That had the effect of reducing their percentages of the equity and raising Jordan’s, as the managing partner.
Jordan’s equity kept growing over nine years, partially due to NBA revenue-sharing, and the Hornets started turning a profit. A source familiar with team ownership said Jordan controls about 97 percent of the equity.
Combine that with how much the Hornets, like all 30 NBA franchises, have appreciated in value (in part due to a spike in national television revenue in 2016): Forbes’ annual valuation of NBA franchises pegged the Hornets at $1.3 billion in February. That’s near the bottom of the scale, but it’s still a huge paper gain for Jordan.
National NBA television ratings weren’t great last season, and there is no reason to assume franchise values will continue growing as they have in the last decade.
Q. Is this a step toward Jordan selling control of the team?
A. A source close to Jordan said he plans to own the Hornets “a long time.” Obviously, that could change, but for someone as competitive as he, walking away when the team hasn’t even won a first-round playoff series while under his control seems counter to how he’s wired.
I asked a longtime sports executive what he thought Plotkin’s and Sundheim’s motivations would be for doing this, if Jordan intends to retain control. That executive said he’d be surprised if this deal doesn’t at least provide the new investors a right of first refusal to buy control, should Jordan ever choose to sell.
Q. Will this change anything about the team’s operation?
A. Jordan’s statement said he’ll continue to “make all decisions related to the team and organization.”
Fans are frustrated by the three straight seasons without playoffs and not re-signing All-NBA point guard Kemba Walker. However, the business side of the Hornets, including management of Spectrum Center, is well run by team president Fred Whitfield.
The Hornets are a little more than a year removed from a major makeover of the basketball operation that brought in general manager Mitch Kupchak and coach James Borrego. I don’t know why Jordan adding new investors would impact that.
Q. Does this partial sale of the team matter?
A. Yes, in the sense that Jordan is bringing deep pockets and smart guys with new ideas into the ownership group. For the most part, the minority investors in the Hornets pre-dated Jordan taking control. In a world of rapidly changing technology, that opens new ways to view games and other sports content, and it makes sense to tap into people who have made fortunes betting on emerging trends.