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Albrecht Stahmer: Kings deal may be dead, but Louisville still has four options to get an NBA team

by Albrecht Stahmer

Interactive agency Current360 has created a number of logos in anticipation of an NBA team coming to Louisville.

After almost three weeks of rumors, it appears as though the Sacramento Kings have been sold to a Seattle investment group that plans to move the team to Seattle and reincarnate it as the SuperSonics next season.

Sacramento Mayor Kevin Johnson has yet to throw in the towel and is scrambling to come up with a local ownership group to buy the team and keep it in Sacramento.

It appears there are holdups in both Seattle and Sacramento that are preventing this from being settled quickly but wherever the Kings wind up, it’s an extremely slim chance that it’ll be Louisville.

So where do supporters hoping for an NBA team to help fill the empty dates at the KFC Yum! Center look next? (Be sure to check out our Terry Boyd’s analysis of the challenges the arena faces in generating enough revenue to pay off its construction bond issue.)

There are a finite number of franchises (30) so Louisville can only land a team through the relocation of an existing franchise, of which there have been only nine by seven separate franchises since the 1976 NBA-ABA merger (the proposed Kings’ move to Seattle would make that 10 relocations by seven separate franchises), or expansion.

The NBA has created eight franchises through expansion since the merger: the Dallas Mavericks (1980), the Charlotte Hornets (1988), the Miami Heat (1988), the Minnesota Timberwolves (1989), the Orlando Magic (1989), the Toronto Raptors (1995), the Vancouver Grizzlies (1995) and the Charlotte Bobcats (2004).

There are currently no plans for the NBA to expand. However, NBA Commissioner David Stern hinted that the league might be open to it during an Oct. 25, 2012 press conference. During this same press conference, he specifically mentioned Louisville as a potential future NBA city.

Based on this data, it is clear that NBA franchises do not move that often. Expansion happens even less often and is primarily driven by the need to re-balance geographically due to shifting population.

Further analysis shows that the two primary drivers of franchise relocation are new owners moving their newly acquired teams to their hometowns, and/or the lack of modern arenas in the existing cities.

With regard to the second criterion, Louisville passes with the KFC Yum! Center a state-of-the-art basketball facility. While some modifications and upgrades would be required to house an NBA team, the building itself is in place and in need of a co-tenant.

That begs the first question: Does Louisville need local ownership, specifically a whale willing to be the majority owner of an NBA franchise?

Based on the five franchise relocations since 2001, the answer is mixed.

In 2001, the Vancouver Grizzlies were owned by Chicagoan Michael Heisley who determined the economics were not working for his team in Vancouver, driven primarily by a weak Canadian dollar. Whereas many of the team expenses were accrued in U.S. dollars, most of the revenues were earned in Canadian dollars — not a good business model.

After spending a great deal of time investigating Louisville, he moved his team to Memphis. He has since sold the team to Californian Robert J. Pera, who has pledged to keep the team where it is.

In 2002, the Charlotte Hornets relocated to New Orleans, where a three-year old, NBA-caliber arena without a tenant was ready and waiting. Before that move, the Hornets had actually signed a memorandum of understanding to relocate to Louisville on Sept. 15, 2001, and the NBA was prepared to announce the transfer of the team to Louisville on Oct. 22 of that year.

Unfortunately, then-Mayor David Armstrong tried to tweak the deal at the last moment and the transfer was delayed, then ultimately called off. Within months, the Hornets wound up on the banks of the Mississippi River instead of the Ohio River.

The move from Charlotte was caused after a falling out between majority owner George Shinn and the city, whose fans adored their Hornets and led or were near the top of the NBA in attendance every year for the first 10 years of the team’s existence.

However, Shinn was accused of rape and admitted to other marital infidelities and the relationship between him and the city soured. Charlotte taxpayers then balked when he asked for a new arena to replace the 14-year old Charlotte Coliseum.

A voter referendum for a new arena failed and the disgraced Shinn, despite being a Charlottean, moved his team to New Orleans. The team has since been sold to New Orleans businessman Tom Benson.

In 2006, Oklahoma City businessman Clay Bennett acquired the Seattle SuperSonics. After failing to gain approval from the City of Seattle for a $220 million upgrade of Key Arena, Bennett moved the team to his hometown in 2008, where there happened to be a four-year old arena without a major tenant, and the re-named Oklahoma City Thunder were born.

In 2009, Moscow-based billionaire Mikhail Prokhorov purchased the majority interest in the New Jersey Nets and facilitated their 2012 move back to New York to a new arena development project in Brooklyn. Though not carried out until last year, the move had originally been proposed back in 2004 by previous majority owner Bruce Ratner, a New Yorker transplanted from Cleveland. Prokhorov’s purchase of the team and equity investment in the arena project expedited the relocation.

Newark did nothing to drive the Nets off, where they played in the completely modern Prudential Center, recently opened in 2007. The move was driven instead by the a desire to take the franchise back to its historical home in New York City and become the primary tenant in a massive arena/entertainment/office/residential project called Atlantic Yards, developed by minority owner Ratner.

Next season, the current Sacramento Kings may well tip off in Seattle under the ownership of a Seattle-based group that includes San Francisco-based hedge fund manager Chris Hansen (a native Seattleite), CEO Steve Ballmer of Seattle area-based Microsoft, and brothers Erik and Peter Nordstrom, scions of the Seattle-based Nordstrom department store.

In addition to acquiring 65 percent controlling interest in the team for approximately $340 million, the Hansen group will also put up $200 million toward a new $490 million arena to replace the outdated Key Arena, the facility that prompted the SuperSonics move to Oklahoma City just five years ago (assuming the financing and construction plans are approved).

The Kings’ current ownership, the Las Vegas-based, casino-owning Maloof family, wanted the 25-year old arena in Sacramento replaced, but are facing serious cash flow problems that prevented them from contributing financially to any arena deal and ultimately could not reach an agreement with the city. After almost three years of haggling, it appears they will sell majority interest in the team to the Seattle group.

Of these five precedents, Memphis and New Orleans landed teams after existing owners from other cities shopped around for better homes for their franchises.

Oklahoma City and Seattle landed teams by having hometown ownership acquire franchises elsewhere and then take them home.

Brooklyn landed a team by finding a rich foreign owner to pony up the money to purchase majority ownership of a franchise and then move it.

Based on these examples, Louisville has four current options for landing a team:

  • Convince an unhappy current owner to move his team to Louisville
  • Recruit a wealthy local investor/syndicate willing to buy and move a team to Louisville
  • Recruit a wealthy non-Louisvillian, perhaps foreign, investor/syndicate to buy and move a team to Louisville
  • Recruit either wealthy local or non-local investor/syndicate to secure an expansion franchise for Louisville.

Louisville came in a close second for both the Vancouver Grizzlies and Charlotte Hornets when those franchise owners were looking to find new cities to host their teams. In fact, Louisville’s NBA pursuit team succeeded in landing the city the Hornets, until the deal was sabotaged by Armstrong.

On the other hand, the city didn’t even register as a contender for either the Seattle SuperSonics or Sacramento Kings when competing against deep-pocketed investors set on acquiring franchises to move to their hometowns.

If Louisville wants to be a contender for the next franchise considering relocation, a change in strategy is in order as the trend seems to be shifting. Instead of trying to recruit an existing owner to relocate a franchise to Louisville, the pursuit team has shifted its focus to recruiting a potential owner and/or syndicate with the intent of acquiring a team and moving it to Louisville.

To that end, a group of more than 30 potential minority investors from Louisville, Lexington, Cincinnati, Nashville and all corners of Kentucky has stepped up to the plate to form a tentative consortium of investors to supplement a potential majority investor.

Based on current franchise valuations and recent sale prices, the total investment required would be in the $500 million range.

Louisville has an arena in place in need of a co-tenant, a rabid basketball fan base and is geographically situated in an area mostly absent of NBA competition.

Without a whale investor, it will become increasingly difficult for Louisville to get in the game, but find a whale investor — local or otherwise — and Louisville could suddenly jump to the top of the potential relocation/expansion city list.

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