TrueHoop: George Postolos

The business of owning an NBA team in 2010

May, 3, 2010
Abbott By Henry Abbott
For most of my life, the general consensus has been that owning an NBA team was one of the sweetest deals out there. Almost no matter what you did, you would make money. Even the Clippers were in the dough! Even if you had to dig in your pockets now and again for a free agent, you'd make all that up and more -- the story went -- whenever you decided to sell.

Things change, though.

The economy tanked. Teams have gone to amazing lengths -- including profound price cuts -- to sell tickets. The Bobcats were sold by an owner under real financial duress, for a price that indicated he had not only incurred operating losses, but also an erosion of team value over the years he owned it. Greg Miller, CEO of the Jazz's parent company, whose family has invested in the team for more than three decades, told TrueHoop few weeks ago that "almost anything we did with our money would get a better return on investment."

When David Stern said in February that the league was positioned to lose more than a billion dollars over the next few years, I couldn't shake the notion that some of that may have been posturing for the players union. The league and the union are, at the moment, haggling over how to carve up the NBA's revenue pie. At a time like that, it would make perfect sense for the owners to claim poverty, and to demand major concessions from the players.

But there's evidence that the financial pain among NBA owners is real. Consider that the Bobcats sale could be seen as a sign that, for the first time in decades, this really might not be a great time to make money selling your NBA team. And yet, despite a bad market, more than a quarter of the league is for sale in some manner. Reports have had the Wizards, Warriors, Pistons, Hornets, Hawks, Nets, and Grizzlies all in various states of play, not to mention that Michael Jordan has said he's amenable to additional investors in the Bobcats. Word on the street is that there may be even more teams on the market than that.

If an NBA team is, as many secretly suspect, the goose that laid the golden egg, why in the heck would you sell when the market's down, an owner-friendly collective bargaining agreement is on the way, the game is gaining ground overseas and the economy is recovering?

It's enough to make you think all that talk about NBA teams losing money might not be just rhetoric.

It's also a sign of changing times. The new thinking is that in this day and age, the profits will generally go not to all owners, but instead to the owners of well-managed teams.

At the Board of Governor's meeting, I asked Commissioner Stern about this. Our exchange:
There seem to be a number of NBA teams in play at the moment, despite the fact that it's a bad economy, and the Bobcats sold at a number that didn't wow a lot of people. Is this a sign that owning an NBA team isn't a surefire good investment, or is it different now than it used to be?
You know, I guess I would say that we'll have to wait and see. Clearly the Bobcats reflected a series of decisions that had been made over the years that resulted in there not being a good TV deal out of the box, there not being a naming rights out of the box, and there not having a pricing structure that was encouraging of the community, taken together with the basketball decisions. They were operating out of a relatively deep hole, and in some ways, I think there should be some relationship between performance and value, and I think that's what happened in Charlotte.

That said, I'm pleased to report that our competitive colleague, Mr. Jordan, is working that market as only he can, and I expect the financial performance of Charlotte to improve along with his basketball performance, which finds them in the playoffs this year; and there will be a huge turnaround financially in that franchise.

The others, I think we just have to wait. It's true that Washington, as you said, is in play. There are negotiations going on and we expect that to trade at a very robust enterprise value. It's likely and that's because of an estate, a sale by the estate.

Detroit will be under scrutiny for a sale, I think, because of the settlement of the estate. It's been announced that Golden State is for sale, and there are always ongoing issues for other teams, as well. I've read that I've more than read; I've read, but I've also been intentionally involved, that New Orleans is having some discussions. And that was well reported on to the owners, and I think that the valuations will be solid.

And then you can draw your own conclusions about where that sits, but it's going to take a few months for all of this to settle out. I'm optimistic.

You've told us that this is a difficult time; you said those words today, and at the All Star Game, you told us that the league was expecting to lose money.
We will still lose money. There's no question about that. Nothing's changed. The fact that we lost 300 some odd million dollars last year and we are down in revenue this year, will, as Adam Silver reported to the board, continue to reflect that we'll lose money.

But I think there are, you know, buying opportunities in our franchises, and what we heard was the capital markets are loosening up. We'll be renewing certain aspects of our league credit facility. Credit is getting looser. And there is a generally more optimistic view of the world by high net worth individuals, which defines a group that would consider buying NBA franchises.

I don't think we are going off the charts any time soon on the high end, but I think we'll see some solid pricing. But, you know, when you consider some of the losses that go with it, that, of course, has to be a drag of types on franchise values. But despite that, I think we'll see solid pricing in those franchise transactions that are coming.

To better understand the changing landscape of NBA ownership, I called George Postolos. You may know him as the guy who recently tried to buy the Bobcats. But his NBA experience is far deeper than that. (He jokes that he literally carried David Stern's bags.)

After Harvard Law School, he worked at the highly regarded Wachtell, Lipton, Rosen & Katz (a firm that, ironically, advised Michael Jordan in getting the team Postolos wanted). Postolos then became a special assistant to Stern, dealing with, according to his official resume, "collective bargaining, efficient operation of league offices, national television, international expansion, and retail brand extensions." He then became president and CEO of the Houston Rockets, where -- thanks to some clever negotiating of TV deals and stadium development -- he says he more than tripled the franchise's value. Since leaving the Rockets, Postolos has started his own business that does two things: Invests in sports teams, and advises others who would like to do the same. He is connected around the NBA, and keeps a close eye on ownership situations around the League. He is also a serious basketball fan. We spoke by phone a few days ago:

Can you clear something up for me? You’ve been discussed in the media as someone who wanted to buy the Bobcats. Yet on your company website, you’re described essentially as a consultant to people who want to invest in teams. Can you clarify?

I remain committed to becoming an NBA owner. By that I mean becoming part of a group that acquires a team. That’s a goal that I’ve had for some time.

In addition to that, I also consult with people who are interested in buying teams, even if I don’t have a relationship with them were I would become part of a group. I similarly have worked with investors who are interested in baseball teams, and football teams, but most of the action has been in Major League Baseball and in the NBA in the time that I have been doing this.

Is 2010 a good time to buy?

I’m not a fan of any deal, just a good deal. 2010 could be a year when you could strike a good deal. There aren’t as many buyers as there used to be. You might say buyers are scarce.

That just has to do with the state of business in general, the financial markets in general, and how that’s impacting sports and many other businesses.

It’s unique, or it’s unusual to have multiple teams that have been for sale for a period of time. If you’re someone who has been interested in investing in a team, you’ve had an opportunity to look at a number of them over a short period of time.

The high net-worth businessmen in these deals have had a lot of success -- most of the people who’ve invested in sports fit into that category -- so they’re also prominent in some other industry. So when your core business has issues, then you’re going to look at all of your assets and you’re going to say OK, I want to make some adjustments here. I want to concentrate on fewer businesses.

One of the things you’re going to take a look at is your sports franchise, particularly if it’s requiring liquidity, because there has been a liquidity crisis. By liquidity, I mean free cash that you have available for investment purposes. If you have a business that is losing money, and the NBA has talked about how last year and this year too have been money-losing years, those losses have to be funded. And those have to be funded by ownership, and in significant part by equity contributions. That means they’re using up liquidity.

With private equity investments in general, and many other businesses, they have more needs for cash now, which means they’re going to look harder at these things.

Every situation is different. You have a couple of estate sales where a longtime owner has passed and the next generation has to make decisions about whether they want to be involved or not. It’s lots of different circumstances, but they’re affected by what’s going on in the economy, and where the NBA is in its collective bargaining agreement negotiating cycle. But you’re seeing similar things in other leagues. Multiple franchises are looking at their strategic alternatives, because there’s some duress.

Owning an NBA team used to be seen as a can’t-miss investment. And if that were still the case, it’s hard to see how a death in the family could make you want to sell. With a great long-term return, wouldn’t you hold on no matter what?

So far most people have held on. I think that’s important to keep in mind. Just because a franchise is for sale doesn’t mean it’s going to sell. You see a wide difference between what the current owner wants to sell for and what a buyer wants to pay. Then a transaction doesn’t happen. Someone might solicit proposals over a period of months or years. But the fact that you have a large number for sale doesn’t mean you have a large number that will sell.

If I’m understanding correctly, it’s like a street with a lot of “For Sale” signs on front lawns. And one house down the street may have just sold cheaply. But if the owners of those houses aren’t desperate, they may eventually take it off the market again.

It’s a good analogy. Most every owner will have that option. There are very wealthy families, these are very wealthy individuals, these are very wealthy groups. Most of them will have the option of continuing to hold the franchise.

In some rare circumstances, there will be somebody more motivated to sell, maybe because they’ve got significant pressure from somewhere else, or maybe because of the capital structure. Obviously, in the NHL with the Coyotes, that was a forced sale, and the owner decided to seek bankruptcy protection, and you have a long process from that.

You have the same situation with the Stars, potentially. The situation Tom Hicks is in with the creditors of his sports franchise there that’s affecting both of his franchises. And I think [former Bobcats owner] Bob Johnson was in a situation, not saying anything specifically about his situation, he was very motivated to make a change. He made that very clear, and so you knew he was going to do something. I don’t think any of the other teams have gone that far.

In the New Jersey situation, you’ve got a big need. They’ve got to finance a new building, and they need new money coming in to meet that objective. The existing owners wanted a new party to come in and they needed a big infusion of capital to complete the stadium project. That’s why that transaction happened.

Not sure if you saw a little while ago that Greg Miller defended his family’s investment in the Utah Jazz, but at the same time said almost anything else they did with their money would get a bigger return.

I think that they have done a good job over the years. They’ve had good people in management positions. They’ve made good decisions off the court. On the court, they’ve been competitive. I don’t know exactly how they finance their operation. They have spent aggressively to get their new team in place, after the Stockton and Malone era came to an end. Maybe that’s put some stress on their investment, or maybe that’s dampened their returns. I would think that they’d be in the position, because they’ve been active for so long that they have done reasonably well.

They certainly have a well-run franchise that’s been competitive. There are certainly other families that owned franchises during that period that have done quite well.

Maybe it has to do with market size, or the wealth of the market. But other owners in similar situations have done very well. But they have spent aggressively, and maybe it has something to do with having interests that trumped running it as a good business. And that’s certainly the case in sports sometimes. I think anyone would say that they’ve been a well-run franchise over an extended period of time.

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The Bobcats close in on a new owner

February, 25, 2010
Abbott By Henry Abbott
Note: The item below was posted on Thursday. Charlotte Bobcats owner Robert L. Johnson announced, early Saturday, an agreement to sell majority interest of Bobcats Sports and Entertainment to Michael Jordan and MJ Basketball Holdings, LLC. The deal is subject to NBA approval.

Is Michael Jordan, at long last, about to have his own NBA team?

To answer that first question fully, we first need to answer two others.

Is the sale happening now?
Two sources close to the process tell me an announcement is imminent and could come at any time -- as Rick Bonnell of the Charlotte Observer has reported. Other sources insist that kind of talk is premature, and point out that in May and August of last year there were also reports saying a sale was imminent, but nothing materialized either time.

Lending special credence to the idea that the time is now, however, are the comments of NBA Commissioner David Stern at All-Star weekend, who said that he thought a sale of the team was certain. "And I think that might happen sooner rather than later," he added "within the next 60 days or so." Those involved in the process found such specific comments to be meaningful. Not only were they coming from a very careful and lawyerly speaker in Stern, but they also seemed to suggest that he had insider's knowledge of how the process was playing out -- if key issues remained unresolved, it would surely be foolish to predict a swift outcome.

What's more, any deal would likely become public at the time a deal was struck -- which is typically long in advance of the actual closing. (Think about buying a house -- you agree to a price with the seller, who takes the house off the market by placing it "under contract." Then there's an interlude for inspections, radon tests, mortgages and the like before you get the keys at the closing.) If the sale of the Bobcats is to be completed within 60 days of Stern's press conference -- as those close to the situation believe Stern intended -- it would have to be agreed to and announced weeks before that.

Stern spoke 15 days ago. Clock's ticking.

If there is a sale, will Michael Jordan be the new controlling owner?
There are two groups known to be pursuing the Bobcats.

The primary figure in one group is Jordan, who sources say would not purchase the team solo, but instead would lead a group of investors. It's not known what percentage of the purchase price would be met with his own money. If he wants to make all the big decisions, however, he'll likely have to dip into his own pocket more than a little. The NBA likes any team's "controlling owner" to own at least 15% of the team. (Remember when Pat Croce was the "owner" of the Sixers, and then he was essentially fired? That was only possible because he owned just a small percentage.)

Jordan has dallied with lead ownership roles in the Bucks, and these same Bobcats, in the past, and has never taken this step previously.

Another group is identified with George Postolos. Postolos is the former president and CEO of the Rockets, and a former special assistant to David Stern. Postolos now runs a business advising investors who want to buy sports teams. If the group he's associated with were to win the bidding, at least some of the investors he's working with now would become public knowledge, but for the time being it's one of the better mysteries in the NBA. Who are these people? David Stern just told us teams are losing money, and small market teams have always had it worse than the New Yorks and Chicagos of the world. If you had billions, why get into this business now?

Two sources close to the process say that of the two groups, Jordan's has the inside track. That would seem to be seconded by Stern himself, who said at All-Star that "if Michael were to be a buyer that would be a good thing." That might have been a pro forma statement -- he's Michael Jordan, the biggest name in basketball history. Of course it's a good thing to have him in the NBA. On the other hand, praising Jordan as an owner is a strange way to behave if you expect to be selling the world on the merits of of George Postolos and his investors.

In addition, current owner Robert J0hnson -- who has said he owns more than 70% of the team -- told Scott Fowler of the Charlotte Observer last April that he'd like to sell the team to Michael Jordan. Johnson once told TrueHoop of his relationship with Jordan: "I have overwhelming confidence in Michael to make the best decisions for the Bobcats. He's the second largest owner in the franchise. He's the world's greatest guy ever to play basketball, and he's probably the most competitive guy I have ever met. And he is a friend whom I trust."

It's hard to find anyone close to the process who thinks anyone other than Jordan is likely to be the next controlling owner of the Bobcats.

How would the Bobcats be different with Michael Jordan in Robert Johnson's seat?
Basketball-wise, things would not change. Jordan has long been not only a minority owner, but the owner with the final say on basketball matters like who will be the general manager, who coaches, and who's on the team.

What would be different under Jordan, however, would be the business of the team. It's hard to imagine anyone could be better positioned to put together an all-star list of corporate sponsors, for instance.

Bobcats fans soured on Johnson some time ago (read the comments on Bonnell's story, linked above), and Jordan himself has been maligned as an absentee owner (he lives in Chicago) with multiple other interests. But if Jordan demonstrates passion for the Bobcats day in and day out, it's hard to believe fans and corporate sponsors wouldn't fall in line. Gravity is on his side.