Addressing the 10,000 lb Elephant

Published: January 11, 2008

Before I move on to posting about tonights game, I wanted to attempt to address the 10,000 pound elephant in the room: The new lease agreement between the State of Loiusiana and the Hornets.    Several new details have come out about the agreement and I thought some of the initial reporting was misleading and/or confusing, so I'll do a quick run down of agreement for you.

First, the basics:

  • The lease agreement is extended from 2012 to 2014.
  • The 15-20 million dollar practice facility the state was going to attach to the Arena is no longer going to be built.
  • The Hornets have the option to pay a penalty and get out of their lease in 2009, 2011, 2012, and 2013.
  • The 2009 option to get out of their lease is only available if the average attendance of Hornets games from December 1st of 2007 to the end of the 2008-09 season is less than 14,735.

Now, to the financials.  The Times-Picayune initially reported that should the Hornets seek to move, it would cost them 100 million dollars.  They then listed various penalties, moving costs and mentioned a 62 million dollar buyout of Gary Chouest should Shinn have to move.  I noticed some people discussing it on various Hornets boards have combined the two numbers, and are assuming it will flat out cost Shinn 165 million dollars to leave New Orleans.  Sorry, that's not the case.  Here's what it will cost Shinn:

  • Penalty: 10 million dollars to get out of his lease.
  • NBA Payout: The NBA requires teams that move to another city to pay the NBA 10 30 million dollars – to be split amongst the other owners. 
  • Moving Costs: Shinn has stated in the past it cost around 5-10 million dollars to move from NO to Oklahoma City.
  • Gary Chouest Buyout: Shinn's agreement with minority owner Gary Chouest included clauses that should he stop owning the team, or should he move the team, he must buy out Chouest's interest in the team, which is worth 62 million dollars.

Here's the kicker:  Chouest's 62 million dollars isn't a cost, it's an investment.  Shinn doesn't actually lose the money if he has to buy Chouest out, he can just turn around and sell that portion of the Hornets to another minority owner in another city.  I don't know enough about Shinn's financial situation, and it's possible that it may cash-strap him for a while or make him take out loans he has to pay interest on, but it's still an investment, not a loss.

So the only real loss is the other 45 million dollars to get out of the lease, move the team, and pay the NBA to allow him to move.  For a man owning a 272 million dollar franchise, that hurts, but you have to acknowledge what just happened in this deal.  Shinn gave up a 15 million dollar practice facility for the right to leave.  Got that?  In his mind, he's already paid 15 million dollars in a bid to leave.  At the very least he's planning his exit if its necessary, and you better believe if he's willing to dump 15 million, he's already planned how to handle the rest of the costs, and is ready to go if need be.

Will the Hornets move?  I honestly don't know.  Unlike some, I don't think Shinn is a snake trying to wiggle out of the city, and I think he'd like to have it work in New Orleans.  Still, my gut feeling isn't good.

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