Lease Announcement Follow-up: Ownership and Lease Approval

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Published: March 17, 2012

The first of several follow-ups to the recent announcement of a New Orleans Arena lease extension between the Hornets and the State of Louisiana.

In a press conference today, representatives of the Hornets and the State had a press conference to discuss the terms of the proposed lease the Hornets will sign for the New Orleans Arena. For the Hornets, President Hugh Weber and Chairman and Governor Jac Sperling were speaking. For the State, SMG Senior Vice President Doug Thornton and LSED Chairman Ron Forman spoke. SMG (Superdome Management Group) runs the New Orleans Arena. the Mercedes-Benz Superdome, and many other properties around the country. The LSED (Louisiana Stadium and Exposition District) is the state body that handles such facilities for the State, including Champions Square, making sure they are what is needed, kept up, kept up to date as a portfolio, etc.

And Hornets247 was there at the table with the mainstream media.

They did lots of yakking, and the video is out there. This isn’t recapitulation. This is explaining. The easiest stuff to explain, seeming paradoxically, is the stuff that we know the least about. That is the overall ownership situation, what this lease `means’, how it affects the rest of the process, etc. The details of the lease in terms of how they divide up the bags of money, we’ll get to later. This is all just setting the stage.

Speaking of stage, that’s a great analogue for this.

Let me grind a little bit of this handy ax while I’m at it. Aristotle said that, in order, the most important elements of drama are: plot, character, theme, diction, music, and spectacle, with the first three being the major elements. In this particular case, I’ve always disagreed with the little Aristotle, and I continue to do so today.

I will tell you the characters first.

And I will get an A on this paper, too (thanks, Ms. Servat, the best and most influential English in my life and mother of my only Padawan).

The Characters

Using the “All the world’s a stage” (As You Like It, Act II Scene VII) framework, the Hornets put on a show, and the Arena is the playhouse. The court is the stage. The players (basketball) are the players (acting). The staffs of each are parallel. Shinn would have been a prior owner of the troupe, while Chouest and Bhathal are interested buyers.

That part is kind of easy.

The State owns the Arena. SMG manages the Arena, so they would be like the manager of the theater. They are there to help the actors and theater company with dressing rooms, concessions, tickets . . . everything that isn’t acting. Their services come with their rental of the theater (Arena), like it or not. They answer to the State, their concern is the Arena and its ability to make money for themselves, the State, or the guests of the State.

The LSED is the representative of the State in these matters. They are appointed by the Governor to achieve a few general goals. If the members do a bad job, they get replaced, but the LSED goes on. They would be the assistant of the theater owner who would run certain businesses so the actual owner can play golf and pretend to be so, so busy. Besides just being boss-like to SMG, they make sure SMG does a good job in protecting the Arena and using it to full advantage. Additionally, they study the market to see if the facilities need updates, which updates are worth it, when new facilities are necessary, and build the collection of properties that work together for maximum utility for the community and maximum profit for the State.

The above description should make it plain that there is a good deal of care that must be taken in routing the revenue and costs between these groups: The team, the State, the people the State hires to run the Arena, the people the State hires to act as steward over its assets, the partners of the team, the people that pay for all the other people and their people: the People.

The Plot

What the announcement today represents is that all of the people who matter, except two, have carved out an agreement that they feel will maximize the benefit all parties as a whole, if not for any particular stakeholder.

Those two are the owner of the franchise and the owner of the Arena (the State).

This is the source of the subject to approval thing. The people handle the affairs, the experts on these matters, have put together a deal that they are happy with, but these deals are substantial enough to require the actual owners to sign off. The LSED can order lunch without checking with the big boss, but signing a lease that involves a couple hundred million dollars and tying up a state asset for over a decade needs the approval of the check writers (the Legislature). They have an agenda, and they’ll get to this in due time, but this is but one of many issues in their session.

Then, there’s the more complex situation of the ownership of the franchise. The Hornets are owned by the NBA and in quest for a new owner more than so for a title at present. There are exactly two candidate groups at the moment, and the most recent report, which did not include identifying information, is that these discussions are ongoing, active, and frequent. It is my understanding that both groups were informed of this lease, but had no formal input in the lease. They did not say “put this in there or else” and it was put in. I’m sure that if both groups said something worthwhile about the state of the lease at some point, it may have been included, but that’s not nearly the same thing and is pure speculation on my part.

Now this is important, so pay attention.

The lease basically works this way: It does not kick in until it has the approval of the State and the new owner. The sale, however, will only remain so if the lease is signed. So, there is no way for the new owner not to sign the lease as written. There is also no way for the NBA to get stuck with the team beyond the 2013-2014 season.

Let me say this again.

So, there is no way for the new owner not to sign the lease as written.

Once more. Twice means it’s important. Three times is telling you that this is the most mainest of points.

So, there is no way for the new owner not to sign the lease as written.

If the owner fails to sign the lease, the sale is rescinded.

This is what I was told in no uncertain terms.

Might I have been told incorrectly? Yes. Did I misunderstand what I was told? No. No chance. None. Nihil. Zero. Zed. Zilch. Zip. Cero, for Gus (for mW). Infinite improbability. It is an ex-possibility. I asked different people in different ways. This is what I was told.

Might things change? Yes. Are people expecting this to change? No. Are they willing to accept major changes? I doubt it.

The new owner will sign this lease.

Now we have to address the structure of the lease and how the two approvals are gotten.

Stay with us.

This is a good time for a sandwich, but come back if you get one.

. . .

How was it?

This team sale will be much like any other team sale. Here’s the process.

First, the current owner decides to sell the team. We’re past this.

Next, the current owner finds people that want to buy the team that seem like they can. One of these is chosen. How they are chosen is up to the current owner. Profit is not always the exclusive criterion. We are in this process now. Doesn’t seem too far along, eh? It’s farther along that it seems here.

Then, the NBA votes on the sale. They need 75% approval for an ownership transfer. This stage is not trivial. Before voting, the NBA studies not just the sale in terms of dollars, but the entirety of the ownership groups finances. The recent proposed sale of the Hawks was rejected at this stage due to, at least, the owner being too heavily financed. The NBA’s ownership class is changing. They are bringing in billionaires (e.g. Gores, Harris) at a rate that outpaces their natural occurrence rate among people with $500m or more to their name. Additionally, the NBA, I’m sure, really wants to be done with having the deal with this situation. They do not want to have to do this again in 10 years, or worse, move this team, admitting a failure to identify this situation as one that was impossible to fix or one where the possible fix was botched in its execution.

So, that’s how you get a new NBA owner. We have a ways to go there.

As noted, that new owner will have to agree to the lease as part of the sale of the team, effectively.

On to the State approval. This is much easier. The Legislature must approve this lease in its current session. This session will end no later than June 4, 2012, 6:00 p.m. CDT. It could end earlier. The lease could be approved at any time during the session. The lease provides for money being raised for some purposes related to the team. We’ll get into the details in another post, but the approvals for that money is in another bill. Neither of these bills is in the queue yet, but that’s ok . . . we have the resolution to commend Better than Ezra in place . . . Aha, it was good.

Yes. Really.

For those who care about such things, this was never done for Phil Anselmo or an associated act. Travesty, that is.

Lastly, we discuss the broader parameters of the lease.

The lease runs through the 2023-2024 season. This is 10 years beyond when the current deal runs out. It also runs out one year before the most recent Saints lease, a 15-year deal enacted in the final season of the prior lease.

The lease is free from out-clauses, benchmarks, inducements, and subsidies. This information not only came from the team, but also came from the State faction. They have no reason whatsoever to help a team not give them money. I’m sure there are clauses that let them out, like if Arena can not host games (think post-Katrina). For those pointing to a Key Arena situation as a parallel . . .

The lease includes upgrades to the Arena (more on this in another article). As long as the State comes up with the promised money, there will be no reason for the owners to call the New Orleans Arena unacceptable for the term of this lease. We can worry about the next lease as soon as this lease is signed. Well, give us 10 seconds of joy, then start complaining. Use that time to point out how walking on water may be a cover for lack of swimming skill.

Putting this all together, we can get a loose timeline. Sperling said that an ownership announcement is weeks away. Not a week. Weeks. That announcement will be a sort of informal, unofficial annoucement. There will be pomp, circumstance, dogs, ponies, and ticker tape if that stiff still exists. Don’t buy it. The NBA still has to agree. So unless they say that the NBA has approved this group formally, then don’t buy it. It may be right in the end, but it’s uncertain at that point in time.

The Legislature, meanwhile, must go through its growing agenda until it gets to the appropriate bill and approve the lease. Now we get to some ink-thick fog. We know that the owner-to-be must sign the lease, but must the Legislature have approved the lease at that time? Will the owner only agree to sign a Legislatively approved lease? Will the Legislature use this to indirectly select the owner it wants? Are Louisiana politicans that savvy?

You bet they are.

Will this happen? Who knows?

Will there be some sort of jockeying? Yes. Will it only between between the State and the NBA / potential owner? No. Louisiana politicians will be stumping to their constituents, setting the table to get votes in some unrelated bill, and on, and on.

Do not be distracted. This is just business as usual.

All of this is going to take weeks. Even when it’s over, seemingly, it’s not. We’re going to be going into this into the Summer on one level or another.

Having it signed, sealed, and delivered to act on draft night would be ideal. Circle that day. June 28th, 2012. Anything sooner is bonus.

The Theme

There is money to be made here for all parties, and all parties know it. Louisiana is highly invested in tourism, service, and entertainment. Additionally, the people that focus on these venues have a brand new toy to play with: Champions Square. In this video from July (from a Hornets247 / Hornets Report I’m In event hosted by Joe Gerrity), I ask Hugh about this in no uncertain terms. He clearly reacts to this. Listening to his answer then and the announcements today, it seems that this plan is not some stab in the dark to save the team. This is a well-considered plan that has been methodically implemented. The State is going to both require the Hornets to make money for themselves and use them to make money for the State. The reward for the team is a better facility and the opportunity to reap their successes.

People have worked too hard for too long to just let this team walk away. Naysayers can ignore these efforts and expended resources, dismissing all this with some version of Lloyd Christmas’ “So you’re telling me there’s a chance!” to the would-be Mary Christmas, the following up with some slippery slope scare tactic. Don’t buy it. The team could leave, but it won’t be even close to easy.

This franchise is going to be run like a business. It’s going to be run by real businessmen, too. We will notice changes all around town. I’m not sure it will affect the on-the-court product immediately, but there will be differences. Maybe they’ll even be taking suggestions. They will slowly and steadily join in with the rest of us, one day ceasing to be the new kid.

This may be the key to it all. If this franchise is not going to be a responsible member of the community here on at least a cultural and business level, then they can take a hike. I’m not worried about this, as I said. I believe that this team will see the business opportunities here. They will see that this market, once understood, is better than the 31st best of actual and potential NBA markets, even with the Saints here. They will see that we are not just resting on our laurels, but also that we will continue to back the team as long as the team backs us. They will see that New Orleans, Louisiana, and the Gulf Coast receive less credit than they are due.

I also think folks that see it otherwise just may fail to see our community as the franchise sees it: attractive.

Paraphrasing Sperling, we are getting the fair chance we deserve to succeed as an NBA market. Many cities are begging for that chance, some that the fearful fear are `better’ or `bigger’ or something. I think that’s their own opinion. The billionaires feel otherwise, and they’ll continue to do so as long as we support this team . . . as long as we support ourselves, because that’s who they are: us.

You take a minute to think about that. Think about the people you actually talk to in the franchise. Think about the people you see out there doing charity work every week. They are people who live here, work here, and enjoy it here. All of them? No. Enough of them? Yes. You can choose to think of all those people to be some automatons who just do the bidding of some less-than-uncaring entity bent on making us look like fools no matter the cost. You can also choose, among other things, to believe that the Hornets are a collection of regular people who have a good deal to offer this city. They are a little awkward. They’ve been shifted just half a beat from the rest of the dancers. So what? Who hasn’t been?

I got off the elevator today on the wrong floor in the office building where Hornets HQ is. I was talking to Hornets people at the time. I just followed the guy who said when he got on he was going to a different floor than everyone else, and just blindly followed him while I was talking to a rep. That was a total blunder on my first real big media assignment, one for which I’ve been preparing for over year, frankly, and I screw that up in front of franchise employees and seasoned media members.

I just said, “I wonder who the new guy is!” and hopped back in. The media guys kind of ignored me, but I just followed them to the proper room and went on my way. I talked to a couple of writers, and all was well by the time I left.

Some Hornets folks came over to talk sports. Not Hornets. Not Saints. It was nice. It was friendly. I can pretend they are just buttering me up. But why? To influnce my influence over the six people that will read this article to this point? Five if Paul is on walkabout . . . If so, then why the Nicks thing the lead-in? Nah, it’s just banter. I always feel welcome in their corporate offices. For anyone who knows me, they know that’s a weird thing for me to say.

They are all just regular people, and we’ve all been that awkward guy, just like I was today (again).

Tell them it’s ok, buy them a drink, and give them a seat at the bar.

Then poke fun at your friend, not the new guy.

5 comments
Vic Welker
Vic Welker

Good comments, a little overdone. Need to get to the point quicker. Not sure if you addressed, what if the revenues don't come? Not sure what it is that the Hornets will be doing to produce revenue? They do contribute to the tax base and economy of New Orleans. But have they not lost money since being in New Orleans as an organization? Was not Shinn 100 million in the hole when the NBA purchased the team? The one person I trust in all of this is Doug Thornton. This is a great deal for the state. He said what I have been waiting to hear, "The Hornets assume 100% of the risk". Until the Bees started to play in the arena it was a money making facility. From what I understand, with the concessions that the state has had to give to the Bees since they have been here, it has put the arena in the red. Hopefully this will get the arena to be a money making state facility once again.

Jason Calmes
Jason Calmes

There are more coming. The bond issue, various payments, and more are coming. It wad too much to effectively explain at once, at least at this level of detail. I agree that this is not effective as a quick summary of even this part of the announcement. I will be doing an analysis of the books of the past this summer. I appreciate the requests. That's how we stay on target.

pschafer
pschafer

Nice work, Jason. The hard work and the gusto are much appreciated.

sweetpea
sweetpea

I'm one of the six. Excellent explanation, plus its always good to get Aristotle and Shakespeare with the morning coffee. It might sound really odd, but I never gave enough credit in my mind to how hard the organization people have fought for this and how they will not let this franchise walk until they've given every effort. I've been focusing too much on the empty seats in a lot of the games, though that sounds odd too. Anyway, reading this post I feel even better about the future then yesterday afternoon, even considering the remaining hoops. Let's get a new owner with the proper financial portfolio to seal the deal with the other NBA owners...

Jason Calmes
Jason Calmes

Consider this: the big boys know that no matter what, they stand a good chance of losing their jobs. So, with little chance for continuing, why give the extra effort? It's not like Hugh gets time and a half for talking to some reallyreallyreally nerdy blogger and me for 45 minutes about what he's been repeating for months (what will happen), and stuff he's not really too well practiced at talking about that are tough to talk about (business engagement), a couple of hours before a game with no specified time limit. We ended it at the time that felt right. We have readers around the world, but blowing us off has no huge effect. It didn't happen. And I'll clue you in to a little something: we are arranging another big boy interwiew, so stay tuned. Back to the point: these guys don't have to work 16 hour days to give their job to someone else. They can work 15 hour days like everyone else and reap the same fate. They are working like this while they are running into a buzz saw, eyes wide open. Why? Some will say it's show for the next job, or trying to beat the odds, or whatever. No. And I don't think many of them are primarily motivated by a sense of it being "right" to try to keep the team here, though I believe that is second on the list. The top reason, I think, is the mass of their coworkers than can be saved. The reps that sold 10,000 tickets and more than any otger NBA team in last year's circumstances deserve to keep their jobs. They deserve to know that they can try to start a family (like my rep (congrats agaun, Gena!). I saw this happen in my field. Everyone knew when the last Shuttle was going, basically, but many people stuck around to the end rather than hop to another job sooner and not miss a paycheck. This happened to such a degree where I work, it was studied. The conclusion was that people cared more about not letting their coworkers down rather than some abstract goal of putting humans on Earth by way of space (any idiot can put a human in space; the trick is them taking out the trash 2 weeks later...) I think that is happening here. It's commendable. They get great satisfaction from knowing they make slobs like me happy, but if they are saving people's lives-as-they-know-them, which they should be doing as management, not running off and forming a consulting company while padding the padding in their wallets.

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