Deadspin has obtained an audit report done on the struggling New Orleans Hornets that gives some rare insight into the operations of an NBA franchise.The audit was done by KPMG and while the information is limited, it gives some idea of why owner George Shinn wants out and what the NBA will have to do to turn things around.
What can we learn from it?
Well, for starters the team has debt. A lot of it. About $111 million worth, leaving the partners more than $80M in the red at the end of the fiscal 2009.
A big reason for that is that the team has no real assets. Yes, they make money from tickets sales, broadcast rights, and general NBA revenue, but they don’t own anything. They have no stake in their arena, which makes it easy to move the team, but not so easy to refinance or pay down obligations.
They team also has some unique obligations, like a $30 million relocation fee (paid to the league in installments) that allowed them to move from Charlotte six years ago. In fact, only way they were able to go from a net income of ($16,000,000) in 2008, to a positive of about $1,000,000 in 2009, was to get the NBA to defer those payments until later years.
Even with a big boost in tickets sales (about a $14M jump from 2008 to 2009), the team was barely able to break even.
What can’t we learn from it?
The biggest limitation is that this data only covers two years. It doesn’t include 2009-10 or 2010-11 and it doesn’t include any forward looking projections. That makes it nearly impossible to assess the true value of the franchise, or the true nature of its debt.
Any real buyer looking to swoop in an pick up the Hornets would have access to those internal numbers that would paint fuller picture of the strength of the team’s finances.
One final tidbit: It appears that George Shinn loaned the team about $11.5M through a marketing company he owns, Slam Dunk, LLC. The Hornets paid him back … at 7.75% interest. Not a bad deal.
So what happens now?
It’s likely that once the NBA takes over, they can use their larger clout and (presumably) better credit rating to refinance, absorb, or pay off the Hornets debt, making them more attractive to a new owner once they’re eventually spun off again.
But the none of that will answer the real issue, can the NBA survive in New Orleans? Debt or no debt, it’s not clear that they can.
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