Traditionally, professional sports franchises were owned by a wealthy individual. With the price of sports franchises rocketing into the billions, it is common these days for a syndicate of wealthy investors to buy franchises. The remaining owners give up the convenience of having easy access to a single individual able to make decisions, but in return, the league gets buyers willing to pay a premium, with access to more capital to purchase the team, build new arenas, and pay the athletes.
Because of the interest in having more diversity among the owners, and having teams appeal to a more diverse market of fans, a strategy that appears to be in vogue is to have a prominent African-American investor join a consortium of wealthy white investors. There is nothing inherently wrong with this strategy, as it provides the African-American investor with an opportunity to participate as an owner when he might not have enough money to buy the team on his own, or might not want to take that much financial risk. The celebrity status of the African-American investor provides the remaining investors with a powerful marketing tool that they can use to generate publicity and increase the fan base. However, one hopes that if the African-American investor is a celebrity and will be the "face" of the consortium, the African-American investor will get an ownership percentage reflecting the value of his celebrity status.
For example, though it was widely reported a few years ago that Jay-Z had taken a stake in the Brooklyn Nets, Jay-Z's ownership stake was less than one percent. He later sold that interest when he formed Roc Nation Sports and started representing athletes.
Likewise, though Magic Johnson joined with Guggenheim Partners to buy the Los Angeles Dodgers, according to sbnation.com, Magic's share of the team is approximately 2.3 percent. Magic says he wrote a check for $50 million for that stake.
One minority investor who appears to have chosen a more traditional ownership model is Michael Jordan, who reportedly owns 80 percent of the Charlotte Hornets (formerly known as the Charlotte Bobcats, which were previously known as ... the Charlotte Hornets). Jordan's investment also highlights the risk associated with investing in a professional sports franchise. The Hornets are reportedly losing money, and Jordan continues to pour money into the team as he attempts to turn it around.
Though the Hornets might be losing money, the overall value of the team appears to be steadily increasing, along with the value of other NBA franchises. Forbes values the Hornets at $410 million, which is a huge increase from the $175 million purchase price in 2010.
Don't get me wrong. Anytime a minority investor takes an ownership stake in a professional sports franchise, either alone or with a group of other wealthy investors, that is progress as long as they are paying a reasonable price. However, as Oprah Winfrey, Grant Hill, Magic Johnson, and possibly others prepare to bid for the Los Angeles Clippers, keep your eye on whether their ownership percentage is large enough to warrant a genuine celebration of a historic achievement, or just a mere tip of the hat.
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