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Brian Davis' Grizzly Bid

The story of ex-Duke basketballer Brian Davis' bid to purchase the Memphis Grizzlies has been brewing for a while. Grizzlies blogs started mentioning it over the summer. On November 27th, The Wall Street Journal ran a story (subscription required). Davis' group, including Christian Laettner along with others, reportedly offered $252 million for a 70% stake but seems to be undercapitalized and relying heavily on debt and higher future revenues with a better strategy. The WSJ article focuses primarily on Davis background and personal initiative -- very admirable stuff -- as well as his relative lack of personal assets to get in this game with a team losing money. Mark Cuban offers this advice: "It takes a lot of money, nothing more or less." A Monday follow-up in the WSJ noted that the current minority owners have passed on their option to match the offer.

SportsBiz has been on the story for a while and provides links to more detailed stories running in the Memphis Commercial-Appeal. These sources cite a $29 million loss for the team last year. The Davis group plan (at least what is known) boils down to reducing payroll, doing a better job of finding cheaper, better talent, and energizing the African-American community in Memphis to follow the team more. Of this plan, Mark at SportzBiz says:

If they are banking on attendance to pull the team out of financial difficulty and are conceding that they have tapped out the corporate community, this team is in real trouble. The answer is not in African-American attendance and a modestly lower (the memo speaks to a 15% reduction) payroll. The answer is relocation. Memphis is a market that won't work. Of course, that is what a lot of people told the NBA when Heisley first wanted to move the team there.

I'm inclined to agree with the analysis from Sportsbiz -- the "fundamentals" don't seem to be very good in Memphis. It has an MSA population of 1.2 million MSA, placing it above only Salt Lake City (and now New Orleans) among NBA cities. Its growth rate is low compared to most other metro areas, its geography places the arena at the very western edge rather than near the center of the metro area, and its income base is relatively low. The Griz average 15,000 per game at the $250 million FedEx Forum (new in 2004), a low attendance by NBA standards. However, even at capacity, they could average only 3000 more, generating maybe $5 million more in (direct) revenue. Coupled with maybe $15 million in salary savings, they are still in the hole (of course, that's treating the "loss" figure as a meaningful figure which is always tenuous.)

With that said, I'm not sure why the league shouldn't permit Davis' group to go ahead (if creditors are ok with it). Sports provides plenty of examples of successful "entrepreneurship" that seemed to be bad ideas to many including a majority of owners such as night baseball, radio and TV broadcasts of baseball, cable telecasts, and some expansion episodes (e.g., NFL passing on what came to be AFL cities). If a proposal must must pass a 2/3 or 3/4 vote of owners, then a relatively risk averse owner gets to decide -- not a mechanism for promoting innovative ideas. This situation is a bit different in that owners don't seem to be as picky about transfer of ownership issues as they are some other matters.