After back-to-back years of losses in the $15 to $20 million range, Ray Wooldridge and George Shinn decided to do what any other business owners would do. They looked for another location where their business might be more profitable.
After first working with local officials to try to improve their profitability in their current location, they began negotiations with state and local officials in other states until they were able to secure a deal that will, if all goes according to plan, dramatically improve the short- and long-term profitability of their company.
It happens in business all the time.
The only difference is that, rather than an auto assembly plant or food processing facility, Ray Wooldridge and George Shinn are co-owners of the Charlotte Hornets of the National Basketball Association.
Sure, their employees are a lot more famous, the media and public scrutiny is pretty intense, and the average salary for the players tends to be in the CEO range, but the profit and loss pressures faced by owners of sports teams are much the same as any other business owner faces.
And how they respond - despite the intense media glare - is not much different from how any other high-profile company in America responds. They look for what is in the best long-term interests of the franchise, while communities compete for the privilege of being able to say that they are the home of the (fill in the name of the prominent company or sports team).
Sometimes the competition is intense, and the incentives are rich, depending upon the perceived value of the company to the gaining community and state. For example, Alabama granted enormous incentives to Mercedes a few years back in order to get the German luxury automaker to build its new SUV assembly plant just outside of Birmingham.
Critics complained that the state was much too generous in terms of incentives to Mercedes and, in fact, the cost of incentives-per-job was pretty breathtaking. However, what the critics rarely consider is the revolutionary change the presence of Mercedes brought to the Alabama economy - then, now, and in the future - as well as to the entire southeastern United States.
Forget the number of high paying jobs at the Mercedes plant itself, although those are pretty significant.
Look at the number of jobs brought to the local economy by second- and third-tier suppliers to the assembly plant. Look at the number of German (and other international) companies that have located in Alabama and its neighboring states as a result of the fact that Mercedes - by choosing that location - said that Alabama was a great place for it to do business. Heck, look at the number of American companies that now seriously consider Alabama for upcoming expansions or relocations.
After Mercedes, businesses began looking at Alabama and the region through completely different eyes. For European and other international companies, the Mercedes plant put the state of Alabama on the serious business map.
That's the true value of the Mercedes decision, and it will continue to pay dividends for decades to come.
Sports teams confer status and recognition
The reason cities and states seem willing to pay almost any sum in order to attract a sports franchise is the same as why they do it to attract a marquee company like Mercedes.
One reason is status. Having a professional team also confers a certain "first-tier" status on a city, in that it implies certain amenities, as well as size.
Another is branding. A professional sports team gives a city name recognition that, these days, extends worldwide. For six months each year (in the case of baseball and basketball, and five months for football), a city's name is constantly in print and on the airways, courtesy of its local sports team. For cities like New York, Detroit, Chicago and Atlanta - which have professional teams in all of the major professional sports - the city's name is constantly in front of people.
For most city leaders, that's the kind of name recognition that money can't buy. Sports team owners, like other businessmen, understand that fact.
That's why, when voters in Charlotte rejected a referendum to finance a new arena last year, the team started looking elsewhere, eventually deciding on New Orleans. In addition to support from local business leaders - in the form of season tickets and luxury suites - the state of Louisiana agreed to pay $10 million to upgrade the publicly-owned New Orleans Arena, along with several million dollars a year from the city's hotel tax.
State and local officials are banking on the fact that they'll get that money back in multiples, not only for the direct entertainment dollars the team will bring in, but also in hopes that having an NBA team will provide that little extra incentive for other companies to relocate to, or remain in, the Crescent City.
Some metros, like Atlanta and Indianapolis, make a concerted effort to brand themselves as sports towns.
Not only does Atlanta have professional teams in all of the major sports, since 1985 it has been host to more than 50 major sporting events, including Super Bowls XXVIII and XXXIV, the 1996 Summer Olympic, and the 2002 NCAA Final Four.
Atlanta also has one of the nation's most vibrant and growing economies. Coincidence? You be the judge.
Bill King is the editor of
Expansion Management magazine and can be reached at BillKing@penton.com.
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