The Grizzlies were losing to the Dallas Mavericks last week. While Whiplash the Cowboy Monkey and a senior-citizen dance team entertained the crowd during timeouts, a fan in the third row got some cheers when he held up a sign that read, “Sell The Team.”
With a 14-42 record, a five-game losing streak, and a no-name lineup, the Grizzlies aren’t packing FedExForum or making money. Some of the blame is falling on majority owner Michael Heisley, who has made it clear he would sell his share at the right price.
Sell the team? Only Heisley knows. But when the Grizzlies left Vancouver for Memphis in 2001, the possibility that the team would be sold and might leave Memphis someday was not idle speculation. It was discussed at length by all parties because one of the conditions of moving the team here was building a $230 million FedExForum.
A contract was signed by representatives of the Grizzlies (HOOPS, Inc.), the city, and the county. There are provisions for a “shortfall season,” “suite shortfall,” “worst-case scenarios,” “haircuts” (a real estate term for disappointing financial results), “early termination payment,” and “right of first refusal.” The history of professional sports is littered with franchises that abandoned their homes and fans, and Tennessee has landed not only the Grizzlies but Nashville’s NFL Titans (from Houston, via Memphis) as well.
Heisley could sell his share to the local minority owners or an outsider. The local owners would obviously keep the team in Memphis. That might satisfy the fan with the “sell” sign. If a new majority owner wanted to move the team, the contract restrictions would come into play. The relevant section reads as follows:
“During the first 17 NBA full seasons of the initial term, HOOPS shall not relocate the franchise from the city of Memphis, not apply to the NBA to transfer the franchise to another location outside the city of Memphis, [and] have no right to terminate this operating agreement or cease using the arena complex.”
If HOOPS negotiates “with a third party to sell the franchise in whole that includes relocating the franchise,” then the city and county, after being presented with an acceptable offer, have the right of first refusal.
“After exercising its right of first refusal, city/county shall have the right to designate a nominee to complete the acquisition of the franchise, provided that such nominee commits to cause the franchise to continue to play all of its regular season and playoff home games in the arena complex for the remainder of the term.”
That’s what the contract says, but the talk of a sale and relocation is not likely to go away if the team continues to do so poorly on the floor and at the gate next year. The Grizzlies are averaging 12,878 in attendance, second worst in the league and well below the projected 14,900 that was the basis for the arena financing plans. Attendance is dangerously close to the five “worst-case scenarios” used as benchmarks in the contract. The ugly five range from the 1997-98 Los Angeles Clippers (9,968 per game) to the 1999-2000 Golden State Warriors (12,418 per game) to the 2001-02 Charlotte Hornets (11,476 per game). In each case, attendance rebounded to 14,000 or better in a new building. The Grizzlies, of course, are already in a new building.
The “limits on termination” include average attendance falling below 14,900 after the eighth season, including 70 suites and 2,500 club seats. In that case, “the private sector and/or the community of Memphis and Shelby County shall have the right prior to such early termination becoming effective to purchase the required number of suites and season tickets to achieve the ticket sales standard.”
The contract says the termination payment would be $107 million in 2008, $74.6 million in 2018, and $8.4 million in 2027. A $107 million termination payout would cover some but not all of the debt on FedExForum, but the damage to Memphis would be intangible.
Again, quoting from the contract: “The provisions governing the exercise of HOOPS early termination right are unique and absolutely necessary to protect the business and good will of city/county and a material breach of such provisions will absolutely, irreparably, and continually harm city/county, for which money damages may not be adequate or determinable.”
