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NBA Buying Hornets Is a Really Bad Idea

Update 12/8: Chouest's minority stake he acquired actually valued the team at $327 million.

The NBA announced today that it is buying the New Orleans Hornets. As far as I’m concerned, it’s not a good deal for the league and its teams. Why? Because, unless there’s a profit guaranteed, it’s just not good business for the league to own teams.

New Orleans Hornets
New Orleans Hornets

The NHL bought the Coyotes last year for $140 million because NHL commissioner Gary Bettman was so adamant on keeping the team in Phoenix. Because they’ve held on to it so long, they're not making their money back when they sell it. No chance.

Major League Baseball, on the other hand, bought the Montreal Expos in 2002 for $120 million because the league and owners knew they could award it to a city ahead of time (Washington D.C.) and have plenty of bidders. It worked. They sold the team to Theodore Lerner for $450 million.

First, let’s start with the price.

NBA commissioner David Stern said Monday afternoon that the league bought the team for the price that was previously negotiated by minority partner Gary Chouest, which was around $300 million before it fell through.

Chouest bought his 25 percent share in 2007 for $62 million, which means the team was valued at $248 million. Since I can’t imagine the team increased in value since then, given the state of the economy and the losses endured by the Hornets, the team would be valued at around $260 million in today’s dollars based on the price Chouest paid for his share three years ago. If Shinn and Chouest sold for more than $300 million, they got out like bandits and should run to the bank to as soon as the checks arrive.

Stern also said that the league doesn’t have a timetable for selling the team. But, as baseball learned and how the NHL will soon learn, the timetable is everything. It’s even more crucial to the league now as the collective bargaining agreement expires in June and a lockout could not only hurt the value of each of the owners teams, but the value of the Hornets that they collectively own.

The league bought the team in part, Stern said, because it could not extend any more money to the Hornets as part of its credit facility. Stern reiterated that he thought it was a “good investment” to make, that it would not be “harmful” to the league and that he was guaranteeing they’d make a profit off it.

There are some prospective owners out there, but Larry Ellison doesn’t want to own the Kansas City Hornets. Trust me on that one, OK?

The last point is the public relations disaster that this could create. If George Shinn and Gary Chouest couldn’t make it in New Orleans, fine. They’d say that and leave. Now it’s the NBA’s business to put this team in the best position it can and if they leave New Orleans it will be the league’s fault, not Shinn or Chouest’s fault, that they left.

The NBA Board of Governors will vote on whether the league will in fact buy the team next week and I’d say there’s simply too much in the air to execute this deal.

Questions? Comments? SportsBiz@cnbc.com