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Opt out our Extension? You decide

(penned by Brian Robinson, edited by Big Chris)

It has been a busy news week for fans of the Seattle Supersonics. Oddly enough none of the news directly applied to the Sonics.

First the Sonics WNBA sister team the Storm was sold to local ownership. While there are some concerns that this will ease the loss of the Sonics and hurt the chances of getting things done I am going to remain optimistic. Seattle City Attorney referred to this sale as a tremendous good faith gesture on the part of ownership and I am going to hope that this sentiment prevails. In talking to people at the city, county, and state level there seems to be a consensus that, surprisingly, ownership cast the Storm lose without asking for any favors, demanding any concessions, or in any way tying it to the Sonics future. That is good news.

Then there are the New Orleans Hornets.

One of the oddest parts of this whole mess is that, even as we grow frustrated with Clay Bennett's attempts to lure our franchise to another city, we find ourselves (at least I do) rooting for the relocation of another team from another market. I feel bad for the fans in New Orleans. I don't necessarily want them to lose their team, but at the same time feel that the NBA experiment there has such serious holes that it is a different situation than Seattle.

Yesterday the state of Louisiana and the Hornets addressed that situation, announcing a "lease extension" that in a perfect world will leave the team in place until 2014, but much more likely will result in their departure after the 2009 season.

While New Orleans media, political leaders, and hopeful fans are spinning this as an extension of the lease other news sources such as the Boston Globe are touting it as the beginning of the end for NBA basketball in New Orleans. I tend to agree with the latter point of view.

Sources in New Orleans and the league have been increasingly skeptical of the Hornets chances of success in recent weeks. One person advised that the amount the state would have to pay the Hornets to compensate for low attendance could skyrocket to $14 million. Another person who is exceedingly knowledgeable regarding that situation advised that the state had recently made an increased financial commitment to the NFL to ensure the Hornets would stay, and had no money for the Hornets. As a result this person was hearing rumblings that the state would default on their payment to the team, delay construction of the practice facility, and simply let the Hornets out of their lease.

Suddenly this report surfaces. The Hornets are announcing that they have a long term commitment to New Orleans with several benchmarks, the most obvious being attendance. If they do not meet goals they can, with some financial penalties opt out of their lease. I'm guessing that another benchmark includes the states willingness to resume construction on the practice facility which would mean that next year the state has to ante up $20 million to keep the team.

So knowing that there are really 2 big issues, the first being attendance and the second being the financial penalties:

The attendance goal set by the Hornets is completely unreachable. This season the Hornets average attendance, for a very very competitive team has hovered around 11,000. Last night against the Lakers in a match up of playoff teams they had 12,500 in the building.

What many people do not know is that the NBA has really worked hard to supplement attendance in this first season. Based on differing reports as many as 8 league sales reps working out of New York were tasked with marketing Hornets tickets on a corporate level. Corporate partners along the lines of Coca-Cola, HP, and others were pressured to purchase blocks of tickets to distribute among the community. Some were passed out, other just written off. This may partially explain why there appear to be even more empty seats than sales numbers would indicate when watching Hornets games.

So the million dollar question in my mind is this, will the NBA continue their promotional push next season?

If they do not then it is likely that ticket sales will actually drop, not increase by the 25% needed to reach the benchmark. Either way it is just really asking a lot for this devastated community with its low per capita income and decreased population base to sell that many more tickets. This will become especially true if ticket sales sag in the remainder of this season. If for example the team goes on to average 12,500 tickets the rest of this season, then to hit the average they would need to average 16,000 all of next year. If they get 1/3 of the way through next season averaging 13,000 then they will need to average 18,000 the rest of the way to hit their goal. At some point the writing on the wall becomes clear enough that everybody knows they are moving and people stop trying.

The financial penalties are also quite murky. For example the New Orleans papers are reporting that owner George Shinn would have to pay up to $100 million to move the team. This is being heralded as cause for optimism. However later in that same article it points out that the $100M would include a $65M buyout of a New Orleans businessman who purchased 25% of the team mere months ago. Calling this amount a penalty is really stretching the truth a bit. Having set a value on that portion of the team greases the skids for a move as this portion could easily be re-sold to another investor in a new market. Just do the math. Clay Bennett paid $360 million for the Sonics. At that price a 25% share would be worth $90 million. A Seattle owner could purchase 25% of the Hornets for $75 million giving George Shinn a $10 million profit and still save $15 million on a share purchased from Clay Bennett.

The other financial costs of a move are considered to be a league relocation fee and a refund of "inducement reimbursements" paid to the team. What that means is so subjective that none of us really know. If for example the $14 million number I heard regarding payments this year is correct then you could simply say that the Hornets forgive the obligation to pay $14 million, forgive the obligation to construct a $20 million practice arena, and have now paid a penalty of $34 million.

At this point it would seem nearly a certainty that the Hornets will be relieved of their lease, and have a 25% ownership share available for purchase next year. Assuming that the city court case holds up this would give the Hornets at least the ability to apply for relocation to Oklahoma City for the 2009/10 NBA season, a year in advance of the Sonics lease expiring. I am fairly sure Clay Bennett is aware of this time line and its potential impact on his options.

I truly expect that sometime really soon somebody will broach the subject of the Sonics legal team allowing the team out of its lease following the 2009 season with the guarantee that we will receive a replacement team that same season. How the mechanics of that will work I have no idea. Perhaps the players will relocate. Perhaps the organization ownership will simply change hands. I don't know. I do know that there is now significantly more pressure for all parties to work out a deal prior to our lease expiring. That is very, very good news for Sonics fans.

This is perhaps the single largest development that has occurred during this process. The next critical step occurs prior to January 16th when Judge Peckman is expected to rule on trial dates. This is an absolutely critical step. If she rules for a March trial as requested by the Sonics then there is a chance for them to be out of their lease and leave this summer. If she rules against then it is absolutely set in stone that they will be here next year.