Michael Heisley Tells It Like It Is - Part Two

This the continuation of the interview 3 Shades Of Blue had with Grizzlies owner Michael Heisley on Friday, April 4th before the Chalk Talk. Due to the length of the interview it is being presented in sections to make it easier to read. Part 1 was posted on Monday. Part 3, Part 4 and Part 5 will be linked as soon as they are released.

3 Shades of Blue appreciates Mr. Heisley taking the time to do this interview.

3SOB: Going back to the business side, many times you have stated your intent on selling the team at some point in the future. What do you see as an exit strategy?
MH: Let me try...see I got one thing I want to discuss with you. See there is a problem with me and some reporters and from your background it is especially a problem for me but I’ll get back to that later.

We made a concerted effort to sell the team when we went out about two years ago and we hired Credit Suisse and a sports marketing group to market the team and there were people brought to us. That’s how we ended up with two or three people looking at the team. When that didn’t go forward I said to Memphis people right here in a chalk talk that I’m not going to be part of any effort to sell the team. I’m not going to hire somebody to sell the team and so on. But I’m very, very honest. I’m not going to sit here and tell you we’re not going to sell the team. And then six months from now have somebody walk in and offer me a satisfactory price for the team and take it and everyone will say you know You’re a liar. That statement really sort of gets to me pretty quickly.

So that’s what I told them. That’s exactly what happened. We’ve had people call up and I give their names to Stan (Meadows). We’re not interested in entering into any kick the tires situation. If somebody comes up and makes a legitimate offer to us we will take the legitimate offer and that’s what I said.

Why would I do that? Number one because I think that Memphis would be better off with an ownership that is local. That doesn’t mean you have to come from local but they’re here. They are gonna move here, they’re gonna live here, they are here and in this office on a daily basis. Okay? I think it would be better for the franchise. I’ve done pretty much what I can pretty well do. November 14th two years ago the New York Times wrote an article entitled “A basketball Team in a League of their Own.” They basically identified that we were the largest philanthropic sports team in America. That never even made a blip in the Memphis papers. Big enough to get in the New York papers but it didn’t get in the Memphis papers.

I was very proud of that. I was much more proud of that then getting into the playoffs. That is what drove me. I love basketball. I love the Bulls. Though I own the Memphis Grizzlies, I love the Bulls. I watch every game. I have season tickets and so on and so forth. I still have season tickets on the floor. I use it primarily like I do the Cubs tickets, for business, employees use it, but I still support the Chicago Bulls.

I felt as I got to be much more successful in my life I could do some philanthropic work and when I first got in it. My daughter, my youngest daughter, I talked into getting a graduate degree in that and we started a foundation and I found out it isn’t an easy thing to do, finding the right places for the money. A lot of people want money but that doesn’t mean you are doing anything with it to help anything. So it’s not that easy and I thought, being around the Bulls, people love to be involved with in projects with sports teams. America is a sport team society and if I could bring a sports team into a city and really make a difference I would.

That gets me to one of those things that came out in one of your blogs about what I said to the people in Vancouver and what I didn’t say. Now I’m a big boy and I realize that about 20% of what gets quoted in the news media is accurate, 50% is somewhat accurate and about 30-40% is downright [worthless]. The reality is I never promised the people of Vancouver I wouldn’t move. The news media kept asking and I kept saying I have no plans to move. I have no intentions of moving unless it becomes obvious it won’t work out here and then they said how long is that going to be and I said I can’t give you a time. I don’t know. Then they said what do you mean and I said when I get to the point that I am convinced this franchise is not going to be viable in Vancouver then I am going to move it. That’s what you’ll never find in records if you go back you may find that somewhere in the Vancouver Sun I said that when I announced I was going to make a move.

The big mistake I made was long in advance I told the people in Vancouver I had gotten to that point. If I had been smart I would have just shut my mouth up and gone on and done everything and when I was ready to move gone in and told everyone. What I told people is when I made up my mind I would let them know. So I brought the press there and that is exactly what I said to them. That was history okay.

And I moved and the reason I moved was Vancouver took the team there. They went to David Stern and they had a thing called Save the Grizzlies. They made a commitment to the NBA and that is the reason that David Stern let us move. They were to bring in so many thousand of tickets, season ticket holders. The reality is they brought in 100. The season ticket dropped about 1500 season ticket holders and they were projected to drop even further. I had a much worse financial situation. I was paying $6 million a year to rent the arena. I didn't have any sky boxes. I didn't have any revenue from the concessions. I had no parking revenue. So I lost over $50 million in the first year.

So I offered to sell to local owners if they promised to stay in Vancouver. Several parties looked at the books. No one made an offer so this story about my moving after I promised not to move thing is just pure bull.

What really bothers me is all of a sudden people in the news media, and you in a way are a part of the news media, basically take a statement that was made either intentionally in error or just in error and then it becomes part of your life for ever more because all anyone has to do is pick up the newspaper on the internet and it says that Mike Heisley made a commitment to the people of Vancouver. I fought that battle in Vancouver for 3 months when I was leaving. Nobody ever produced a clip or a statement that I said I was going to do that other than a reporter just put it down. A reporter just put it in the papers, and everybody believed it.

3SOB: That is how I got the comment.
MH: Absolutely, that is how everyone gets it. And I'll tell you the second thing you put in there. You said that I said that Pitt Hyde and [the local owners] did not make an offer and then Pitt Hyde [and the local owners] said I am going to improve my offer. #1 those two statements were made at two totally different times. Pitt Hyde, what started it was, Geoff (Calkins) reported that the local owners had made an offer and the local owners had not made an offer. About a month later I said 'I have no offer from the local owners' and that got put in the paper. Ron Tillery put it in the paper. When Pitt Hyde said he made me an offer, and I am not going to discuss it but I will tell you, when Pitt Hyde made me an offer it was at a later date.

The second thing is, with your background in business, you should know that any comment like I have made an offer is not definitive. For instance, if someone came to you and said I want to buy your team, I want an exclusive for 6 months and this is the thing. I am going to go out and try to raise the money. Is that an offer or not?

3SOB: Well, you are talking about the Brian Davis situation...
MH: No I am not talking about Brian Davis. He did do that. I am just asking you is that an offer or is that not an offer? Okay, the 2nd thing I got was if someone said I offered you a price and then with that price they had 5 things that would reduce the price what is the price of the offer?

3SOB: The real price would be the reduced price.
MH: Right but you don't know what that price is. You don't know if there was a real offer or if someone wanted to be given an option for 6 months while they try to put the deal together.

3SOB: So what you're saying is...
MH: No. I am not saying a damn thing. I am just saying to you since you don't know any of this you don't know if we acted on that offer in good faith or that we didn't act on that offer in good faith. There is nothing wrong with people making an offer that has all of those things but if the news media wants to put the biggest price they can in it then they put the biggest price they can in the article. And if someone says they made an offer the easiest thing for a reporter to do is say can I see a piece of paper that showed what that offer was. Otherwise I don't think you are really qualified to say if an offer was made or what the offer was. My point is nobody's ever bothered to do any of that stuff. I'm not going to tell you what the transactions are between me and the local owners.I'm just saying that nobody knows what those transactions are and as I said in my responses to the newspaper media it is a private discussion between two parties.

I put together between 50 and 75 deals in my life. None of them got negotiated in the newspaper. None of them will ever get negotiated in the newspaper. Not that I've got anything against the newspaper. I just don't think you get there that way. They get negotiated in a room like this between two people who are trying to get together. My point is that sometimes local ownership or someone else buys this team we'll put it together and when there is a real offer or a real acceptance then I will let them know. Right now I am keeping myself quiet.

While that is going on I am getting the hell beaten out of myself in the newspaper. It's just, I guess when I read your blog you more than anybody should be able to understand how deals go together and you should have a feel when somebody says I made an offer it may not be an actionable offer.

3SOB: But you're saying...
MH: I'm not saying a thing. I am saying you don't know what they offered. I am saying that if you want to put in the paper someplace what the offer is, show me the offer. Now if you want to go and get their offer then you would be in a pretty good place to say what I did and what I didn’t accept.

Now I hope we can have more discussions in the future and I don’t want to get anyone in trouble. And I don’t want anybody to look bad by what I’m saying because they did make me an offer, which was unacceptable.

3SOB: You mentioned that if someone came to you with a great number, a real offer, that you would consider it. What number are you looking at now?
MH: I'm not willing to negotiate this in the media.

No one has to tell me what a great person Pitt Hyde is. Pitt Hyde is an inspiration to anyone who gets to know him. He's one of the most philanthropic people I have ever met in my life. Staley Cates is a very, very philanthropic person and between the both of them most of what the Grizzlies have done philanthropically has been done between those two people. They choose not to get publicized for it but they do a tremendous amount of that themselves. Quite honestly it has been a great relationship for me because it enabled me to accomplish what I set for myself when I came here.

What they decided to do with regards to the situation as the minority owners, it is their choice. There was no fight over anything. What actually happened was preordained in the contract we signed 7 years ago. I didn't come up with anything new. I didn't do anything and they didn't do anything. They were perfectly within their right and so on to do.

They had a right to only suffer [a certain amount] a year in losses. I have a right in the contract for what they don't take, if the losses are greater, then I have a right to transfer that into equity. I chose not to do that for 7 years. The NBA wanted some of this debt converted into equity. We basically went to them and gave them the option and said 'what do you want to do to turn this into equity under the formulation of the contract. They chose not to do it and so we did what the NBA asked and converted a percentage of that debt. We've still got more debt to convert at some point. That diluted the minority owners to 5.8% of the team.

That doesn't change my opinion of them. It doesn't change my feeling about their participation with the Grizzlies. It is up to them how they want to participate. Like I said, I still have a high degree of respect for them. I'm not in any kind of fight with them. I don't know why it has become something that gets aired in the news media. Somebody someplace decided to do it.

But that's it. I just wanted to give you my take on it. I'm not going to get into that battle. I'm just trying to give you my take on where we are.

3SOB: Last season you had one of the 7th highest payrolls in the NBA. You were in the luxury tax. You were paying dollar for dollar penalties for being in that area. Next year we are going to be much lower than the salary cap at this time.
MH: Right now we are going to be the lowest or next to the lowest depending on what Philadelphia does.

3SOB: You mentioned in the email to Chris that you had personally lost over $140 million over the last 7 years or that the team had lost that amount. Do you think that with the lowered salary and the reduced overhead that the team is going to be close to break even next year and is that a goal going forward?
MH: Just look at Chicago. Chicago's record over the last 10 years has been worse than ours. I've been to the playoffs more times than they have. They've been the worst team in the league like 3 or 4 times. I've been the worst team once.

Their record, even though they play in the East which by any stretch is a hell of a lot easier than the West these last 7-10 years, but Chicago sells out every game. They have local TV revenue of $30-40 million dollars which is about my total revenue so how am I going to compete with Chicago?

Of course, Chicago makes a lot of money for their owners and we lose a lot of money for ours. That's a real problem with the league that they will have to face up to. It took baseball a long time to face up to it, They did it and they saved the game.

You know Major League Baseball had fallen behind basketball in popularity after the strike when Selig put it in. I have a friend in baseball who said not one team lost money last year in Major League Baseball because of revenue sharing.

I can tell you that probably better than 50% of NBA teams lose money.


To be continued...