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Are the Grizz Stable in Memphis?

By Dave McGuire, CU


(CU) - To clearly understand the situation, it's necessary to go back to the very beginning. The concern about the Grizzlies franchise relocation is rooted in the original contract with the city of Memphis and Shelby county. That contract states that if paid attendance falls below 14,900, 64 of the largest suites are not sold in full or club season tickets fall below 2,500.FedExForum the contract triggers an option for breaking the lease.


In the “grit and grind” peak attendance era of Memphis, the Grizzlies averaged 17,024 fans from the beginning of the 2013-14 season until the end of the 2014-15 campaign. The last four seasons have seen continual declines in paid fan attendance.


With the pandemic ending last season prematurely, ticket sales were impacted for the remaining games. Its no secret Memphis is one of the smaller NBA markets. They've also consistently finished in the bottom ten of the league attendance the past several years. Memphis does not have the luxury to fall behind in attendance from a revenue perspective. Not only was Memphis hurt financially for 2020, but the combination of poor NBA public relations and a very average team lurk on the horizon for 2020-2021 as well.


“I heard through the grapevine that there are a couple of teams for sale,” TNT analyst and NBA Hall-of-Famer Shaquille O’Neal told his podcast audience, “and one may be going to (Las) Vegas.”


Seattle’s dated Key Arena, currently undergoing renovations with costs exceeding $900 million, has already been upgraded sufficiently enough to be awarded an NHL expansion franchise – The Seattle Kraken. It is expected Seattle will jump to the front of the NBA’s expansion or relocation line when renovation is completed in 2021.


Yes, everyone is aware Seattle lost the SuperSonics to Oklahoma City more than a decade ago. However, replacing an outdated arena within a city that includes corporate headquarters such as Amazon, Costco, Microsoft and Starbucks would likely reduce the concern of risk for another relocation debacle. Even if you’ve never read a business page, you’ll still likely have the same awareness of Memphis not having deep corporate pockets.


ESPN's Brian Windhorst has previously mentioned Memphis as a possibility for relocation to Seattle. As a counterbalance, the best source for Memphis information and perspectives can always be found with Geoff Calkins:


“It would be hard for any owner to move the Grizzlies before 2027. The lease binds the Grizzlies to Memphis through the end of the 2020-2021 season. After that, there is a gradually descending termination fee that alarmists like to point out (correctly) would not be sufficient to keep the team in town. But the lease has another half dozen provisions that would make it hard to move the team before 2027.”


There is a big difference between a reported attendance, turnstile attendance and paid attendance. The Grizzlies do not release those critically important "paid" numbers, but Calkins, reported the team’s attendance “is believed to be well under 14,900 per game.” If the Grizzlies feel the pressure of fan disinterest resulting from poor play, Covid19 concerns or fan alienation due to social justice promotions, the city and county may be forced to pay the financial differences for the following season or trigger the team’s escape clause.


Grizzlies majority owner Robert Pera has repeatedly stated he is “committed to keeping the franchise in Memphis.” But can the public trust him at his word?


In the short term, it’s probably a safe bet to assume Pera is being sincere. If the team moved before 2027, Pera would be compelled to offer his partners an opportunity to buy him out at “a price equal to his invested capital.” The team’s local owners have a right of first refusal if majority owner Robert Pera wanted to sell it before October 2027. Their price would be equal to Pera’s purchase price of approximately $377 million - Forbes values the franchise right now at $1.3 billion.


As long as team owners are offered money from other cities, rumors will persist if only for increased negotiating leverage. In addition to the Grizzlies, the Charlotte Hornets, Detroit Pistons, Minnesota Timberwolves, New Orleans Pelicans, Phoenix Suns and San Antonio Spurs have all been the recent subjects of relocation rumors. It's a perpetually unreliable circle of rumors meeting clickbait. What's not clickbait? NBA commissioner Adam Silver told players that roughly 40% of the league's revenues come from ticket sales and arena sponsorships as he prepared them for challenges ahead.


Will the large number of franchises in short-term financial trouble be enough to provide the Grizzlies relocation cover? Golden State Warriors owner Joe Lacob informed league officials they are considering a deal with Goldman Sachs to raise $250 million to manage expected upcoming expenses with their shortfalls. Around the league there are other franchise owners researching opportunities to raise capital in nontraditional ways. One of the hints to the NBA’s real concern of the financially instability can be found with multiple ownership groups pursuing legal action against insurance companies against denied coronavirus pandemic claims. To offset financial troubles, NBA franchise owners can borrow $325 million against equity of their franchises. Many teams have already maxed out that credit per ESPN reports. There have been some discussions about raising that debt ceiling, sources said, but the NBA just boosted it from $250 million to the current $325 million in 2018. The likelihood of creating further debt dependence throughout the league is highly unlikely.


What may help Memphis is. ironically, the Covid19 crisis. The talk inside NBA circles involves the possibility to maintain current franchises through additional NBA expansion – expansion fees, new market advertising and creating new fan bases. It seems to be a long shot that would be at least two years in the making. That two year window is a long time for Memphis fans to collectively hold their breath. While local NBA fans hold their collective breath other discussions must take place. It's time local city officials address the elephant in the room. Is West Tennessee financially viable for a major league franchise? If so, what are the long term plans to ensure credibility?


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