- Jan 29, 2005
Chinese investors close to purchasing share of Cleveland Cavaliers
by Brian Windhorst/Plain Dealer Reporter
Saturday May 23, 2009, 11:31 PM
CLEVELAND, Ohio -- The Cavaliers already have a global star. A clutch-shooting global star at that. Soon they may have a global partner that could help secure that global star's future in Cleveland.
According to multiple sources within the Cavs, franchise majority owner Dan Gilbert hasa tentative agreement in place to allow a group of Chinese investors to purchase a significant stake in the Cavaliers Operating Company, the entity that owns the Cavs and operates Quicken Loans Arena. The group is led by JianHua (Kenny) Huang, a Chinese businessman who has become successful by linking American and Chinese companies.
Huang and several of his partners were in Cleveland and attended Games 1 and 2 of the Eastern Conference finals this week. He sat in Gilbert's courtside box Friday night and watched LeBron James hit a buzzer-beating 3-pointer to even the series with the Orlando Magic at one game apiece.
"Dan Gilbert has been approached multiple times over the past few years by investors that wanted to join the Cavs' ownership group," said Len Komoroski, Cavs and Quicken Loans Arena president said in a statement.
"This has recently happened again. As has been done previously, we're in the process of reviewing the possibility presented to us. Beyond that, we do not feel it would be appropriate to give further comment at this time."
Calls to Huang's company were not returned.
The direct impact of the move is securing the future of the franchise, which has been in a minority ownership flux for the last couple years as it loses millions in attempting to build a championship-quality team around James. It will not only mean an injection of capital but will open the Cavs to business in China. The move, which has been kept mostly secret in America, is being supported by the NBA as they have encouraged development in China.
The other effect, which is surely the more interesting side to Cavs fans, is how vital this new link could be for James -- providing a huge tie-in with an economy James is eager to tap.
Any team ownership transfer of more than five percent must be voted on by the NBA's Board of Governors following background and financial checks. If the deal comes to fruition and is approved by team owners, it could help to remarkably strengthen James' relationship with the Chinese fans and consumers that he's been working to reach for the last four years.
Huang, who has been working with the Cavs for the last two years in securing Chinese sponsorship through one of this companies, would represent a direct link between hundreds of millions of Chinese basketball fans and James. If the deal comes off, Chinese fans could start to feel a connection to James and it could expand his business interests by remaining with the Cavs past next season when his contract with the team expires.
In other words, there is great potential in being with a franchise that has a deep relationship to China -- likely even more so than just playing in the largest market in America. There has been intense speculation that James will be attracted to playing in New York because of the business opportunities.
"You have to think globally," James said recently of his business interests. "I have a lot of fans in China and they're important to me."
James and Nike, by far his largest sponsor, have been on a mission to create a bond with the Chinese over the last three years in the run-up to the Beijing Olympics. James has made four visits to China, one with the Cavs as part of a preseason trip in 2007.
With basketball exploding in popularity among millions of young Chinese with exponentially growing buying power, James has targeted opportunities in the Far East to make the same kind of marketing impact in modern China that Michael Jordan had in the United States in the 1980s and 1990s. Only the market there operates on a dramatically larger scale.
Becoming the Jordan of China from a marketing standpoint would allow James to reach his goal of someday becoming the first billionaire athlete.
Over the last few years James has been lagging behind more established stars like Kobe Bryant and even Tracy McGrady, a teammate of China's national hero Yao Ming of the Houston Rockets, in Chinese popularity.
But his Most Valuable Player Award -- an honor that brought Bryant to the top of the list in Chinese jersey sales within the last year -- has gotten James huge attention. With increased interest with this deal, James could be in position to surge ahead.
Huang has a chance to play a large role in it and profit as well, which is seemingly why he's focused on getting a piece of James and the Cavs now. Huang is part of at least two groups that specialize and creating partnerships between American and Chinese companies.
As a partner in Sportscorp China, which has a U.S. base in Chicago with well-known sports consultant Marc Ganis, Haung became a leading dealmaker with pro sports teams. He's worked deals with the New York Yankees, the Houston Rockets and USA Basketball by creating deals with Chinese sponsors.
Fans watching Cavs games this season may have noticed Chinese characters on scorer's table advertisements during some games. Those were there specifically for the Chinese market in games that were being broadcast in China to millions and millions of viewers. Huang helped set those deals up.
In Chinese business culture, sponsor relationships will often open the door to other business opportunities. Huang -- who is a native of Guangzhou, China, and holds degrees from Columbia University, St. John's University and New York University -- has been able to extend sponsor deals investments. According to the Sports Business Journal, Huang and Ganis' Sportscorp has set up at least six American pro sports team owners with lucrative Chinese initial public stock offerings.
For example, he helped Houston Rockets owner Les Alexander invest $30 million in a Chinese athletic apparel company several years ago. The investment jumped 42 percent within days of the stock's release.
Huang is also has been a director of the Aspen Infrastructure Investment Corporation, a U.S.-based group that Huang has led into investments in expansion of Chinese roads and utilities. It is following the same path of linking money on both sides of the Pacific into growth areas -- be it the Cavs, the Yankees or various budding Chinese corporate giants.
Gilbert has been approached by foreign investors several times over the last few years. In several interviews last year, NBA Commissioner David Stern predicted there would be ownership by an international group in the near future. The global economic slowdown has affected those projections.
Despite being the Cavs' majority owner, Gilbert's ownership team is perhaps not what he thought it would be when he purchased the club, its debt and the rights to run The Q for $375 million in 2005. At the time, former majority owner Gordon Gund and Gilbert's cousin and longtime business parnter David Katzman were believed to have taken a combined ownership stake of more than 30 percent. Gilbert also had a deal to sell a piece of the team to music star and actor Usher Raymond IV.
But over the last several years things have changed. Gund has begun to pull back on his desire to remain a part owner and focus on his foundation, the Foundation Fighting Blindness. He's already reduced his stake in the team from the initial investment.
Usher remains a part owner, but did not invest the amount he and Gilbert agreed to at the beginning and has taken a low profile after being on the dais with Gilbert, Katzman and Gund on March 1, 2005, the day the ownership transfer took place.
Over the last two years, Katzman and Gilbert have seen some of their business interests go in different directions. Katzman was previously listed in the team media guide as vice chairman, but he was removed last year. Katzman has come to only a few games all season.
In an interview with The Plain Dealer in March, Gilbert said Katzman's role was "the same" and he isn't "as visible because he was involved in some other ventures."
Over the last four years, the Cavs have spent around $20 million in upgrades to The Q, invested $25 million in a practice facility in Independence and spent wildly on players. The Cavs have paid the luxury tax in each of the last two seasons and this year will commit to more than $100 million in payroll and taxes.
Even with record-shattering revenue -- including one of the most rewarding local television deals in the NBA despite being in the 17th-largest market -- the Cavs are still believed to be losing millions. Their current owners are also heavily invested in industries that have suffered losses over the last two years.
The Cavs ownership group currently consists of three faces. Coach Mike Brown now routinely refers to the team's "three owners" which include Gilbert, Jeff Cohen and Nate Forbes. Cohen is a wealthy builder of homes and commercial properties in Michigan and Florida. Forbes is a Detroit-based mall developer. Gilbert made his fortune mostly in mortgages.
There are other partners, but those three sit together at nearly every Cavs game and are close to players and coaches.
On Friday before Game 2, Cavs General Manager Danny Ferry, Cohen and Forbes spent time showing Huang, Ganis and some other investors around The Q. Soon they could be regulars.
Getting a dose of needed capital by selling part of the Cavs to Chinese investors?
Choosing Chinese investors with sports marketing experience to pitch the team in China?
Addressing what sound like some rather substantial profitability issues?
Securing LeBron in part by offering new marketing avenues to China?
Could play a big role in 2010 business...
Congrats to Windhorst for breaking a huge story.