Johnson still has that Magic touch in business arena

Originally Published: November 7, 2001
By Darren Rovell | ESPN.com

Twenty-five years ago, around the same time that Earvin Johnson was nicknamed "Magic" by a local sportswriter, the high school basketball star from Lansing, Mich., was already envisioning life as a businessman.

Young Earvin, his Converse shoes worn from his long days of practice at the hoop at the Main Street School, would rear back in the big chair behind the desk at his after-school job at Gregory's Janitorial, put on that smile that seemingly spans wall-to-wall, pick up the phone and pretend he was in charge.

Magic Johnson
Magic Johnson -- celebrating moments after the NCAA championship game.
"When I caught him doing it, he looked me in the eye and said, 'One day that's going to be me,'" said Greg Eaton, the local businessman who owned the cleaning service.

Odds are that the kid who would go on to lead the Michigan State Spartans to the 1979 NCAA title and the Los Angeles Lakers to five NBA championships couldn't have dreamed of the business empire that he presides over today.

"It was his dream ever since I first met him -- when he was 20 -- to be just like the people who ran the Pepsis and General Motors of the world," said his former agent Lon Rosen. "He was a great basketball player, but I truly believe his legacy will be in the business world."

"I believe that statement to be absolutely true," Johnson said in an e-mail last week.

Magic's winning image took a hit following his Nov. 7, 1991 announcement that he had HIV. But while parts of corporate America soon severed its ties with the former NBA star, Johnson began to put a team together that would in time allow his greatness as a player to be overshadowed by his success in business.

It's certainly not a stretch. Johnson has a $500 million business portfolio, but has his sites set on one day turning it into a billion dollars. He has five 12-screen movie theatres and his 30 Starbucks coffee shops are about to become 50. As the lead investor in the recent acquisition of the Fatburger chain, he hopes to turn 47 West Coast restaurants into 147 throughout the country in five years. He has a stake in the third-largest African-American-owned bank in the country, whose profits have skyrocketed by 40 percent over the past six months. And he is building a $57 million mall in Milwaukee while preparing to sell one in Las Vegas.

Magic Johnson
Magic Johnson -- holding a hamburger in front of his new Fatburger restaurant.
"We might have needed Magic the basketball player to get us in the door, but it was Earvin the businessman that did the work," said Ken Lombard, president of Johnson Development Corp., which was founded in 1993. "When he was in control on the court, no one knew how he did some of that. Well, it's really the same thing in the business world."

Success of Johnson's companies aren't entirely founded on his household name. What has made his endeavors work is the niche that he has developed: Convincing companies that have shied away from inner-city communities that there is something to gain by moving into town. Johnson helps position a brand's move into the neighborhood by introducing it as an escape from the rough life on the streets. Or, more blatantly, a place to "laugh, cry and stuff our face with popcorn," as Johnson says in the trailers that appear before every movie at his theatres.

"The lesson is powerful that inner-city communities can support national business -- and they last," Johnson said.

Before Magic, many company executives were afraid to move into these areas because they were worried the area residents would revolt against the fat-cat businessmen trying to drain their already drained dollars. Knowing that Magic was one of 10 children who grew up in a similarly depressed area in Michigan, the invasion is softened.

"It's clearly a black-and-white issue," said Warren Grant, Johnson's longtime financial advisor. "Certain people can't open certain businesses in certain places."

Johnson knew how to make his customers comfortable.

"Right before we opened the first theatre (in 1994), there was a walk-through and he looked at the drink fountain and said, 'Guys, you gotta change it a bit because there are no strawberry drinks," Rosen remembers Johnson saying. "He said 'African-American audiences love fruity drinks,' and he was right."

His two T.G.I. Friday's restaurants might have more fried foods than other Friday's franchises. His Starbucks provide an ethnic favorite like a cobbler or pie.

While Grant says most athletes surround themselves with the wrong people with bad advice, Johnson found the right people with good advice. And he listened to them.

"After he came out of college, this guy was hustling him to buy a bar," said Joel Ferguson, a Lansing real estate developer whom Magic cites as a hero. "But I told him to set up a business like real estate, where you can make money while you sleep, and he eventually did that."

While at Michigan State, Ferguson said he gave Johnson a taste of his first business -- a small share in his television station, WFSL-TV. Ferguson has served on Michigan State's Board of Trustees since 1986.

After Magic was drafted into the NBA, the drive to become a great businessman wasn't reserved for his retirement. Even Magic groupies might be surprised to hear that he spent some of his time in road cities going to business meetings.

"When he would go to a city, he'd say, 'I'm not going to sit around and watch soap operas all day,' " Rosen said. " 'As long as they are flying me around for free, I might as well take advantage of it.' So, he'd meet with Coke executives when they played the Hawks in Atlanta, and Target executives when they played the Timberwolves in Minnesota."

When Johnson traveled with his All-Star team abroad, he insisted on meeting political leaders in the Philippines, Denmark and Turkey.

While still playing, he bought into a Pepsi distributorship on the East Coast and a sports memorabilia store in Los Angeles. He also founded a T-shirt company, which made Johnson -- despite the fact that he reportedly made $9 million a year in endorsements at his height -- realize how he could profit from himself.

"He wore his own shirt when they won the championship in 1988 and he got some other guys to wear it, too," Rosen said. "The next day, he sold 150,000 of those things."

Six years later, when he opened his first theatre, he broke down while giving his speech to his employees.

Although his Starbucks and Friday's don't have neon signs that scream Magic's involvement, customers will know when they walk in. A picture with Starbucks chairman and SuperSonics owner Howard Schultz is in each Johnson-owned store. Although Starbucks aren't franchised, Johnson and Schultz formed a unique joint venture 2 years ago.

"He had a deep sense of compassion and sensibility for the inner-city and what he wanted to do," Schultz said. "That hit an emotional cord with me. And when the cameras are off and there's no publicity to be had, I've seen him do things that demonstrate a heartfelt commitment to the community. He's willing to make unpaid appearances for us in the inner-city at the drop of a hat."

When the Fatburger deal was announced on Oct. 2, Jheryl Busby, the former Motown Records president and Johnson's bank partner, said he "saw the magic of Magic firsthand." Business, he said, increased in his four franchises by 15 percent that day.

His connections are invaluable, too. Although Fatburger has yet to have its first board meeting under the new ownership, one of the ideas being bandied is to grant territorial franchise rights to NBA players in the regions in which they play. Allen Iverson, for example, could own the Fatburgers of Philadelphia. Busby said a New Jersey Nets player might not have first dibs, as rap singer Queen Latifah already has inquired about that state's regional rights.

Magic Johnson
Magic Johnson -- with Whitney Houston on "The Magic Hour"
Like any successful businessman, Johnson has business ideas that have fizzled. Four years ago, he had planned to start his own sports management company, but he was discouraged by parents who demanded money for their children's signing bonus. Urbanmagic.com, an Internet portal targeted to African-Americans, was scheduled to debut last year never quite got off the ground amid the dot-com plunge. And Magic's most-public failure came in 1998 with "The Magic Hour," a late-night talk show on Fox that lasted two months.

"The show was a tremendous learning experience for him," Lombard said. "He found out that he didn't fit the mold (for late-night television). Just like for all the deals we might do, there may be a situation where we don't fit the people we are talking to."

Although Magic has the attitude that he is helping to bring valued services to the underserved inner-city, he is not without his detractors. It seems some people have a problem with the handsome profit he's been earning.

"Magic is a carpetbagger," NFL Hall of Famer Jim Brown said in an ESPN Classic interview. "He's working with Sony and the profits don't go to the inner city, so you have three ushers in the city, but you don't share the profits and you don't create producers."

Countered Eaton: "What do you want him to do? Lose money?"

To be fair, Johnson may be alienating the African-American public despite his exploits. In 1992, only 5 percent of African-Americans thought negatively of Johnson, according to Marketing Evaluation's Q-Rating popularity survey. But by the end of 1998 -- the last time Johnson was measured -- 20 percent of the African-American population in the United States thought of Magic in a negative light.

One wrong Johnson is determined to make right is following though with his bid to become an owner of an NBA team. In 1994, Johnson had a 10 percent stake in an ownership group that raised $125 million, but lost out on its bid for the Toronto Raptors.

"(NBA commissioner) David Stern said he should have had a corporate partner like a brewery or a bank and we had this sense the whole time that the owners preferred entrepreneurs," Grant said.

Magic's got that smile and great attitude, but when you peel that back, there's a monster under there that works every goddamn day because he's hungry to be the best at everything.
Mark Mastrov, chairman of 24-Hour Fitness

Magic currently owns a 5 percent stake in the Los Angeles Lakers and 15 percent of the Dayton Dragons, the Cincinnati Reds' Class A affiliate. But he said last week that he still "badly" wants to become a majority owner of an NBA team.

"If the right deal comes along and it's good timing, it will happen," Lombard said. "It would obviously be his absolute dream to own the Lakers, but he realizes that (owner) Dr. Buss has children. As he reviews the opportunities, if the right one came along, he would certainly consider it."

"Magic's got that smile and great attitude," said Mark Mastrov, chairman of 24-Hour Fitness, which opened a Magic facility in Richmond, Calif., three months ago. "But when you peel that back, there's a monster under there that works every goddamn day because he's hungry to be the best at everything."

Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.rovell@espn.com.

Darren Rovell | email

ESPN.com Sports Business reporter

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