Hornets take advantage of loan program
NEW ORLEANS -- The Hornets have decided to take advantage of an NBA loan program despite having by far their best season at the ticket office since moving to New Orleans in 2002.
"We accepted the loan that the NBA made available to all its teams to keep our options open in case these funds are needed in the future," Hornets President Hugh Weber said in a statement sent by e-mail Thursday to The Associated Press.
The Hornets have sold out 22 games this season, smashing the previous high of 13 sellouts last season, the Hornets' first in New Orleans full-time since Hurricane Katrina. Average attendance this season is 16,977, and the official sellout figure for the New Orleans Arena for Hornets games is 17,188.
"We are experiencing unprecedented success in ticket sales and sponsorships and by no means was this loan acquired to subsidize our daily operating expenses," Weber said.
With the recession hitting the country hard and credit markets freezing up during this season, the NBA lined up a $200 million line of credit with several major financial institutions. Between $13 million and $20 million was made available to teams expressing interest in the funds. The new loan money was in addition to a $1.8 billion line of credit the league has had since 2003.
In mid-March, Weber said the Hornets had yet to take the NBA up on the new credit offer. He also announced at that time that because the Hornets were playing home games before crowds approaching 99 percent of capacity, the team would not be seeking a subsidy from the state that, under the terms of its lease, could have run as high as $6.8 million if the attendance had been below 80 percent of available seating.
Still, in part because the Hornets' attempted trade of center Tyson Chandler to Oklahoma City fell through, the team could be in danger of having a player payroll several million dollars above the NBA's 2009-10 luxury tax threshold. The luxury tax figure hasn't yet been set but could be lower than this season's $71.2 million figure because it is tied to league revenues, which may slump somewhat during the recession.
The NBA punishes overspending teams by charging a dollar-for-dollar tax on the amount by which they spend beyond the threshold. In the Hornets' case, that could mean a penalty of around $6 million barring major cost-cutting roster moves after the season ends.
Not only have the Hornets never paid a luxury tax, but the club usually receives a distribution of luxury tax money as a reward for keeping its payroll below the threshold.
Meanwhile, if the recession lasts longer than hoped, the Hornets could be challenged to maintain current levels of attendance and sponsorships, though so far Weber has maintained that, based on current renewals, attendance should be strong again next season.
Weber asserted that the loan has much more to do with capitalizing on an unusual opportunity to increase the amount of cash on hand.
The league's main role in the loan program is to manage teams' relationships with major banks.
Teams still acquire the loans directly from lending institutions and the funds are not allocated based on need, NBA senior vice president Mike Bass said.
"The fact that NBA teams are able to raise $200 million in this current credit environment reflects the lending community's confidence in the strength of our business and the credit worthiness of our teams," Bass said.
Copyright 2009 by The Associated Press