Three months ago, almost to the day, rumors began to swirl that Michael Jordan was looking to sell his majority stake in the NBA’s Charlotte Hornets, a franchise he has owned in some capacity since 2006. Earlier this morning, those rumors became fact. When the deal officially closes, Michael Jordan will cement his legacy as both a basketball AND financial GOAT… at an even higher valuation than anyone predicted.
Before we dive into the details, here’s a tiny bit of NBA “Hornets” history that might be helpful: There has been an NBA team called the Hornets since 1988. In 2002 the Charlotte Hornets moved to New Orleans. At the same exact time, the NBA launched a new franchise in Charlotte called the Bobcats. The franchise was awarded to BET founder Robert L. Johnson, the first black majority owner of a major American professional sports team. Fast forward to 2014 and the New Orleans Hornets changed their name to the Pelicans and the Charlotte Bobcats became the Hornets.
Michael Jordan bought a minority stake in the team (then known as the Bobcats) in 2006. In 2010 Michael bought out Robert entirely for $175 million. Between the two transactions, Michael acquired majority ownership of the Bobcats (who would soon be known as the Hornets again) for…
$233 million
(Photo by Jacob Kupferman/Getty Images)
Financial GOAT
At the time of his second transaction in 2010, Michael Jordan’s net worth was around $500 million. The vast majority of that net worth was built thanks to his partnership with Nike, whose Jordan brand was generating around $70 million in royalties per year for MJ. FYI, today Michael earns $150-200 million per year in Nike royalties.
Over the next decade, Michael sold off bits and pieces of the Bobcats (who then became the Hornets in 2014). One of the primary acquirers of his share sales has been hedge fund manager Gabe Plotkin. You may recognize that name if you were mildly aware of the infamous GameStop short squeeze of 2021. Back in January 2021, a group of Reddit day traders banded together to artificially inflate GameStop’s stock price with the express intent of punishing hedge funds that had been shorting the company’s shares. The primary target of this “short squeeze” was a hedge fund called Melvin Capital. Gabe Plotkin is the founder of Melvin, which had been shorting the stock since 2014.
At the absolute worst point during the squeeze, Melvin Capital was losing $1 billion PER DAY off its GameStop position. Immediately Before the GameStop fiasco, Melvin had around $12.5 billion under management. At its lowest point in the months that followed, its assets had dipped down to $6 billion. In May 2022 Melvin announced it was shutting down. At that point it had $7.8 billion in assets.
But let’s get back to the Hornets.
Michael Jordan sold around 20% of his former full-ownership stake in the Hornets over the years, primarily to Gabe Plotkin. When rumors first circulated back in mid-March that he was looking to sell his majority stake, the valuation most NBA/financial analysts predicted was $2 billion.
By our count, Michael has spent around $250 million over the years operating the team. At $2 billion, his 80% stake would have yielded a $1.6 billion pre-tax windfall. That would mean his taxable gain on his $233 million purchase price would be $1.35 billion. As a resident of Florida, Michael is not subject to paying a state tax, so at a $2 billion valuation Michael would have cleared around $1.1 billion.
As it turns out, Michael’s getting an even bigger deal.
According to a number of sources, Michael is selling most (not all) of his 80% majority stake to Gabe Plotkin at a valuation of…
$3 billion
Let’s say Michael is keeping a 10% stake just to be conservative. That means he is cashing out 70% at a $3 billion valuation. That’s a pre-tax windfall of $2.1 billion. After removing his $233m purchase price, $250m operating costs and roughly 33% for federal taxes, Michael will clear around…
$1.1 billion
That’s $1.1 billion after taxes, deposited into MJ’s bank account.
But wait, that’s the same number as before??? How can that be a good deal?
Because under the math we just ran, Michael still owns a 10% stake in a team that was just valued at $3 billion. So not only is he getting $1.1 billion in cash, he’s also left with a 10% stake is worth an addition $300 million on paper right now. In other words, Michael’s total windfall from this transaction is…
$1.4 billion
That’s a $1.4 billion win for a team that… didn’t really win all that much under Michael’s watch. During his 17 seasons of ownership, the Hornets made the playoffs just three times (they lost in the first round of each playoff) and only had FOUR seasons with winning records 🙂 Now you see why Michael truly is a GOAT on and off the court.
What does this sale mean for Jordan’s net worth?
Prior to the sale, we estimated Michael’s net worth to be $2.2 billion. That number assumed a $1.5 billion valuation of the Hornets (which is the value Plotkin paid in 2019). An 80% stake at $1.5 billion contributed around $1 billion to Michael’s bottom line. Using the math above where Michael cashes-out $1.1 billion but still owns a $300 million stake, when this deal is 100% signed, sealed and delivered, Michael Jordan’s fortune will increase from $2.2 billion to around…
$2.6 billion
But wait… there’s more!
In all the math we just ran, we assumed Michael does not choose to take advantage of a tax loophole with the sale of assets called a “1031 exchange.” Under a 1031 exchange, you can put off paying taxes on the sale of an asset if you quickly invest your pre-tax proceeds into a new asset that costs at least $1 more than your sale and is a “like kind” asset. For example, if you sell a home for $500,000, producing a $100,000 taxable gain, you can put off paying taxes on the gain if you buy a new house for at least $500,001. You have to follow a few other steps, but that’s the basic plan.
In a 1031 exchange, “like kind” means selling one thing and buying something that is the same type of thing. For example, a sports team. Michael could take his full pre-tax $2.1 billion windfall and use it to invest in another sports team without paying any taxes today. Let’s say he bought 50% of an NFL team. And let’s say in 20 years that NFL team has increased its value from $4 billion to $20 billion. At that point Michael’s stake would be worth $10 billion. Michael could cash out at that point and have a roughly $6.7 billion post-tax windfall. Moves like that are how the rich get richer 🙂
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