Why Tom Gores is not really buying the Detroit PistonsApril 13, 2011: 11:21 AM ET
Detroit is thrilled that "hometown guy" Tom Gores just agreed to buy the Pistons. Too bad it isn't really true.
That seems to be what's happening in Detroit right now, following an announcement that financier Tom Gores has agreed to purchase the Detroit Pistons basketball franchise. Gores made his millions as a Los Angeles-based private equity executive, but he also happened to have grown up in Flint, Michigan.
"Gores is a pretty top flight guy," Oakland County executive Brooks Patterson told the Detroit News. "I am delighted he got it. He's a hometown guy. He knows the area."
Unfortunately for Brooks Patterson, Gores isn't really going to be the next Detroit Pistons owner.
Go back to the press release, which was titled "Karen Davidson and Tom Gores Reach Agreement on Sale of Detroit Pistons." At the end of the first paragraph, you'll notice that the sale actually is to "Tom Gores and his investment firm, Platinum Equity."
That's right: The Detroit Pistons are about to become the first NBA franchise to be owned by a private equity fund. Not by flesh-and-blood individuals who made their fortunes in private equity (like the Boston Celtics or Golden State Warriors), but by a $2.75 billion financial vehicle. What that means is that this the Pistons are about to become an investment, not a labor of love. Something bought for the purpose of later being sold, not to keep in the Michigan-loving family for generations.
The NBA is obviously aware of this reality – sources tell me that Platinum has fully explained to league officials how PE funds operate – and apparently is okay with it.
Yes, it's true that Gores will invest personal money into the deal. But it's also true that Gores invests personal money alongside all Platinum Equity deals, by virtue of its partnership agreement. Don't recall any "hometown hero" stories when Platinum acquired fastening systems manufacturer Acument Global Technologies, which happens to be headquartered in Sterling Heights, Michigan.
Gores may well still hold a candle for Bob Lanier, but his primary motivation (and fiduciary duty) today is to turn a profit. If that can be done by maximizing other assets acquired in the transaction -- including the Auburn Hills arena, an outdoor concert venue and a music festival -- while using the ball-club as a loss leader, then that may be what happens. Or perhaps Platinum is counting on a favorable reworking of the players' collective bargaining agreement, to move the NBA closer to the NFL's parity-producing model.
The only other option, of course, is that Platinum believes it has the in-house knowledge to help the woeful Pistons win more games going forward. Not because the firm cares about championships, but because winning is what ultimately creates profits for such businesses. You can play around the margins with variable ticketing and social marketing (i.e., operational improvements), but the only surefire way to increase revenue is to score victories.
But Gores reportedly plans to let current Pistons personnel boss Joe Dumars -- who has experienced both success and failure in the role -- keep calling the shots. In other words, Platinum knows what it doesn't know. So far, Pistons fans don't seem to have the same level of understanding.