A Hornets owner was battered in GameStop stock swing. Will it affect team operations?
Gabe Plotkin, a minority owner of the Charlotte Hornets, has gone through a hellish week as a hedge-fund manager, seeing his investment management company fall into financial crisis.
Plotkin’s firm, Melvin Capital, lost roughly 30% of its assets in stock-shorting bets, including video game retailer GameStop, according to the Wall Street Journal. Two other firms invested about $2.75 billion in Melvin Capital to keep it afloat.
Does that have a tangible impact on the Hornets?
Probably not, although the team declined to comment on Plotkin’s situation Friday through a spokesperson.
Here are three key factors, regarding the Hornets:
▪ Michael Jordan retains majority ownership of the team and, by his own description, has final say on all day-to-day decisions.
▪ The NBA has approval power over even the smallest percentage of team ownership, according to a league spokesperson. So Plotkin couldn’t sell what he owns to just anyone.
▪ Since the league has that approval power, owners can’t use their equity in a team as collateral for other business ventures. So if Plotkin ends up in personal financial peril, the NBA and Jordan have a say in what becomes of his investment in the Hornets.
Michael Jordan’s shares in the Hornets
Jordan sold a non-controlling interest in the Hornets to hedge-fund managers Plotkin and Daniel Sundheim in September 2019. Prior to that sale, Jordan controlled 97% interest in the team, two informed sources told the Observer then.
While exactly how much Plotkin and Sundheim bought wasn’t revealed, multiple sources said at the time that Jordan retained far more than 51%. Jordan emphasized at the time of the sale that he wasn’t giving up any control of team operations.
“I will continue to run the Charlotte Hornets, make all decisions related to the team and organization, and remain the team’s NBA Governor,” Jordan said in a prepared statement announcing his new partners.
Shorting GameStop
Plotkin has made a fortune in hedge-fund management. Forbes Magazine estimated his net worth at $300 million in 2018.
He’s a protege of Steve Cohen, a billionaire hedge-fund manager who now owns the New York Mets. While working for Cohen, Plotkin was involved in a Securities and Exchange Commission investigation of insider trading. Cohen’s Point72 was one of the hedge funds that invested in Melvin Capital this week.
It’s unclear what of Plotkin’s personal wealth might be at risk from Melvin Capital’s setback.
Shorting a stock, as Melvin Capital did, is borrowing stock at a certain price and expecting it to fall. The profit is in that fall in stock price.
Melvin Capital closed out its short position in GameStop Tuesday. Although it wasn’t public how much Plotkin’s firm lost, the damage was so severe that Melvin Capital needed a multi-billion dollar investment from other firms to shore up its finances.
Sale closed
It’s unclear how much interaction Plotkin and Sundheim have with Hornets management these days.
The Hornets, like all 30 NBA teams, have had a rough time financially in the coronavirus pandemic; there are still no fans allowed at Spectrum Center home games and no decision yet on when that will change.
But as far as the percentage Jordan sold, the league announced the approval of Plotkin and Sundheim as owners long ago, indicating the transaction is closed.
So Plotkin’s new financial issues don’t seem to be of direct impact on the Hornets.
This story was originally published January 29, 2021 at 6:25 PM.
