For Magic, NBA was halftime
Earvin “Magic†Johnson announced his arrival as a businessman 13 years ago, when he took part in an unusual meeting with gang leaders from the Bloods and the Crips.
At the time, Johnson was building a movie theater in Baldwin Hills. Would the gang members, Johnson asked, be kind enough not to shoot it up?
“I just laid it out to them that I’m building this theater for the community,†Johnson, the former Lakers basketball standout, recalled from his seventh-floor office in Beverly Hills. “You can’t have anything happen at this theater because we’re going to hire your cousins, your mothers, your sons and daughters. You come in here and shoot up the place, it might be your own relatives inside.â€
The theater stands peacefully to this day, largely untouched by violence. And these days, Johnson meets with corporate CEOs, institutional investors and elected officials nationwide who want a piece of his growing collection of businesses and properties in 21 states.
The orchestrator of the Lakers’ highflying “Showtime†teams in the 1980s, which netted five NBA championships, has crafted a second career by investing his time and, in many cases, other people’s money in long-ignored urban neighborhoods through his Canyon-Johnson Urban Fund.
Canyon-Johnson, formed in 1998, has financed 31 real estate developments in 13 states and Washington. It launched its third and biggest investment fund in April -- and in a matter of weeks drew $1 billion from pension funds and others with deep pockets.
What’s more, the money came in at a time when investments in commercial projects had fallen off dramatically because of the credit crunch and the downturn in real estate values.
Johnson has other ventures cooking as well. In March, he signed a multiyear marketing deal to help electronics retailer Best Buy Co. bolster sales in urban neighborhoods.
His Beverly Hills-based Magic Johnson Enterprises now has AMC Magic Johnson Theatres in four cities, 116 Starbucks in 14 states and Washington, 31 Burger King restaurants in the Southeast, and 13 24-Hour Fitness/Magic Johnson Sport health clubs. He also owns a nearly 5% share of the Lakers.
Johnson consistently has declined to release financial data for his privately held businesses or himself. But a business associate, who asked not to be identified because he was not authorized to speak by Johnson, estimated the value of the former NBA star’s various holdings at $700 million.
This associate estimated Johnson’s personal net worth at nearly $500 million.
Many star athletes lend their names to bars or car dealerships and say they’re in business. Johnson wasn’t content with that. Instead, he parlayed his fame into a groundbreaking role in urban development.
“His role was quite revolutionary,†said Chicago-based real estate investor Quintin Primo, who occasionally competes against Johnson for deals. “And you still can’t say that urban investment is commonplace today. His involvement still speaks to the vision Magic Johnson has had.â€
Johnson was a well-known retired athlete in 1995, when he approached the California Public Employees’ Retirement System, or CalPERS, about a pioneering investment in black, Latino and other urban neighborhoods.
But when the former Laker spoke before the CalPERS board, “he said, ‘I’m almost as nervous as I would be shooting a free throw at a championship game,’ †said former CalPERS executive Robert Aguallo Jr., who now manages the Los Angeles City Employees Retirement System, which invested in the second Canyon-Johnson fund. “At the time, there really weren’t many developers going into urban areas.â€
Johnson, 48, began to shape his business career while commuting to and from Laker games. He was drawn to the tired Santa Barbara Plaza shopping center in the Crenshaw district.
Though attempts to close deals on the property failed, Johnson saw the potential for profiting from urban redevelopment, a strategy that formed the foundation for subsequent transactions.
His post-basketball career began earlier than expected, after he was diagnosed with HIV in 1991. (Johnson said he remains healthy, the virus all but dormant inside him.)
Initially he was frustrated, though, because a string of potential business partners turned down his overtures.
“A lot of them wanted my autograph and a picture with me,†Johnson said. “But they didn’t want to invest with me. “People said, ‘If you believe in urban America so much, why don’t you invest your money and prove it?’ â€
Johnson did just that in 1995, taking an equity stake along with what was then the Loews chain in the 12-screen movie theater in Baldwin Hills. Three years later, he opened a Starbucks coffee shop in South L.A. and remains the Seattle-based coffee company’s only joint-venture partner.
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What people want
He raised eyebrows, but usually was proved right, with ideas such as restocking theater refreshment stands in predominantly black areas with sweeter drinks, spicier hot dogs and Buffalo wings.
He followed the same strategy at many of his Starbucks, changing the music to R&B; tracks and offering sweet potato pie in addition to scones, he said.
Longtime Johnson business agent Lon Rosen, who is at William Morris Agency, recalled occasions when he second-guessed Johnson’s untested strategies.
“He’d say, ‘I know my community, Lon. Remember, I happen to be black,’ †Rosen said.
Johnson since has struck equity and licensing deals with such diverse partners as Burger King, Royal Caribbean International, food services firm Sodexho and health insurer Aetna. Johnson also joined forces with L.A. billionaire Ron Burkle on a fund focused on urban markets.
“Now companies are reaching out to us, saying, ‘Hey, we want to go into urban America but we don’t know how to do it, so we need to be with you because you’re trusted. You have the blueprint, you can teach us what we should do and shouldn’t do,’ †Johnson said.
Johnson’s urban investments are run through an alliance with Robert “Bobby†Turner, a managing partner of Canyon Capital. The Century City investment firm manages about $20 billion worth of assets.
The first Canyon-Johnson Urban Fund struggled for two years to raise $300 million to invest in urban neighborhoods. A subsequent fund raised $600 million in a matter of months and the third iteration was oversubscribed in a matter of weeks, Turner said.
The funds have helped finance affordable housing and retail space in such locales as Los Angeles, Atlanta, Brooklyn, Houston and San Diego.
Canyon-Johnson has had its share of high-profile deals in Los Angeles. The fund was involved in the $100-million purchase of the 32-story former Transamerica Center complex downtown that subsequently was renovated and sold for $205 million.
Canyon-Johnson also had a stake in Sunset+Vine in Hollywood, which was built for $125 million and sold for $160 million.
On occasion, though, Johnson has shot the business equivalent of an air ball.
In 1992, he opened a short-lived sporting goods store in Baldwin Hills. Rather than listening to younger consumers, Johnson said, “I lost $200,000 because I was messing around and buying everything an old man liked.â€
The man who enthralled high-paying, high-profile Lakers audiences for years was lured -- and burned -- by the bright lights of Hollywood. The “Magic Hour†late-night talk show lasted only two months in 1998. A film production company, a talent management firm and a record label were also short-lived.
A few underperforming Starbucks stores were closed, along with two of the original six AMC Magic Johnson Theatres. But Johnson still warms to the challenge when the odds seemingly are against him, as they were with the original movie complex.
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Looking ahead
Today, Johnson concedes that the roiled credit markets are forcing Canyon-Johnson to alter its investment strategy. Johnson plans to focus on somewhat smaller markets where development costs are lower than in major cities.
“The Carolinas are going to be the place where people are moving now,†he said. “No. 1, you get more for your money. It’s affordable. We saw where the trend is going, so that’s where we’re going to go.â€
The Lansing native attended Michigan State University but credited his business schooling to avid Laker fans such as John Argue (a local lawyer who spearheaded L.A.’s drive to host the 1984 Olympics), Creative Artists Agency co-founder Michael Ovitz and longtime music industry executive Joe Smith.
Johnson’s hands-on management style was evident when, as a Laker, he bought into a Washington, D.C.-area Pepsi-Cola distributor. During the off-season, he occasionally rose at 4 a.m. to accompany soft-drink truck drivers on their routes so he could chat up store managers about better product placement.
It was a foundation for his present-day business acumen.
“The reason my brand is trusted and followed is because I’m personally involved,†Johnson said. “People from the outside don’t know that I’m in here every day. I get my hands dirty every day. I don’t send any of my people. I go myself. My name is on that door.â€
Johnson gradually has been turning over decision-making power to his son, Andre, whose first job in the family business was movie usher. Andre, 27, works directly with Turner at Canyon-Johnson Urban Funds and manages business development for Magic Johnson Enterprises.
For now, the business remains firmly in Johnson’s grip. “What I’m trying to do [is] leave a legacy for . . . minority people,†Johnson said. “I’ve always considered myself more than just a basketball player.â€
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