NBA would’ve been concerned about finances of potential Hawks buyer McDavid

Whether Texas businessman David McDavid had enough cash on hand to support the money-losing Hawks would have been a concern for the National Basketball Association had the league received his application to buy the team, an NBA executive testified Thursday.

McDavid, who tried to buy the Hawks, Thrashers and Philips Arena operating rights from Atlanta-based Turner Broadcasting System in 2003, had a net worth of $181 million, according to court documents.

About $80 million of that was in cash — $60 million of which McDavid said he would pay up front to buy the teams, the documents show. He planned to borrow additional money to finance the rest.

The remaining $20 million may not have been enough to bail out the Hawks given that the team lost $31.2 million during the 2002-2003 season, said Joel Litvin, president of league and basketball operations.

“Given that the losses this team was certain to incur, losses that probably would exceed the $20 million he had remaining, that would have been a concern,” Litvin testified in Fulton County Superior Court. “We want to make sure that the owners of our franchises have the wherewithal to fund the teams in a first-class manner.”

McDavid negotiated with Turner for months in 2003 to buy the teams. He signed a letter of intent that April, but it expired while talks continued. Turner announced in September of that year it would sell to an eight-man investor group that called themselves the Atlanta Spirit. McDavid filed a $450 million breach-of-contract lawsuit against Turner.

The trial, which started in October, is expected to end early next week.

Attorneys for McDavid argued Thursday that his financial condition would have been no more troubling to the NBA than the Spirit Group’s.

“McDavid actually committed to commit capital on the front end,” said Lamar Mixson, one of McDavid’s lawyers.

Turner executives have testified that the Spirit was a better deal for the media company, partly because the investors had the cash to do the deal. But the amount that the Spirit paid up front — $8 million — combined with the projected losses of the Hawks and Thrashers led to the NBA and National Hockey League to require the investors to put up $115 million in personal guarantees against the losses.

Internal financial projections from Turner — shown earlier in the trial — said the professional teams were on track to lose between $50 million to $55 million in 2002; $60 million in 2003; and more than $70 million a year in 2004 and 2005.

“The committee stated to the members of the Spirit Group quite directly that, given their concerns about the continued heavy losses and the relatively small amount of cash that people were paying for the team,” that they wanted some personal guarantees, Litvin said. “The concern was, ‘Gee, it’s harder to turn these teams around than we thought, maybe we should just turn in the keys and walk away,’ and all they would lose is $8 million.”

The teams have continued to bleed for years, according to testimony and documents. But the exact amount and number of years has never been made clear. With many financial documents in the case under seal, the full picture is lacking.