Inner-city biz ventures a slam dunk for Magic Johnson
Fresh on the heels of the NBA championship, won by the Dallas Mavericks, NBA Hall of Famer Magic Johnson talked about his successful inner-city business ventures post-basketball in Fort Worth, Texas, — but not before congratulating the Mavericks' win over the Miami Heat.
Mavs' owner Mark Cuban brought in the right coach with the right strategy, and then the players "executed that strategy to perfection," Johnson said, while speaking Tuesday to nearly 2,000 attendees at HousingWire's REO Expo, which brings together residential real estate professionals from around the country.
Mavericks' star Dirk Nowitzki played great and made everyone else play better for a total team effort that made the Mavericks the champions that they are today, Johnson said.
"I was a very focused basketball player. I was a very disciplined basketball player," he said. Johnson said his work ethic and his competitiveness on the court helped him succeed in business.
Johnson flew in to deliver the keynote speech at the conference Tuesday after watching the Mavericks victory over the Heat in Miami Sunday. Johnson works as an analyst for the ESPN family of sports networks and served as a commentator during the Finals. Johnson won five NBA championships during his career with the Los Angeles Lakers. He retired in 1991 after announcing that he was HIV positive, but came back to play again in 1992 and then again in 1996 before his final retirement at age 37.
Since leaving basketball, Johnson has raised money for urban renewal, raised awareness about AIDS and invested in real estate.
Despite his high level of success on the court — he is widely regarded as one of the best players in NBA history — Johnson said the first 10 banks he approached for a business loan turned him down. And people tried to talk him out of his plan to invest in inner-city neighborhoods, saying he'd lose money.
Johnson said he did his research and learned African-Americans like to go to the movies, but there were no theaters in their neighborhoods. So one of his first business ventures was to build six movie theaters in predominately African-American neighborhoods.
On opening night, he sold out of all the hot dogs purchased for a 30-day period. Unlike suburban neighborhoods where couples go out for dinner and then go to the movies, minorities in the inner city eat at the movies — and they bring their families with them, Johnson noted. He also said he made product adjustments, including in soda flavors, to appeal to his urban customers. Adjusting the product mix and supply were keys to his success, he said.
With a successful theater venture under his belt, Johnson investigated how to get Starbucks into urban neighborhoods. He won over the coffee giant, he said, after he showed Starbucks CEO Howard Schultz that he could successfully do business in urban neighborhoods.
"Sometimes you've got to take people to the deal," he said. "I took Howard Schultz to urban America and let him see for himself. That's how I got the deal." Schultz, it turns out, came to Johnson's theaters during the opening weekend of "Waiting to Exhale," a 1995 hit movie starring Whitney Houston. All of his theaters sold out and the feeling in the lobbies was "electric," Johnson noted.
Starbucks gave him three stores to start with and promised him more than 100 if he was successful with the first three.
Johnson said he over-delivered — making those three stores top producers — to show Schultz he could do it, and eventually added more than 100 stores to his Starbucks franchise.
"We'll pay $3 for a cup of coffee, but we just don't know what scones are," he joked, again explaining how he found success by knowing his largely African-American customer base. "We took out the scones and put in sweet potato pie … and sock-it-to-me cake." He said he put on the music of Smoky Robinson, The Temptations and other rhythm and blues legends to keep customers buying and lingering in the shops.
"What am I telling you? I know my customer. Do you know your customer? That changes all the time, so keeping up with it is key," he said.
Johnson recently sold his stake in the Los Angeles Lakers and his Starbucks franchise for more than $100 million. Since then, he has raised two equity funds to invest in real estate and a third to invest in inner-city businesses.
Projects have included mixed-use developments with retail, condos and apartments and more recently hotel developments, including a W hotel in Austin and a Hilton in Washington, D.C. He does deals successfully by partnering with local developers who know the market inside out, he said.
Johnson also talked about the importance of giving back to the community. He has done so via student scholarships and health fairs, among other projects.
He said he pushed himself hard to be successful so that other minorities coming behind him would have opportunities, telling a story about how he was the first minority to ever go to CalPERS — the massive pension fund that provides retirement and health benefits to California's public employees — to raise equity funding for his real estate ventures. Like the Starbucks venture, he's been able to prove himself — and raise large sums of money for his projects, he said.
"Everyone thought I was a great basketball player," Johnson said, "but a dumb businessman."
Write to Kerry Curry.
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