In the front office of the Utah Jazz, the news of Qualtrics CEO Ryan Smith’s purchase of the club was bittersweet.
Of course, they were thankful for the steady hand that the Miller family had used to lead the team for 35 seasons — a small-market franchise that was used as a model for some of the most successful teams in sports. They are truly beloved by those at the highest levels of the team’s operation.
But while there’s always some fear of change, Smith’s purchase of the team was generally considered a positive for the team as the Jazz move forward. Why?
In the 35-year tenure of Miller family ownership over the Utah Jazz, they sometimes had a reputation of running the team frugally. There were times where the reputation held, especially in the 80s, when the penny pinching sometimes came out of necessity.
But in recent years, the Jazz’s front office insisted that reputation wasn’t accurate. And they were right: under Dennis Lindsey’s and Steve Starks' management, the team greatly expanded and upgraded everything, to great expense. The renovation of both the arena and the team’s practice facility cost over $100 million. Employees were hired quickly, with staff count multiplying by a few times over in both basketball and business over the course of the last 15 years.
They were able to do so because the business side of the Jazz was going swimmingly: the team was making tens of millions per year under the league’s latest collective bargaining agreement. Especially with the league’s revenue sharing model sending money from big markets to small markets, the 2010s were a great decade to own the Jazz financially.
And from a basketball team-building perspective, executive VP of basketball operations Dennis Lindsey had a promise from the Miller family — that when it made competitive sense to do so, the team would be able to head into luxury tax territory to bring a championship contender to Utah. The team’s basketball staff under Lindsey was never particularly worried about the financial situation of the club, thanks to that promise and Gail Miller’s willingness to drop big checks on contracts, draft picks, the arena, and anything else he needed to run a first-rate NBA team.
Of course, the pandemic changed the situation. The Larry H. Miller Group of Companies laid off hundreds of employees in April, and in May, LHM Sports and Entertainment furloughed 40% of staff. Sports revenue went to zero in a hurry; and while movie theaters were allowed to open, revenue is only a small percentage of where it once was. Auto sales have been bumpy — maybe better than some expected, but difficult to forecast.
"I’ve said before that my life has certainly been an unexpected journey, and if 2020 has been anything, it qualifies as another of those unexpected journeys,” Gail Miller said during the press conference announcing the sale on Wednesday.
So this offseason, all of a sudden, it wasn’t clear what the Jazz ownership would be willing to spend on the roster. Last year, the Jazz’s contracts totaled $122 million. For the 2020-21 season, the team had $118 million in contracts on their books, though some were non-guaranteed.
But that didn’t include key midseason acquisition and current free agent Jordan Clarkson, who figures to command a salary of somewhere between $8-15 million per season. And then, of course, the team wants to get better, because it lost in the first round this year. The Jazz could use the mid-level exception worth $8-10 million per season, the bi-annual exception worth about $4 million, and a first-round pick worth $2 million.
Add it all together, and it would be optimistically be around $140 million in salary commitments if the Jazz used all of those avenues to improve the team. Before the pandemic, the NBA estimated its luxury tax line would be at about $141 million in the 2020-21 season, counting on continued growth. In the original plan, the team would then likely go into the luxury tax in the 2021-22 season, when extensions for Donovan Mitchell and Rudy Gobert look likely to kick in.
However, because the league lost about 10% of its revenue this season due to the pandemic, the luxury tax line would actually be set at about $120 million — unless the league and players mutually agree to set it higher. While they seem likely to make some adjustments, whether the line gets all the way back to the projected $141 million is still to be determined. If the Jazz go over the luxury tax, they have to pay penalties that are multipliers of the overage — something ownership may not want to do given the lack of cash flow.
As a result, the Jazz’s front office had to plan for multiple scenarios for what they’re able to do in this offseason’s free agency, dependent on both the league’s decision regarding the luxury tax line and the Millers' finances moving forward. But most of those scenarios didn’t allow the Jazz to retain Clarkson and use the mid-level exception, meaning the team would be largely similar to last season barring a trade.
Enter Ryan Smith.
Smith is generally regarded as having deeper pockets than the Millers do at this point; in part because of the cash generated by Qualtrics sale to SAP, and in part because his business is more insulated to the specific economic concerns of a pandemic than the Miller group’s.
So while there’s still some uncertainty as to what the Jazz will be able to financially pull off this offseason, Smith’s entrance into the picture is considered a positive from a financial point of view. Of course, Clarkson could still decide to sign elsewhere on his own accord — he is an unrestricted free agent. But in the immediate future, the Jazz look to be in somewhat better financial position.
The sale still is pending approval by the NBA Board of Governors, who will meet to vote on the sale in coming weeks. It looks likely to pass, and as LHM CEO Steve Starks said on Wednesday, the deal has the support of leadership in the NBA’s league office.
Naturally, the team would like that to be buttoned down to the greatest extent possible before the start of free agency. Having Smith either literally or figuratively signing the checks as free agency opens would be a major representation of stability.
The new owner already has solid connections with the front office and coaching staff, thanks to its 3-year partnership through the team’s jersey patch sponsorship — 5 For The Fight, which is Smith’s cancer research charity. There’s not widespread concern for negative owner meddling; Smith knows that the team’s front office is in good shape.
As Smith said in 2019: “Watching and getting close to the Millers and seeing how they’ve put everything into this, they’re phenomenal stewards over this franchise. I think the world’s waking up and realizing, wow, they’ve done a really good job.”
And the admiration is mutual. As Gail Miller wrote in her framed, handwritten letter to Smith, delivered at the announcement of the sale: “... you will continue to not only bring joy and happiness to our exceptional fans but indeed also elevate the franchise to new heights.”
As the franchise changes hands, optimism reigns.
