The Magic Touch!

Earvin Johnson has worked his wizardry on his urban movie theater chain. But will his mastery continue as he seeks to become the country's leading entertainment enterpreneur?

EARVIN "MAGIC" JOHNSON PERSONIFIES celebrity. He wears it with style and a casual ease, the way a lucky few can wear a finely tailored suit. Testament to this is that in Los Angeles, City of Angels and home to countless stars, Johnson is the star other celebrities flock to with cameras in hand.

In 13 unparalleled years in the National Basketball Association, Johnson rewrote the record books and dazzled fans with his no-look passes and gorgeous perimeter jump shots. He also led the Los Angeles Lakers to five championships. Today, Johnson is eight years removed from the day he announced to a stunned world that his basketball career was over after he had contracted HIV.

Many thought that was the end. Instead, for Johnson, that was just the beginning. "People thought I was going to go away," he says. "But I never planned on going anywhere."

Rather, he took his game to a different arena, one where the obstacles are higher and the challenges greater. His new career began with a relatively modest partnership with Loews Cineplex Entertainment, formerly Sony Retail Entertainment. Together, they built movie theaters in urban neighborhoods across the country. Subsequent partnerships with Starbucks and T.G.I. Friday's, while still in their infancy, have only solidified Johnson's presence in corporate America and added credence to his goal to be taken seriously as an urban entrepreneur.

Johnson says his strategy was simple: craft a niche out of themes he knew well. "All of my businesses deal with people, customer service and entertainment because that's what I'm good at," he says. "Everything flows together from that, and all the companies help each other."

Consider it the "Magic Johnson" brand. He wants to become as synonymous business in the new millennium as he was with basketball in the '80s. And he's well on his way. So far, most projects (a short-lived late night talk show aside) have responded favorably to his magic touch.

But his metamorphosis hasn't been without adjustments. Some of the questions that arose when he first made the transition to business hover to this day. Can an ex-jock really become a corporate power player? Is he extending himself too far, too fast? Is Johnson really running the business himself?

Johnson responds, "Everyone looks at me and still sees basketball. But I run all my companies. People who don't know me may not believe that. But if they come in here and want to do some business, they'll find that out fast enough."

For his part, Johnson is content to let those who would underestimate him continue doing so while he locks up his next megadeal and makes a fast break for the bank.

THE MAGIC HOUR

Sitting in his Beverly Hills office surrounded by pictures of family and a few odd mementos from his NBA days, Johnson looks much like a man who, since shedding the role of NBA ambassador and embracing that of entrepreneur, can do no wrong. Under the umbrella of Johnson Development Corp. (JDC), Johnson has built five separate companies--Magic Johnson Theatres, created with partner Loews Cineplex Entertainment; JDC Las Vegas, the parent company of Johnson's Westland Plaza, a 235,000-square-foot retail mall in West Las Vegas; Johnson/MacFarlane, a partnership with the California Public Employees Retirement System (CalPERS) that allowed Johnson to purchase several retail complexes in Los Angeles; and lastly, Starbucks and T.G.I. Friday's, two of the newest partnerships under JDC.

Want more? OK. There's Magic Johnson Entertainment (MJE). Formed in 1997, this entity develops and produces television and cable TV programs, the latest of which was Passing Glory, a critically acclaimed Turner Network Television film. Johnson was its executive producer. In March, MJE partnered with Blackboard Entertainment to form New Children's Venture, which will create, produce and distribute a new brand of children's educational multimedia products. Magic Johnson Management Group manages television and film stars, and counts among its performers Vivica Fox, Beverly Johnson and comedian Steve Harvey. Magic Johnson Productions promotes tours, concerts and boxing events, and then there's Magic Johnson Music, a budding record label. In his spare time, Johnson hooked up with Janet Jackson and Jheryl Busby last year to purchase a controlling interest in Los Angeles-based Founders National Bank (No. 16 on the BE BANKS list with $100 million in assets).

In all, JDC properties were responsible for $25.4 million in gross sales in 1998. But with Johnson's current success comes a new question. Is the 39-year-old entrepreneur in danger of extending his business too far, too fast?

"People say I'm growing too fast. I say everything is working together. We're growing, but not so fast that it's not manageable," Johnson says. "And as long as I have knowledgeable people working with me, I'm not worried about branching out."

As an example, Johnson points to his separate deals with T.G.I. Friday's and Starbucks. What some might see as an overextension, he views as an opportunity at cross-promotion. "I can promote my Friday's and Starbucks in the movie theaters and do the same thing in those venues promoting the theaters. We have 1.8 million [people who go] through our theater doors every year in Los Angeles. The goal is to get a lot of that same audience to go to your eateries. Then, on the music side of it, it works because we can play our artists in those same theaters or restaurants. There's great synergy, and it all works together."

Industry analysts agree. Debbie A. Smith, vice president of public affairs and emerging markets with the Washington, D.C.-based International Franchise Association, believes Johnson has tapped into a winning strategy.

"He's created a great venue for family entertainment, and the entities work hand in hand. You get to go out to a movie and then share a cup of coffee or a meal with your family," says Smith.

Smith adds that Johnson will face competition from other eateries just like any other franchiser, "but Magic being who he is, his name alone will help attract customers. He's a proven businessman making good business decisions. As long as he continues to understand the industries that he's in, and the evolving nature of those industries, he'll do well."

GOING CORPORATE

He's come a long way since his first major business deal, when he partnered with BLACK ENTERPRISE Publisher Earl G. Graves Sr. to purchase a Forestville, Maryland, Pepsi-Cola distributorship in 1990.

Graves says that when he first considered working with Pepsi, it was suggested he take on a partner to expand the deal. There was talk about partnering with an athlete, so Graves contacted the respective commissioners of the NBA, the National Football League and Major League Baseball. NBA Commissioner David Stern recommended Johnson, whom he knew was interested in finding a business venture and, as it turned out, was already on board as a Pepsi pitchman. Graves ran it by Pepsi executives, who liked the idea. Then he contacted Johnson.

"The deal was done with myself, a lawyer, Magic, [agent/advisor] Michael Ovitz and Craig Weatherup [then president and CEO of Pepsi-Cola Co.]. Five people in a room over at the 21 Club. Magic said to me, `I've checked you out and I know you've checked me out. So let's do some business.' We got up, shook hands and we were in business."

With Graves as chairman and CEO and Johnson designated executive vice president, the distributorship was Johnson's first experience dealing with business executives as a corporate player. "The experience was great because it was my first time playing on a major league level," he says. "I got exposed to the meetings with bankers, dealing with customers, working with a client base. You work all the way from dealing with mom-and-pop grocery stores to talking with the Marriott Hotel chains," he explains. "We didn't get every account, but we got a lot of them. I learned just how important relationships are."

Graves says Johnson's enthusiasm for business was apparent, and any concerns he had about Johnson's lack of business experience evaporated quickly. "If I had any reservations early, they were overcome by the nature of his personality. It was clear that he really wanted to be a businessman and be someone that others would take seriously," says Graves. "So it wasn't a matter of `Show me where to sign and I'll do it.' He wanted to understand what it was all about."

But as in any business marriage, Graves says there were occasional problems. At the time, Johnson was still traveling across the country as a member of the Lakers--severely limiting the time he could put into the business.

"Basketball distracted him. Part of the frustration for him was that he couldn't focus on the business as much as he wanted to. He wanted to be involved as more than an investor, but it's impossible to be hands-on when you're 3,000 miles away," Graves says. "Now, when he came to town, we could literally stop traffic in terms of how responsive people were to him. If he had had the time, it would have been a home run. But you can't play basketball and have all the different things that pulled on him and be as good as he is now."

Because of the constraint on Johnson's time, Graves and Johnson mutually agreed to dissolve the partnership in 1992. Johnson went on to form JDC. Today one of his closest advisors is Kenneth Lombard, president of JDC, who oversees the daily operations of JDC and Magic Johnson Theatres. Lombard was formerly executive vice president of the Economic Resources Corp., where his duties included raising venture capital for ERC's capital fund. Today he acts as Johnson's point guard, assisting him in landing the next big deal.

Together, the pair say some due diligence and a little homework were what first attracted them to the idea of opening movie theaters. "Approximately 32%-35% of the movie audience is minority, but we have [no theaters] in our neighborhoods," says Johnson. "We have to drive 30-40 minutes to get to a theater. So it seemed like a natural," he says. Johnson researched the local Los Angeles neighborhoods and found that the Crenshaw district had a per-household income of nearly $50,000. "So you're sitting there with almost 2 million people in a four- to five-mile radius. The math was easy," Johnson says.

The next step was finding a willing, knowledgeable partner with deep pockets. So they contacted Lawrence J. Ruisi, president and CEO of Loews Cineplex Entertainment. "Larry was convinced this was an opportunity for them. But he also realized they needed a strategic partner who knew the community and understood the operating style would be different from your approach in suburban America," Lombard says. "It affects everything from the different types of food that you offer to how to incorporate security elements in an environment that is safe yet not offensive."

Ruisi says that in Johnson he saw a potential partner eager to tap into the minority community--an area that Loews was very interested in. "We knew it was an untapped market. But it was one that needed to be approached in a different manner," Ruisi says. "We wanted the community to accept and welcome the theater that we were bringing to the market. Combining our expertise in how to run and operate a theater and Earvin's ability to get community support was how it got started."

Johnson's willingness to lay his own money on the table, approximately $2.5 million, also facilitated the deal. "He's a full partner in this business," says Ruisi. "So he was coming to the table with capital and taking the same risk as we were."

The way the partnership is structured, both sides must mutually agree on when and where new theater complexes will be developed. Loews and JDC handle the day-to-day operations. However, JDC, which comes in as a tenant once a location is selected, scouts potential sites and deals with local government officials to generate the support to get the theaters built.

"When you sit down and talk to him, what Earvin displays is the ability to listen and learn," adds Ruisi. "He didn't walk into this with notions that he knew everything there was to know about running a movie theater. He realized we had a level of expertise. He wanted to learn, and that's the reason we've been successful."

Successful indeed. Together, Loews and Johnson have built theaters in Los Angeles, Atlanta and Houston. Construction is under way in Cleveland (a theater is slated to open this fall) and Harlem (where one will open next spring). In 1998 total gross revenue for the three theaters was approximately $20 million, of which JDC got 50% of the profits.

Moviegoers have flocked to Johnson's theaters. But there's been the occasional bump along the way. For instance, Johnson took criticism last year when he flatly refused to allow the urban-themed film Belly to be screened in his theaters. Citing concerns about potential gang violence, Johnson took a pass on the film. In response, the movie's African American director, Hype Williams, stopped just short of accusing Johnson of selling out and not supporting black filmmakers.

But for the most part the theaters have been a rousing success. The inaugural theater in Los Angeles is consistently a top-five theater in the Loews circuit and is currently the third highest grossing theater in the city.

THE MAGIC BRAND

With the theaters in place, the next step was finding other businesses that would complement the theme. Johnson and Lombard didn't have to look far.

"We built theaters and we waited for quality sit-down casual restaurants to come behind us," says Lombard. "But what we found was an industry that was very much like the theater industry. Either through the franchise holders or the companies in charge, eateries weren't willing to commit. We had customers coming in saying they loved the theaters, but they had to go all the way across town if they wanted to get something to eat."

Lombard says he met with Starbucks Chairman and CEO Howard Schultz, and the pair talked about their common interests in doing business in the inner city. After some preliminary discussions, a meeting with Johnson was set up. Johnson recalls flying out to meet Schultz on only a few hours' sleep. "I laid my plan out to him," says Johnson. "I told him Starbucks could boom in the urban community and said minorities are driving 40 minutes right now to get to a Starbucks. So you know if you put one right here they're going to come. He was like, `How do you know that?' And I told him because my theaters are in the same situation."

Schultz says that, like millions, he watched Johnson play ball and had admired him from a distance. But he had no idea what their initial meeting would be like. "Earvin came in with an astute understanding of our company and the opportunity that could come about with an alliance. We agreed we could add value to one another," he says. "There's a level of integrity that Magic has that transcends sports. Ken and Earvin have exceeded our expectations with their level of commitment."

The first Starbucks opened last April in the Ladera Center a few miles from the Los Angeles International Airport. JDC has committed to opening an additional seven stores with Starbucks nationwide in 1999. Johnson followed that up by partnering with T.G.I. Friday's. Each put in $750,000 to debut their first collaboration in Atlanta this summer. In the interim, other Magic/T.G.I. Friday's sites are being scouted for future development.

Perhaps Johnson's most ambitious business venture is real estate. First there's JDC Las Vegas. A 50-50 partnership created in 1994 with Raul Walters Properties, it was responsible for creating Westland Plaza, touted as the first development project in West Las Vegas in the past 30 years. The 235,000-square-foot mall counts among its tenants Pizza Hut, Mail Boxes Etc. and Norwest Bank.

Johnson followed up that venture by partnering with CalPERS and MacFarlane Partners in 1996 to identify and purchase retail properties in urban areas in California. Johnson/MacFarlane committed $1.5 million to join with CalPERS to purchase retail mall complexes in Los Angeles, among them the Ladera Center and Margarita Plaza. The partnership has also acquired the development rights to Santa Barbara Plaza in Los Angeles, and is targeting Home Depot, Old Navy and Bed, Bath & Beyond as tenants.

"If you look at how we've expanded, it's been on a very controlled growth pattern," says Lombard. "We're looking at specific locations with specific economic criteria. We're teamed with partners, but we're involved in every decision with respect to the operation of these entities," he says. "It's a lot of work, but right now we are in an excellent position to manage the growth of each of these businesses."

Ken Smikle, president of Target Market News, a Chicago-based marketing research firm that monitors consumer trends in the African American community and publishes a trade paper of the same name, says Johnson's success could ultimately lead to corporate America looking for more African American partners to help it break into the urban market.

"He's opened the door for creating partnerships with major retailers interested in black consumers," says Smikle. "Many are interested, but they don't understand [the market] and frankly are a little frightened by it. So there's a possibility that because of his success, corporations will look for a Magic to help them do their deals in the urban community."

With so many concerns to operate simultaneously, another stigma Johnson deals with is the perception that he doesn't actually run his own businesses. Some believe him to be only a figurehead, with others like Lombard actually making the decisions behind the scenes. He says differently. "You don't build what I have if you're not a hands-on businessman. I have to have some knowledge and I have to know my figures. I don't need Ken or anyone else to talk for me because when I go out to talk to Loews or Starbucks, Ken can't tell them anything because they want to hear it from me," he says. "I go in and I make my own deals because I can do that."

Lombard agrees. "I think initially anyone would probably walk into a business meeting with preconceived notions about what Earvin's capabilities are. But all you have to do is sit in a meeting with him and you walk away clear that he is a very astute businessman," he says. "He has a vision about what would work in the inner city and how to make it work."

So to a generation prepared to remember him solely as one of the best to ever lay hands on a basketball, Johnson says not so fast. He'd like to revise the ending to that script. "I want to be remembered for my business, because it helped my community and my people," he says. "I used to [play basketball]. Now I do this. And I want to be one of the best."