Magic Johnson Is The Fourth Athlete To Reach Billionaire Status | Forbes
Matt Craig, SportsMoney Reporter, and Brittany Lewis, Breaking News Reporter, breakdown Magic Johnson's notable business deals. The previous Laker point guard is the 4th billionaire athlete ever. Magic Johnson has an extensive portfolio spanning multiple industries: entertainment, redevelopment/real estate, and a lucrative partnership with Starbucks Owner, Howard Schultz. Magic is part owner in a PepsiCo facility, making it the company's largest minority owned location. He was also part minority owner of The Lakers Basketball team, but sold his stake in 2010.
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00:00 Hi everybody, I'm Brittany Lewis with Forbes Breaking News.
00:06 Joining me now is sports money reporter Matt Craig.
00:08 Matt, thanks for coming on.
00:09 It's a pleasure to be with you, Brittany.
00:11 Let's get straight to the point here.
00:13 Forbes has just identified the fourth ever billionaire athlete.
00:17 Who is it?
00:18 It's Magic Johnson, Irvin Magic Johnson.
00:20 In the business world, he goes by Irvin.
00:23 But I think it's interesting, different from the others who I'll just name.
00:28 I think it's a fun trivia question to ask people.
00:30 But the other three are Michael Jordan, Tiger Woods, and LeBron James.
00:35 The interesting thing is all three of those, their wealth is anchored by massive earnings,
00:40 either on the court, with playing contracts, and also endorsements.
00:44 In the case of Tiger Woods, like hundreds of millions, or $100 million a year in endorsements.
00:49 Magic Johnson played in an era before big money in sports.
00:52 He made about $40 million total playing basketball.
00:56 He was making $2 to $4 million in endorsements a year.
00:58 So he had a lot further to climb to become a billionaire, and now he's done it.
01:03 Let's talk a bit about that journey, that climbing journey, because he has that staying
01:08 power of the likes of Tiger Woods, LeBron James.
01:12 How is he able to do that, walk us through?
01:14 I mean, I think the secret to Magic's, I mean, really his entire life, but especially his
01:18 business career, is just that charisma.
01:21 He has the smile.
01:22 He has an ability to make instant connections with people that are not just feeling like
01:27 they're friends, but lasting relationships over decades.
01:31 And so he was able to build his wealth through joint venture partnerships and other arrangements
01:36 where he could have a relationship with someone who was richer than him, who would agree to
01:40 put forth money that he did not have.
01:43 And then he over-delivered his element of that partnership.
01:47 He was a great teammate, and then was able to scale up those businesses, enter an industry
01:52 and do extremely well, exit, make some money, get into a bigger business over and over again,
01:58 until eventually now he owns 60% of a life insurance company, which I think a lot of
02:04 people wouldn't necessarily associate a former athlete with life insurance, but he owns a
02:10 life insurance company that's worth well over a billion dollars.
02:13 So you're saying he has a billion dollar smile.
02:15 That's the secret to his success.
02:17 Absolutely.
02:18 But he was a point guard in the 80s and early 90s.
02:21 And I want you to talk about how he decided, "Hey, I want to fry into the business world."
02:25 What was his first venture?
02:26 Yeah.
02:27 So I think it's really interesting.
02:29 Nowadays, athletes, they all want to do business.
02:32 They all want to be entrepreneurs.
02:34 But in the 80s, that was a very foreign concept.
02:37 Other than athletes smiling in some commercials, athletes were not involved in business at
02:42 all.
02:43 Athletes, in fact, were known for blowing their money, spending all their money.
02:46 Magic Johnson, coming up his entire life, he wanted to get involved in business.
02:50 He wanted to be an entrepreneur.
02:51 And so as the story goes, we think it's true, but who knows at this point?
02:56 It's legend.
02:57 During a game in the 80s at the Forum, this was back in, of course, the Showtime Laker
03:02 era.
03:03 So there were lots of important, powerful people that would come to the Forum to watch
03:07 the Lakers play.
03:09 Supposedly during an inbounds pass during a game, he turns to Joe Smith, who was a record
03:13 executive, and says, "How do I get into business?"
03:16 I think as he says it, he says, "This may not be the best time, but how do I get into
03:21 business?"
03:22 Eventually, he makes friends with him.
03:23 He makes friends with another guy named Peter Guber, who was also, at the time, he was the
03:27 chairman of Sony Pictures, so he was in the movie business.
03:31 And those guys became mentors for him.
03:33 They also introduced him to Michael Ovitz, who is probably the most powerful agent of
03:38 all time.
03:39 He co-founded CAA.
03:41 And really, the three of them became like a master class in business for him over the
03:46 next several years.
03:47 You've reported, and you said earlier in this conversation, that one of his reasons for
03:51 success both on the court and off the court is that he's a really good teammate.
03:55 Can you elaborate on that?
03:57 Yeah, well, ultimately, business is about getting in a room and making deals.
04:04 And over and over again, the people that I talked to would say that you would get into
04:08 a room with 10 people, and magic would come in and just flash that billion-dollar smile
04:13 that you're talking about.
04:14 And it changed the dynamic from, "Hey, I don't know how we can get this deal to work," to,
04:19 "I really want to find a way to make this deal work."
04:22 And oftentimes, that makes the biggest difference in a deal.
04:26 Like it can go either way.
04:27 You can talk yourself into it or out of it.
04:30 And when Magic Johnson was involved, time and time again, people found a way to talk
04:33 themselves into a deal.
04:36 And I think the best example of that is, and I love this story, Michael Ovitz says, "Hey,
04:42 I don't want to take on representative athletes."
04:45 Magic wins him over, and Michael Ovitz sets him up with Pepsi and Coke.
04:50 At the time, in 1990, they--
04:52 The rival of the century.
04:54 Yeah, exactly.
04:55 Pepsi and Coke, the rival of the century, much like the Lakers and the Celtics of the era.
04:59 But they wanted an athlete or a minority investor in a Coke bottling plant, in a Pepsi bottling
05:06 plant.
05:07 And he gets into a room in this swanky Manhattan club, and all of a sudden, he's talked his
05:12 way into a 33% stake worth $20 million that supposedly he spent less than half of that
05:19 to get the stake, maybe as little as like $5 or $10 million, just because he's Magic.
05:26 And he was able to get that deal done.
05:28 And again, time and time again, I mean, I can go through more examples if you want,
05:31 but he kind of made these deals happen where there never were deals to be made before.
05:36 I actually do want you to go through a few more examples.
05:39 You're describing he has that Magic touch from partnerships, from movie theaters to
05:44 Starbucks.
05:45 Talk about those.
05:46 I think, well, I mean, I think these are all amazing examples.
05:51 And the way that they've scaled up kind of shows how he built his portfolio.
05:54 So for example, the movie theaters, Peter Guber, who I mentioned, he was the chairman
05:58 of Sony Pictures, and he also ran a theater chain, Lowe's Theaters.
06:04 And Magic Johnson goes to him and he says, "What if I told you there was a place where
06:09 there was a billion dollars in spending power and people love going to the movies, but they're
06:12 not serviced?"
06:13 And Peter Guber's like, "What country are you talking about?"
06:15 And he's like, "Nine miles from here in South LA, the African American community is not
06:20 being serviced."
06:21 And he talks Peter Guber into a 50/50 agreement to build a theater in Baldwin Hills to service
06:28 the African American community.
06:30 And at the time, it was thought to be gang territory, the Bloods and the Crips.
06:33 This was only a few years after the Watts riots, where South LA was kind of destroyed.
06:39 And supposedly, Magic Johnson then goes to the leaders of the gangs, the Bloods and the
06:44 Crips, and says, "Hey, we can't have violence here.
06:47 If there's even one incident of violence, they're going to shut this theater down.
06:50 This is going to provide jobs for people in the community.
06:53 This is going to be such a positive community force."
06:56 And he gets both sides to agree to call the theater neutral ground.
07:01 And within a year, that's one of the highest grossing movie theaters in the country.
07:06 It's still, again, relatively small business.
07:08 I think it did $6 million, $5 million, $6 million in sales, ticket sales.
07:12 But what it allowed him to do was, then he invites Howard Schultz, the CEO and founder
07:17 of Starbucks, to come to his theater.
07:19 And supposedly, they're watching this Whitney Houston movie in the late '90s.
07:25 And Howard Schultz sees that this is not just a great business, but a community center.
07:30 And he agrees to let Magic Johnson -- at this time, Starbucks had never had franchisee in
07:36 the history of their company.
07:37 And he, with Magic Johnson, does a 50/50 joint venture partnership to launch 125 Starbucks
07:44 locations around the country in African-American communities.
07:48 And that became tremendously successful for both of them.
07:51 And eventually, Magic Johnson sold out of that 50/50 venture for $75 to $100 million.
07:58 So that made him very rich.
08:00 And he says, and has said, that is what legitimized him to other people in big business.
08:05 Hey, he can do a deal with Starbucks.
08:07 He can make a joint venture incredibly successful.
08:11 I now trust him to invest in other things.
08:15 You wrote something that shows how special Magic Johnson is in the business world.
08:19 I'm going to read it to you now.
08:21 You wrote, quote, "In addition to his name, Johnson brought to each of his deals what
08:25 he felt was his expertise, reaching African-American customers.
08:29 How was he able to do that in each of these ventures, specifically the movie theater as
08:33 well as Starbucks?"
08:34 It's still an issue today, but I think particularly in the 1990s, there just wasn't a lot of thought
08:40 given to appealing to the African-American consumer.
08:44 And Magic Johnson, who, though at this time was living in Beverly Hills, he definitely
08:49 grew up knowing what these people would want.
08:54 And so, for example, in his movie theaters, he offered flavored sodas, which he says increased
09:01 the sale of concessions.
09:04 And at his Starbucks locations, they changed the music from, at this time, classic rock
09:10 and whatever Starbucks was playing to R&B music.
09:15 And they sold sweet potato pie instead of scones.
09:18 Magic Johnson has said many times, "People in my community don't know what scones are."
09:25 So anyway, all those little changes that made his particular businesses feel like home for
09:32 these people, for the communities that they were in, led to higher per capita sales for
09:40 the locations and made them popular destinations, as well as the celebrity of Magic Johnson's
09:46 name, of course, and kind of led to the success that he built, really, his entire business
09:52 off of.
09:53 Obviously, these are really lucrative deals, but you do touch on a flip side here.
09:58 And you're reporting that he has missed out on million-dollar paydays and even billion-dollar
10:03 paydays.
10:04 Can you tell us about those?
10:05 Yeah, it's crazy to think, you know, we're talking about Magic Johnson as the savvy businessman,
10:09 but you don't get every deal right.
10:12 And the biggest potential paydays of his entire career are ones that he missed out on.
10:18 Most famously, when he was coming out of the draft in 1979, he was offered by Nike a similar
10:25 deal to what Michael Jordan got a few years later, and honestly, an even better deal,
10:29 because this time Nike had five years less growth, five years smaller of a company.
10:35 So a deal that included lots of stock and even royalties on the shoes that he would
10:39 sell.
10:40 And he made Michael Jordan very, very rich.
10:42 And at the time Magic Johnson turned it down, it was a risky deal.
10:46 He decided to take guaranteed money from Converse, but he took about $100,000 a year, and he
10:51 could have gotten, who knows, several billion dollars worth of money from Nike over the
10:57 years.
10:58 And so that's a huge one.
10:59 Also, he was kind of given a sweetheart deal to own a small piece of the Lakers, because
11:04 he was really good friends with Dr. Jerry Buss, who was the owner.
11:08 So he bought a 4.5% stake for $10 million when he retired, and that stake today is worth
11:15 $265 million, but he sold it in 2010 for somewhere between $30 and $50 million.
11:22 So that was, again, a decision that at the time probably seemed savvy, but has turned
11:30 out to be pretty unfortunate.
11:32 And right around that same time, just to give you a third example, in 2010, he was given
11:37 a chance to buy into the Golden State Warriors franchise, and that franchise has gone up
11:42 15 times in value since 2010.
11:45 So whatever his investment would have been if they'd worked that out, he was working
11:48 with Peter Guber, who, again, he had a relationship with before.
11:52 Had he bought into the team then, his value would have gone up 15 times.
11:57 So yeah, they're not all wins, but he's strong enough together to build a portfolio up to
12:02 about $1.5 billion.
12:03 Yeah, I just physically winced at some of those losses there, but I don't really feel
12:08 too bad for Magic Johnson.
12:10 He is a billionaire now.
12:11 He's crossed that threshold.
12:13 So what makes up his portfolio?
12:15 Yeah, so the biggest piece of his portfolio is Equitrust Life Insurance.
12:21 I think that you could try to paint a straight line picture between, in 1990, he comes out
12:27 HIV positive, and a lot of people thought at the time it was a death sentence.
12:32 So it's very poetic to think, "Oh, here's a guy who now owns a life insurance company."
12:37 But the people I talked to said that this is a guy that will invest in any business
12:41 that he thinks is going to make him money.
12:44 He's somewhat agnostic about it.
12:46 So I don't know that it's necessarily as fundamental as that.
12:49 But in 2015, he bought a 60% stake of a life insurance company that makes up the majority
12:55 of his portfolio.
12:56 However, he does own pieces of lots of sports teams.
13:00 This was his dream.
13:01 Like when he started his career, he said, "I want to own a sports team."
13:03 He's not a majority owner, but he now owns pieces of the Los Angeles Dodgers, LAFC, MLS
13:11 team, Los Angeles Sparks, the WNBA team, and most recently, the Washington Commanders.
13:16 He owns a very small stake, 4%.
13:19 But the way the NFL valuations have grown over recent years, that is still a considerable
13:24 piece of his portfolio.
13:26 It's good investment after good investment, minus those few hiccups early on.
13:30 But when you're looking at Magic Johnson, athlete turned businessman, what stands out
13:34 to you the most because you cover these people all the time, athlete turned entrepreneur?
13:39 Yeah, I mean, I'm just impressed with the way that he grew his wealth.
13:44 And he had to do it in the similar way that other businessmen would have to do it.
13:49 Now obviously, he had the advantage of being Magic Johnson, one of the most recognizable
13:52 people in the world, very famous person, someone who everyone wants to be in a meeting with.
13:58 However, he had to make several smart deals along the way.
14:03 And he had to get his deals right several times.
14:07 It's not just like he made one great investment.
14:09 A lot of the billionaires on our Forbes list, they start a company, it was the right idea
14:13 at the right time, the company takes off, and now they're a billionaire for writing
14:17 that company.
14:18 He's had to make several correct bets in order to grow his wealth periodically over time.
14:24 And everyone tells me, he's a serial entrepreneur.
14:27 He's always looking for new deals and smart deals.
14:30 And so I think I respect that.
14:33 He's not someone that got $100 million paychecks the way a lot of athletes do today.
14:38 Well, Matt Craig, thank you so much for joining me.
14:40 I appreciate the reporting.
14:41 Thank you, Brittany.
14:41 Thank you, Brittany.
14:42 Thank you.
14:43 Thank you.
14:44 Thank you.
14:45 Thank you.
14:46 Thank you.
14:47 Thank you.
14:48 Thank you.
14:49 Thank you.
14:50 Thank you.