Earvin “Magic” Johnson’s basketball career included five national championships with the Los Angeles Lakers and a gold medal with the “Dream Team” at the 1992 Olympics. But domination on the court meant little when Johnson began approaching investors to launch his first business venture. “Everybody wanted the autograph, but nobody wanted to invest with me. At the beginning, I got turned down 10 times before someone said ‘yes’. You know what they said? They said I was a dumb jock,” Johnson noted during a recent presentation at Wharton.
Magic the businessman wasn’t the proposal’s only tough sell. Investors also doubted that there was any money to be made building high-quality movie theaters and restaurants in inner city neighborhoods. Over the past 20 years, however, Johnson has proven he has the acumen for more than hoops. Beverly Hills, Calif.-based Magic Johnson Enterprises now owns or operates gyms, Starbucks coffee shops, Burger Kings, movie theaters and other businesses in 85 cities across 21 states. His Canyon-Johnson Investment Fund has been behind nearly $4 billion in urban revitalization projects that resulted in the creation of 4.5 million square feet of retail and commercial space.
Johnson credits his success to having a concrete business plan that he felt passionately about — and an ability to help partners see the potential in urban, predominantly African-American and Latino neighborhoods. “You’ve got to knock on the doors of corporations who have the same mindset as yours, who have the same heart as yours,” Johnson noted. “If I’m in New York, I can take [investors] to Harlem, I can take them to the Bronx, I can take them to Los Angeles, and I can take them to the South Side of Chicago. You’re going to have to find a way to touch their heart and spirit.”
Pound Cake and Sweet Potato Pie
When Johnson was trying to broker a partnership with Starbucks in the 1990s, he told CEO Howard Schultz that “the growth of his business would be in urban America. He already had [coffee shops] on every street and across the street from each other.” But a boardroom pitch wasn’t enough to close the deal. Johnson invited Schultz to spend a Friday night at one of the 6-foot-9 former point guard’s movie theaters. The visit coincided with the opening night of the Whitney Houston vehicle Waiting to Exhale, and the theater’s lobby and screening rooms were packed. “Our biggest screen had 500 women inside. All of a sudden every woman thought she knew Whitney Houston personally and started talking to the screen,” Johnson recalled. “So Howard grabs me about 20 minutes in and says, ‘Earvin, I never had a movie-going experience quite like this.’ Guess what happened? That got me the deal.”
Frappuccinos, lattes and Pike Place Roast are on the menu at a Magic Johnson-owned Starbucks, but there are subtle differences between the former basketball star’s coffee shops and the chain’s other locations. Instead of jazz standards and easy listening, R&B music plays on the stereo. There is extra space for meetings of community and church groups, and bulletin boards where local residents can post neighborhood news and events. “People said there’s no way Latinos and African-Americans will pay $3 for a cup of coffee. Yes, we will pay $3, but we don’t eat scones,” Johnson stated. “I had to take scones out of my Starbucks and put in pound cake, Sock It to Me cake and sweet potato pie — things that resonate with the urban consumer. You have to know your customer and you have to speak to that customer every day.”
The strategy to focus on inner city communities was developed by Johnson when he was still playing basketball. Riding high after winning back-to-back championships as a stand-out college, and then NBA, player in 1979 and 1980, Johnson recalled returning home to neighborhoods of crumbling storefronts, where residents had to travel long distances to shop or eat at chains that were plentiful in the suburbs. “Most of the people who own the businesses in urban America don’t live in urban America, so they take the money to their communities and spend disposable income in their communities. We have trouble in our communities because we do not own the businesses,” Johnson noted. “Now that we put Starbucks there, those same people that live in the community, they spend money there and Mom and Pop stores have more traffic. Now they don’t have to close their doors because people have money to spend at those stores.”
In addition to the Starbucks partnership launched in 1998, Magic Johnson Enterprises has also entered into agreements to develop T.G.I Friday’s restaurants and 24 Hour Fitness locations in targeted markets. The company in 2008 entered into an alliance with Best Buy to help the electronics chain expand into urban areas and strengthen its appeal with multicultural customers. A deal with food service giant Sodexo includes contracts to feed employees of Toyota, John Deere and Disneyland, meaning “Mickey Mouse and all of them eat my food,” Johnson said with a chuckle.
Johnson’s investments are run through a partnership with Bobby Turner, managing partner of Los Angeles-based asset management company Canyon Capital. Over two years beginning in 1998, the Canyon-Johnson Investment fund raised an initial $300 million. But Johnson noted that he achieved a 30% return on the initial fund and that it took a shorter period to raise $600 million for a subsequent endeavor. “The returns are everything, and when we returned them 30% on money spent on urban America, when they did not want to invest it initially, it raised a lot of eyebrows,” Johnson stated. “We just closed about a year ago on a billion in cash. It [required] a year because the economy is so bad…. There’s a lot of deal flow out there, but a lot of bad deals.”
Earning His Nickname
Johnson retired from the NBA in 1991 after announcing that he had HIV. His company’s interests also include a partnership with Abbott Labs to hold educational events and offer free testing in cities with high HIV infection rates. The business’s nonprofit arm, the Magic Johnson Foundation, organizes job fairs, operates community “empowerment” centers and offers college scholarships to minority high school students. “There have already been people who have made millions, so you’re not doing anything that anyone else hasn’t done before,” stated Johnson, whose net worth was estimated at nearly $500 million in a 2008 Los Angeles Times story. “But can you save and touch somebody’s life? Can you help a community get back on its feet? That hasn’t been done before. You can set yourself apart from everybody else if you can do something like that. That’s why I love what I do.”
As one of 10 children who “grew up poor” in Lansing, Mich., Johnson often arrived home from late basketball practices to find that his siblings had eaten all the food his mother had prepared for dinner. A high school standout, the athlete was given his nickname by a local newspaper columnist and went on to lead Michigan State to victory in the 1979 NCAA championship. As point guard for the Lakers, Johnson earned three Most Valuable Player awards, made nine appearances in the NBA finals, played in 12 All-Star games and still holds the league record for highest average assists per game. Johnson is the only basketball player to win championships at the high school, college, professional and Olympic levels. Those successes come with a responsibility to give back, Johnson said.
“Going down the street growing up, I knew if I turned left that trouble was there. Every time I would come to that street, everybody would say, ‘You’ve got to go that way, young man. You’ve got to go right.’ So I kept going right,” Johnson noted. “Just think of all the ballplayers and entertainers of color — somebody told them to go right, too. So why don’t you come back?… You’ve got to go back and you’ve got to help out. If you can touch and bring 10 people with you, then they bring 10 and then they bring 10 and now the community changes.”