Magic Johnson has magic touch in business, too

ByMatt Krantz, USA TODAY
December 8, 2008, 11:48 AM

BEVERLY HILLS -- Almost nobody would question Earvin Johnson's skill on the basketball court. But in his second career as an entrepreneur, there were doubters from the start.

Johnson, best known by his nickname "Magic," remains one of the best players to ever don the gold and purple Los Angeles Lakers uniform. Johnson was the star point guard and a key to the Lakers' domination in the 1980s, helping to hand the team five NBA championships. An oversize copy of his No. 32 jersey hangs above the Lakers' home court.

But despite his towering 6-foot-9-inch stature and vise-grip handshake, at first glance, Johnson didn't seem like such a natural in the boardroom.

Executives he pitched on a business idea developed when still a player — opening high-quality movie theaters and restaurants in inner-city neighborhoods — often didn't see what he saw. Instead, "they saw me as just a basketball player," he says from inside his modestly decorated offices in Beverly Hills.

In his recently released book, 32 Ways to be a Champion in Business, Johnson wrote that executives would "hand me a basketball and ask for an autograph, but they did not want to hear my pitch for investing in neighborhoods populated by blacks."

Johnson, 49, isn't your typical buttoned-up executive. He sits comfortably reclined in his chair, speaks casually, and freely flashes his trademark smile. Retired from basketball following his stunning 1991 announcement that he had contracted HIV, Johnson has focused on succeeding in a business world where many former athletes have failed.

But Johnson says he had a dream and a concrete plan. While traversing the urban hearts of cities in team buses to basketball games, he saw boarded-up businesses and a lack of retail outlets. He told himself he'd help revive some of those neighborhoods when he could, he says.

And that's the magic of Magic. While other executives steered clear of urban areas, Johnson saw opportunity. His business plan, his overtime performance after basketball, was to bring established retail brands to the inner cities by tailoring them to the residents.

From experience comes business

It's that niche that has morphed Magic Johnson from a name on the back of a basketball jersey into a brand in its own right. Magic Johnson Enterprises is a private company that owns or helps operate companies ranging from more than a dozen 24 Hour Fitness centers, more than 100 Starbucks locations, food service companies, a T.G.I. Friday's in Los Angeles and other businesses across the country. The company also has a private investment arm, with $1 billion in cash, which Johnson says will help the company expand, especially now that real estate can be bought at low prices.

It's just as Johnson saw it. The inner-city market was a big opportunity for someone with the knowledge to go after it, he says. "I knew that because I lived it. I just turned it into a business."

It's hard to summarize the swath of Johnson's businesses, as they range from food service to job placement and coffee. But the common theme of most is the marriage of his name alongside another well-known brand. Together, Johnson and another company enter urban markets that some have long avoided.

The Magic touch is taking chains with a familiar formula that plays well in the suburbs, and tailoring them so they fit the customers and tastes of the inner city. Rather than having to drive to the suburbs, residents can stay put and frequent Johnson's local twist on a national chain. Completing the circle, Magic Johnson Foundation, Johnson's philanthropic arm, invests in the community by building computer centers and other social services, helping to build goodwill with the residents.

Johnson is scarce on the details on precisely what the things are that he does to make his version of chains different that those in the suburbs, or in his words, "Magicize" it.

But he uses an example to describe how the first Starbucks he opened in Los Angeles is different than others in the sprawling chain. Johnson noticed many regular customers at the Starbucks gathered to play chess. It was a scene reminiscent of the casual chess tournaments that take place in inner-city parks.

So Johnson bent the corporate rules to make the chess players more welcome. After getting approval from Starbucks, he installed several picnic tables outside that not only captured the vibe of the chess tournaments but also let the local residents know they were welcome. Now, the Starbucks draws a loyal following of chess players, who lure friends and other chess players, he says.

Burger King restaurants that Johnson owns are also a little different. Customers hear Magic Johnson's voice on the loudspeaker in the drive-through, instead of a canned anonymous voice.

In plain sight

The fact the inner cities could support mainstream brands may seem evident now, but it was practically revolutionary when Johnson started. Getting investors in the early days of the business was challenging, especially following the riots that tore up Los Angeles following the 1992 Rodney King trial, he says.

Despite the success of his movie theater in Los Angeles, Johnson knew he needed more money to expand to other businesses.

His advisers in 1995 suggested approaching California's massive public pension fund, the California Public Employees' Retirement System (Calpers), for $150 million to develop his first non-theater business, what would be his first Starbucks and T.G.I .Friday's near Los Angeles' South Central neighborhood. He didn't quite get the answer he wanted, though.

Officials at Calpers wanted to know why, if his idea was such a good one, no one else was doing it. That stumped Johnson. "I couldn't answer the question," he says. He'd wondered himself why even the largest U.S. companies were avoiding big potential profits to be made serving urban markets filled with consumers ready to spend but with nowhere to go.

Proof of vision

Eventually, Calpers got on board with $50 million to start. That money helped Johnson finance his dream and show that the concept could work. Another $100 million from Calpers followed shortly after. Johnson's business "has proven to be a successful model," says Calpers spokeswoman Pat Macht.

Johnson is also quick to see opportunities. After several companies called asking for help on ways to tap the inner-city market, he created a consulting and licensing business.

Best Buy, for instance, in February 2008 turned to Johnson for help on operating stores that appeal more to the urban market. "We believe our relationship with Magic Johnson Enterprises will help us learn and apply fresh perspectives, which can strengthen our business and the communities where we have stores — it makes good business sense," the consumer electronics retailer's spokeswoman Dawn Bryant said in an e-mailed response.

Despite the challenging economy, Johnson says some of the best opportunities are ahead. Magic Johnson Enterprises' capital management business, for instance, raised, but didn't deploy, $1 billion last year. "Cash is king," he says, adding that he's constantly approached by real estate investors looking to sell choice properties. Downtown areas are especially ripe for investment, he says.

That's not to say it's nothing but net for Johnson, the businessman. Foot traffic is falling at his Starbucks stores as many consumers, not just in urban markets, cut back, he says. Consumers are seeing Starbucks "as a luxury. (Consumers) may only go once a week or not at all," he says. Starbucks warned on Dec. 4 that sales at stores open a year or more have fallen 9% in the U.S. so far in the quarter started in late September.

Johnson, though, has faced difficulty before, and that hasn't stopped him. Starbucks just needs to reconnect with what it does best, he says, and stop "trying to be everything to everybody."

That's really his key advice to entrepreneurs, and something he follows himself. Pick a niche, something you can be good at, and don't stray. "You need to play to your strengths," he says. "My strength is urban America."

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