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The Houston Rockets and Brooklyn Nets have agreed in principle to a trade that sends former NBA Most Valuable Player James Harden to the Nets for multiple players and draft picks, according to ESPN.
Harden, who will be reunited with former teammate Kevin Durant in Brooklyn, has expressed his frustration with the Rockets in recent months, before eventually asking the team to trade him.
The trade is monumental because of Harden’s massive $41 million salary and the fact that league MVPs are rarely traded. But the reasons for the trade may not be entirely basketball-related. The origins of the trade may actually trace back to the struggling restaurant industry and the COVID-19 pandemic.
The pandemic hurt the finances of the NBA, forcing the league to cancel regular season games and construct a bubble in Disney DIS, +0.07% World to play its postseason. The NBA fell short of its revenue projections by $1.5 billion, according to the AP.
Similarly, the pandemic has crushed the restaurant industry leading to layoffs in the millions, higher operating costs due to increased safety measures, and an overall smaller customer capacity due to COVID-19 restrictions. The National Restaurant Association estimated $240 billion in restaurant sales will be lost this year to the pandemic — over 110,000 restaurants and bars have closed due to the coronavirus outbreak.
Some restaurants have struggled more than others based on the types of food it serves, delivery options and geographical location.
At the intersection of the restaurant industry and the NBA stands Houston Rockets owner Tilman Fertitta.
Fertitta is the sole owner of Landry’s, Inc., one of the biggest restaurant corporations in the United States, which operates over 600 properties including the popular Bubba Gump Shrimp, Del Friscos and Joe’s Crab Shack.
He purchased the Rockets in 2017 for a then-record $2.2 billion.
Landry’s business has been devastated in recent months. Fertitta estimated his restaurant empire was losing about $1 million in sales per day due to the coronavirus pandemic. The losses led Fertitta to take out a $300 million loan at more than 10% interest for his business, according to ESPN.
Fertitta is known in NBA circles for stating publicly he will spend money to improve the Rockets roster, but clearly Harden didn’t think he did enough.
Also, Harden has been disgruntled for months — he didn’t play in the preseason because he was unhappy with the team’s direction. Harden even came out after Tuesday’s Rockets game and said, “This situation is crazy. It’s something I don’t think can be fixed. Thanks.” The comments led the team to tell him not to show up to future practices.
Recent reports from The Athletic indicated Fertitta was “hellbent on reducing payroll and getting the Rockets out of the luxury tax business for the foreseeable future.” The luxury tax is an added punitive tax NBA teams must pay if they spend over a certain payroll threshold.
That payroll reduction appears to have come in the form of trading away former league-MVP James Harden, who still has multiple seasons left on his contract. Harden’s annual salary of $41 million for the 2020-2021 NBA season is tied for the largest contract to be traded in the history of the NBA. Fellow high-priced player Russell Westbrook was traded away from Houston just before the NBA season began.
While it’s true that NBA rules stipulate the Rockets must take back high-priced salaries in the Harden trade, the combined salaries coming back to the team are less harsh annually when accounting for contract length and can be traded again in future cost cutting trades. The total outgoing salary of the trade for Houston was $132.8 million, while the total incoming salary was $32.3 million, according to contract data from Spotrac.
Representatives from the Houston Rockets and Landry’s, Inc. did not respond to request for comment on this story.
During the COVID-19 pandemic Fertita isn’t the only NBA owner who has seen significant losses in his non-basketball businesses. Miami Heat owner Micky Arison, chairman of Carnival Corporation CCL, -0.15%, the largest cruise operator in the world, saw his company’s stock drop 58% in 2020.
On the opposite end of the spectrum, Brooklyn Nets owner Joe Tsai has seen his net worth increase dramatically due to the coronavirus pandemic. Tsai is the co-founder and Executive Vice Chairman of Alibaba Group BABA, +4.30%, whose stock increased over 7% in 2020. His net worth has increased over $2 billion since 2019.
