This piece, originally posted on January 30, 2013 following Aubrey McClendon’s retirement from Chesapeake Energy, is being republished following his death on March 2, 2016.
Tuesday’s news that McClendon is retiring as CEO of Chesapeake Energy Corp. is the kind of thing that only makes waves nationally if you’re an energy or financial news junkie. But in Oklahoma, it’s the kind of news that dominates Twitter feeds for a while, comes up at family dinner tables and is generally the talk of the town. McClendon, or just Aubrey around here, is unique among the various local luminaries. He’s celebrated for his undeniable philanthropy and role as a true visionary in a core economic sector — a man who deserves as much credit as any other individual for his role in the ongoing economic renaissance in Oklahoma City and the state at large — but he’s also a bit of an enigma. There has always been a sense that Chesapeake’s rise, and McClendon’s, had a little bit of alchemy to it, some smoke and mirrors. Even fellow wildcatters think of him and his company as risk takers. So opinions on the man vary, but everyone knows who he is, and everyone has one.
And anyone who watches Thunder basketball knows it’s also hard to overstate the depth and breadth of the links between McClendon, Chesapeake and the team. So if you’re wondering if his departure from the company he founded will affect the Thunder, the answer is yes. But only time will tell how big of an impact it has.
To begin to describe how closely the Thunder and McClendon are tied, you don’t even really start with the fact he’s got the biggest ownership stake in the team than anyone other than Clay Bennett. You start with the story of the newest energy boom in Oklahoma City. (And I promise I’ll be brief — this is a basketball blog after all, of course, and many of you Oklahoma-based Thunder fans already know the story.)
The oil bust and savings and loan scandals in Oklahoma City in the 1980s form the valley after which today’s peaks have followed. The city was depressed, financially and emotionally. Not long after, McClendon and Tom Ward founded Chesapeake Energy. The company, and McClendon in particular, grew at an astronomical rate over the years thanks to an insatiable desire for land, truly innovative and game-changing drilling techniques and, as it turns out, what can politely be called creative accounting. But mostly, the success was due to the land acquisitions and fancy drilling that allowed Chesapeake to cheaply access oil and natural gas that was previously too difficult and costly to get out of the ground.
Over time, Chesapeake and other Oklahoma City-based energy companies like Devon, and the men at their helms, became the local area’s champions, cheerleaders and benefactors, all rolled into one. When other companies like Conoco-Phillips were abandoning Oklahoma for Texas and other locations, the likes of Chesapeake and Devon were doubling down on their commitments to the state. To say that McClendon and his peers have been intensely loyal to Oklahoma and Oklahoma City in particular would be an understatement.
So you’re a rich guy who loves his city and state, and they both need help, and you also would like to benefit from some of the things other rich guys in other cities do. What do you do? You start by keeping your company’s headquarters in your home state, even if there are benefits to moving. You hire every local worker who’s qualified, pay them well and shower them with other benefits and perks. You import bright minds from around the world to work for you, and their salaries help fuel a boom in the local economy. Your company’s success and role as a primary employer leads to a boom in related industries, where the dollars for the products and services they sell are imported from other places to the benefit of your home town.
Don’t have high-quality retail for you and your employees to spend all that money? Build an upscale shopping center. Upset that your city can’t seem to lure a Whole Foods, when that’s not a problem in Tulsa or Dallas? Subsidize one. Need new digs? Build an elaborate campus in an area that could use a little bit of rejuvenation, make it a living city where your employees want to spend their entire day, and make it a destination for everyone else during the holiday season. Like good food? Build some sweet restaurants with your own money. Want to help out the less fortunate in your city? Donate a bunch of money, constantly, and build a “community plaza” to house nonprofits that need some space.
You and your state’s sports fans have a taste for NBA basketball thanks to Hurricane Katrina, but you don’t have a team to call your own? Buy one. And turn it into a perennial contender. And keep ticket prices reasonable.
And that’s why he’s just Aubrey in Oklahoma. Everyone usually knows who the rich guys are in a given area. But when one of them has a relatively rare name, has a thoroughbred of a company and is as generous as he is within your local community, you don’t need his full name to talk about him. He’s just that big of a deal. In Facebook posts and tweets and blogs and lots of other places, he’s just Aubrey. That’s all you need to say. Clay Bennett may be a more recognizable name to NBA fans than Aubrey, but around here, Aubrey is more famous.
In much the same way that McClendon lavished Oklahoma City with the benefits of his company’s success, Chesapeake has wrapped the Thunder in its warm embrace. Obviously, the Thunder play in Chesapeake Energy Arena, for starters. But it goes deeper.
It’s impossible to watch a Thunder game on Fox Sports Oklahoma without seeing Chesapeake commercials — and the commercials from Devon, SandRidge and the other biggest team sponsors. Chesapeake’s logos were all over the arena even before they bought the naming rights. They own a massive chunk of season tickets, and are generous in making them available to employees and others. And that’s all separate from McClendon’s personal contributions to the team’s balance sheet as the No. 2 guy in the ownership group. He’s as key as anyone at the highest level of the organization in deciding how much money Sam Presti and his team will have to spend in a given season.
But there are some indications that Chesapeake’s sponsorship deal with the Thunder is a little sweeter than it otherwise might be. This CNBC report details Chesapeake’s corporate tickets, for example, showing that the company has an unusually large number of season tickets, and it could help control the market for Thunder tickets in general. And it raised at least a few eyebrows when Chesapeake was the company that swooped in to buy naming rights to the arena, which had no sponsor for an entire season. (Can’t get the naming rights deal you want for your new NBA team’s arena? Have your own company offer what you were looking for.)
It reminds me of the way some European soccer clubs get around rules that are meant to ensure they don’t spend a lot more than they make, which is how the rich guys who own them have been able to make once-moribund clubs become world beaters. Take Manchester City FC in the English Premier League — coincidentally owned by another energy company fat cat. When the team needed more money, the owner had the airline he’s associated with hand over a ridiculous amount of money in an obviously inflated sponsorship deal. Problem solved.
So is the Thunder on the verge of losing the team’s sugar daddies, McClendon and Chesapeake? It’s hard to say. But it would be risky to bet that things will go on unchanged.
The troubles of McClendon and Chesapeake have been well-documented. I would venture to guess that 2012 was the worst year of McClendon’s life, at least professionally. The creative accounting created a company, and a man, that were asset rich and cash poor. Essentially, Chesapeake and McClendon were going to struggle to pay their bills without radical change, and the more people found out about how Chesapeake and McClendon got into the situations they were in, the more skeletons they were able to discover in closets, some of which few knew existed until recently.
Still, it’s not like McClendon and Chesapeake are going to be homeless. McClendon’s worth may have declined by about $500 million in the last couple of years, but that’s easier to stomach when that means you still have another $500 million leftover. His severance package alone could be worth as much as $50 million, NewsOK reported. And Chesapeake has largely completed the asset sales they needed to stay afloat, and they still have some of the choicest tracts of land in North America as far as energy production is concerned.
But Oklahoma City is already feeling the pinch. Chesapeake is going to cut its charitable giving in half. Everyone knows someone who works for Chesapeake, and we’re all at least a little worried about them personally and about the company as a whole. When there’s any risk at all of a company like Chesapeake going through hard times, the entire community will at least keep an eye on it, wondering what the consequences will be.
So in that environment, it’s pretty easy to imagine that the Thunder are going to feel the effects of McClendon’s departure and Chesapeake’s transition in one way or another. When a company is struggling as publicly and significantly as Chesapeake is, it’s reasonable to assume that the consequences will extend to every corner of the company’s activities.
Few people really know how much Chesapeake contributes to the Thunder’s balance sheet. (If you are one of the few and you’re feeling talkative, please drop us a line!) Probably only McClendon knows if this means he’ll have to sell all or part of his stake in the team. It’s impossible for any of us to know what the man’s inclination is.
And some of these issues can resolve themselves independent of Chesapeake and McClendon. If he has to sell his share of the team, surely there are willing buyers with deep enough pockets to carry on his role. If Chesapeake has to release some of those corporate tickets, the season ticket waiting list can be tapped pretty easily.
Nonetheless, it’s hard to forget that the Thunder are the team that made the choice to trade a star player instead of paying him a few million more dollars and the accompanying luxury tax penalties. OKC may not exactly be pinching pennies, but it’s never going to have a Lakers-like payroll either. So what’s happening to McClendon and Chesapeake is worth keeping an eye on. That it will have at least some effect on the Thunder is a given. There will be plenty of people watching to see just how big, and just how adverse, that effect will be.