Could the Grizzlies Be the Next NBA Team to Be Sold?

Posted on: September 8, 2017

 

Texas billionaire Tilman Fertitta called his pending ownership of the Houston Rockets a “dream come true” when the sale was announced Tuesday. He probably wasn’t the only one who felt that way. Any tech mogul, oil tycoon, or Large Son beneficiary who holds a stake in an NBA team was likely pleased to see the record $2.2 billion price tag Fertitta paid for the Rockets. Except, maybe, Memphis Grizzlies owner Robert Pera.

In October, Grizzlies minority owners Steve Kaplan and Daniel Straus are eligible to purchase control from majority owner Robert Pera, as outlined in an ESPN report two springs ago. Why October? Kaplan and Straus will have the option thanks to a “buy/sell” clause that the stakeholders agreed to when they purchased the franchise in October 2012.

Making matters more interesting, there’s long-reported turmoil between Pera and the minority owners over their respective shares. Could the Grizzlies be the next NBA team to sell? Here’s an overview of the situation leading into the buy/sell option deadline.

What is ownership feuding over?

Per an ESPN report from March 2016, minority owner Kaplan wants to own a franchise of his, uh, own. He tried multiple times to move on from the Grizzlies — first losing out on the Atlanta Hawks to Tony Ressler’s ownership group in 2015, then moving on to discussions with the Minnesota Timberwolves in November of that year.

Wolves owner Glen Taylor was seeking someone to invest a minority stake in the team to start, with both sides intent on a gradual transition to controlled interest for the new owner. Before Kaplan, the late Flip Saunders was on that path, having bought an ownership share in 2013 with plans to take over the Wolves before his death in October 2015. (Kevin Garnett, who made it known in 2014 that he wanted to one day own the Wolves, was supposed to partner with Saunders in minority ownership. When KG agreed to come back to Minnesota for his 20th season, that was “the plan.” Without Saunders, Garnett’s goal was cut off — thus his strained relationship with the team.)

Enter Kaplan, who reportedly struck the same “riding shotgun first” understanding with Taylor after Saunders died. The former was going to invest in a 30 percent stake, and planned to tag along with Minnesota that season during team travels and get involved in front-office decision-making while waiting on the deal to close. All Kaplan had to do was sell his minority share in the Grizzlies. The pickle was Pera: He and Kaplan reportedly feuded for months over the terms of the buyout, and Kaplan’s plans to shadow Minnesota’s season were scrapped. A year and a half later, Kaplan has still not sold.

Who owns how much of what?

According to a report in the Memphis Flyer in 2012, when the sale happened, Kaplan owned 14.22 percent at the start, while Pera owned 25 percent. Straus owned another 14.22 percent, and the rest was divvied up among another 20 parties.

How can a majority owner have less than a 30 percent stake?!!

When Pera was trying to buy the Grizzlies, the stock for his newly public tech company, Ubiquiti Networks, tanked from $34 a share to $9, according to ESPN. In an effort to fulfill his lifelong dream of owning a team (this is turning out to be a pretty common lifelong dream despite the exclusivity and price that come along with it), Pera recruited nearly 20 other minority owners to join him in the sale, including Justin Timberlake and Peyton Manning’s wife, Ashley. It weakened his share, but after paying the reported $45 million for 25 percent, Pera became, ever so technically, a majority owner.

What kind of return on investment are we looking at here?

After the Clippers sold in late 2014, Forbes increased its estimation of Memphis’s worth from $453 million to $750 million. As of February 2017, that became $790 million. Houston’s $2.2 billion benchmark will bump that figure even higher.

Why doesn’t Pera just buy out Kaplan?

Even with less than 30 percent ownership, Pera is the controlling owner. In 2016, the Memphis Business Journal estimated that the 14.22 percent share that Kaplan originally purchased for $25 million was then worth around $110 million. Again, the Rockets sale likely made that stake even more valuable today. Why would Pera want to dish out that kind of extra money to buy out Kaplan if he’s already the majority owner?

OK, so what are Pera’s options if the minority owners do make him an offer to buy the Grizzlies?

Pera can either sell to Kaplan and Straus or buy their shares at the price set by their given evaluation. Anticipated inflation caused by the Houston sale complicates whatever price the minority owners would’ve set before, and their estimation is crucial. If Pera cashes out by surrendering his stake to Kaplan and Straus at their own costly estimation, they’ll have to scrounge for that money and pay up. If the two minority owners offer too low in the hopes that they could afford to buy out Pera, he could just take over their shares at that price, possibly leaving Kaplan without the necessary bank to pursue ownership elsewhere.