Potential Ownership Change Looms For Grizzlies

At some point in October, there may be a transition in ownership of the Grizzlies but it’s complicated. This week, Haley O’Shaughnessy of The Ringer broke down a clause built into the original purchase agreement when majority owner Robert Pera and company took over the franchise from Michael Heisley.

In short, October 25 marks the fifth anniversary of the consortium of owners led by Pera assuming control of the team. Pera’s majority stake of the club, it’s worth noting, is a somewhat modest 25%.

Built into the terms of the agreement at the time was language that ensured that the partial owners with the second- and third-largest shares in the club could potentially buy Pera out at price of their choosing.

In response to the national article published at The Ringer, Chris Herrington of the Memphis Commercial Appeal clarified some aspects of the agreement. Per Herrington, who wrote one of the original articles that O’Shaugnessy cited, five years after the original purchase (and every three years there after), either Steve Kaplan or Daniel Straus – who each own 14.22% – will have the option to bid for Pera’s shares at a rate that they themselves choose.

At that point, the ball will fall into Pera’s court, who will then elect to either sell his stake at that price or buy the offering party’s stake at that same rate. Pera, therefore, can not trigger the event but his hands aren’t exactly tied either. The onus is on either Kaplan or Straus, if they so dare, to find a pricepoint that will dissuade Pera from simply matching and taking over their own shares.

As O’Shaungessy writes in her piece for The Ringer, the relationship between Kaplan and Pera can be described as strained and Kaplan has aggressively sought a controlling ownership of his own NBA franchise, ultimately coming up short in bids for both the Hawks and the Timberwolves over the years.

Complicating matters is the recent sale of the Rockets for $2.2B that will inevitably bump franchise values across the board up dramatically, including that of the Grizzlies’.

In 2012, the Grizzlies sold for about $350MM (per Marc Stein of ESPN). In 2014, following the sale of the Clippers for $2B, Forbes projected the value of the franchise at $750MM. That, of course, is expected to creep up ever higher in light of the Rockets deal.

There’s nothing set in stone that either Kaplan or Straus will pursue the bid for ownership, especially considering that it could backfire, but it’s something worth keeping an eye on at that fifth anniversary draws ever closer.

newest oldest

6 thoughts on “Potential Ownership Change Looms For Grizzlies

  1. “At that point, the ball will fall into Pera’s court, who will then elect to either sell his stake at that price or buy the offering party’s stake at that same rate.”

    Wait so Pera will have to either buy or sell? So like if he can’t round up enough money to buy at the price they choose he will be forced to sell his share? That’s pretty messed up. And how can the same process be replayed three years later if either Pera or the other guys are bought out?

    • Austin Kent

      Sounds savage but you have the right idea. On one hand Kaplan or Straus wouldn’t want to overpay but on the other if they lowball Pera, he can turn around and buy their shares at that rate.

      I don’t understand the context of the initial purchasing partnership enough to weigh in on why it was set up like that but it’s definitely interesting.

      I suspect that, if something happens at the five-year mark, the clause would be cleared but don’t quote me on it. The only hypothetical scenario in which the procedure could happen more than once would be if one of Kaplan or Straus chose to do this and then Pera bought them out.

      One interesting take from the Herrington piece that the O’Shaugnessy piece understates is this: Kaplan and Straus each decide whether to pursue this maneuver, they don’t have to go in on it together. If BOTH choose to do so, the highest bid will used and Pera will have to choose between taking both of their stakes or giving up his stake to the one who submitted the highest bid.

    • Austin Kent

      Yeah, he is. If I recall, it goes Pera > Straus = Kaplan > Around 20 partial owners, including JT.

Leave a Reply