Wednesday, August 22, 2012

What to Hope for: Three Endgames for the Griz Sale

Posted By on Wed, Aug 22, 2012 at 9:02 AM

Things seem pretty quiet on the Grizzlies sale front. Last week, the Commercial Appeal reported that prospective owner Robert Pera was seeking local partners in his bid to purchase the Grizzlies.

The implication is that potential local partners would want something more than just a minority share in a team whose profits are likely to be small in even the best of times, and that Pera might be willing to offer other incentives, including possibly re-instating the right of first refusal language local minority partners once had with Michael Heisley, or perhaps even strengthening the team's lease with the city in return for local buy-in.

This is a subject I wrote about — as a matter of informed speculation — in June, shortly after Pera's bid went public:

Instead of buying the locals out, convince them to buy back in. In exchange for locals purchasing a more substantial minority share, re-institute the old contract language giving locals matching rights on a future sale or some other considerations in terms of blocking a potential relocation.

So I'm glad to see that notion flower into something potentially tangible.

Around the time of the CA's Pera story, George Lapides reported on his morning radio program that former sports agent and Sacramento Kings executive — and, apparently, current Philadelphia 76ers minority owner — Jason Levien was involved with the Pera bid, joining former Houston Rockets business executive David Carlock on the shortlist of people who have been identified in conjunction with the Pera bid.

I haven't seen Levien's name show up in print in connection with Pera or the Grizzlies, but a source with some knowledge of the situation confirmed Lapides' report that Levien has been in town as a Pera representative. Another source identified Carlock as a leading Pera representative.

As the Commercial Appeal's story suggests, the Pera team has had meetings with potential local investors that includes members of the current minority ownership group as well as others who have not previously had a financial stake in the team. They've also been in talks with potentially major out-of-town investors.

My sense is that Pera's chance of finding local investors is good if he's willing to make these kind of implied concessions and if locals sense that his commitment to keeping the team in Memphis is genuine.

At this point, more than two months after the initial reports of Pera's bid, there are three possible end games in play: Pera could acquire the team in a partnership with local investors. He could acquire the team without local involvement. Or Pera's deal with Heisley could fall through.

While it's difficult to say at the moment which of these outcomes is most likely, I think we know enough to speculate on which scenarios would be preferential from the perspective of wanting NBA basketball to remain and thrive in Memphis. And here's how I'd rank them now, in reverse order of preference:

The Riskiest Outcome: Pera Acquires Without Locals —The Commercial Appeal has cited Pera associates insisting that Pera isn't seeking local partners because he needs them, but merely out of a desire to collaborate with locals for the good of the franchise. Obviously, there's going to be an element of spin to anything coming from Pera's camp, but my main takeaway from this is that the key word there is local.

The stock of Pera's tech company, Ubiquiti, has taken another big hit this month, falling to a low of 7.80 a share after a high of 35.99 earlier in the year. It was trading at 9.10 when the market closed yesterday. No one I've talked to thinks this volatility necessarily precludes Pera from acquiring the Grizzlies, but it's not irrelevant either.

I was skeptical of Pera as a solo purchaser — in the manner of Michael Heisley — from the outset, when the Ubiquiti stock was much higher, and am even more skeptical today.

If Pera acquires the Grizzlies, it will almost certainly be with some significant investors involved. If he seeks local investment and doesn't get it? Then I think that can't help but weaken the long-term commitment that Pera and, particularly, investors with no other stake in the city would have to the market. I fear this outcome would set up a potentially adversarial — or at least mutually suspicious — relationship between new ownership and the local business and civic community. It might not necessarily be a worse ownership situation than the current one — the lease is still strong — but it wouldn't necessarily be a better one.


The Risky But Potentially Advantageous Outcome: Pera Bid Falls Through — Initially, this would have been my favored outcome — not out of any particular concerns about Pera, but merely because I think local ownership would be best for the long-term stability of the team in Memphis, and I thought that the Pera bid falling through would force Heisley and the locals back to the table.

I still think that's the most likely result of Pera's bid failing. Michael Heisley is well into his 70s and, by his own admission, has had health problems. His descendants are apparently not interested in running the team. He's clearly ready to get out. And if two attempted sales fall apart, it would seem to weaken Heisley's claim that he can get a price that locals have, to this point, been unwilling to meet. Whatever resentments exist between Heisley's ownership apparatus and the locals, the Memphis group would still be the most likely buyer — and one the league would probably encourage.

But, while the Pera bid failing would create the best opportunity for full local ownership, it would also create some uncertainty — opening the door for new outside buyers (a return of Larry Ellison?) who might be a bigger threat to the team's local stability than Pera.

There's enough risk there that the best outcome for the city is probably for Pera and locals to come together.

The Current Best-Case Scenario: Pera Acquires With Locals — If Pera were to acquire the team with local buy-in and with incentives that otherwise strengthen the city's grip on the team (and I don't just mean a Ubiquiti internship program), it would create a better ownership situation than the team currently has while also, in a de facto sense, adding outside investment into the city.

Right, Pera and other investors would be paying Michael Heisley. But the more outside money that goes into the deal, the more local money is freed up for civic and philanthropic use. In this way, a strong partnership between Pera and local investors could end up being a “best of both worlds” situation for the city.

That is predicated, of course, on the notion that Pera would be a good majority owner, and we just don't know enough to make a judgement on that. Beyond the financial questions, there is some concern out there — based on his youth, the status of his primary business relative to this purchase attempt, and apparent discomfort with the spotlight — that Pera might be too na├»ve to successfully run a franchise. On the other hand, a Pera bid with local investors seems to carry the potential to create a better relationship between the team and the local business/civic community and also bring a more progressive, less personally erratic management style.


How long can this go on?: It's been more than two months since Pera's bid became official and the league's vetting has apparently been underway since the season ended. But how does the NBA vet a potential ownership group that's still in flux? In this way, at least, the Pera bid is reminiscent of the doomed Brian Davis/Christian Laettner purchase attempt. Even well after a public press conference announcing them as pending owners, Davis and Laettner were still courting investors.

For now, the process seems to be moving on two tracks — league vetting of what Pera has in place and Pera attempting to further develop his potential ownership group. At what point do those tracks come together? Will the NBA reach a point where they tell Pera he has enough and they approve the bid? Or, if what Pera has isn't enough, how long will the league give him to line things up? I don't think anyone was really expecting this situation to be resolved by this point. But the regular season begins in just over two months. The closer we get to that moment, the louder the call for clarity will get. n

Comments (2)

Showing 1-2 of 2

Add a comment

 
Subscribe to this thread:
Showing 1-2 of 2

Add a comment

ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT

© 1996-2014

Contemporary Media
460 Tennessee Street, 2nd Floor | Memphis, TN 38103
Visit our other sites: Memphis Magazine | Memphis Parent | Memphis Business Quarterly
Powered by Foundation