SBD/March 26, 2012/Facilities

Grizzlies' Contract With City, County Would Be Difficult To Break

Until '21, lease threatens court intervention should Grizzlies owner want to break it
The Grizzlies' lease with the city of Memphis and Shelby County to operate FedExForum is a "difficult contract to break," according to a review of the team's agreement and a subsequent '05 bond issue cited by Kyle Veazey in a front-page piece for the Memphis COMMERCIAL APPEAL. Veazey noted though the terms of the deal give "the team autonomy in running an expensive public building, it prohibits a move" out of the facility before '21, and "continues to prohibit it after that date if the team is successful at the box office, and gives the local governments options to save the team from a hypothetical move if it isn't." Until '21, the lease also "threatens court intervention should the owner want to break it." The lease contract, which runs through '29, contains a clause stating "it can't be broken in the first 17 years of its existence." Additionally, after '21, the contract "remains intact unless attendance falls below some prescribed marks." Three figures are at play, and they are an "average paid attendance" of 14,900; sales of the largest 64 suites; and club seat season-ticket sales of 2,500. If "any of those are not met" in the '19-20 season, a window would "open by which the owner could -- but not necessarily would -- break the contract." Veazey also noted departure would "come at a cost." In '21, it would be $63.2M, and it "step-ladders its way through" the '27-28 season, at which point it would only cost $8.4M to leave. If a potential owner intended to relocate the team, the person "has to let the city and county know -- both when there are 'meaningful negotiations' and when he's 'prepared to accept an offer.'" At that point, the city and county would be given as many as 3 1/2 months, "depending on when the notifications came, to buy the team on those terms." The "right of first refusal" clause could mean that the "city and county could arrange a purchase by another owner" (Memphis COMMERCIAL APPEAL, 3/25). In Memphis, David Williams wrote the lease agreement for the local government is "seriously good, considering no more leverage than the city and county had when negotiating it." Williams: "Does all this mean the Grizzlies definitely won't move before 2021? No, of course not." Oracle Founder & CEO Larry Ellison, who has expressed interest in buying the team, could "just start writing crazy checks." But the cost to "wrest away the Grizzlies" before '21 seems, if "not outright crazy, then at least well beyond the fiscally prudent" (Memphis COMMERCIAL APPEAL, 3/25).
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