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Volume 21 No. 30
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Limited partners value Grizzlies at $1 billion

Owner Robert Pera must decide whether to buy out his partners or sell team.
Photo: Getty Images

The two top limited partners in the Memphis Grizzlies plan this week to deliver their long-expected valuation of the team to the owner, multiple finance sources said, bringing the uncertain state of the franchise one step closer to clarity. 

 

Team owner Robert Pera must then decide whether to buy out the two partners at that price, or sell to them at the value.

 

Steve Kaplan and Daniel Straus, who triggered the buy/sell option in November 2017, will value the club at just over $1 billion, the sources said, which essentially places a floor of $1 billion on all NBA team prices.

 

The sources would not go on the record because of the private nature of the transaction but were familiar with the sales process.

 

The Grizzlies declined to comment.

 

The Grizzlies are viewed as one of the least valuable NBA teams, so the Memphis price is akin to the minimum now for a team (the Forbes rankings, for example, lists the team 29th out of 30 in terms of total value, slightly ahead of the New Orleans Pelicans).

 

First Look podcast, with Grizzlies discussion at the 16:25 mark:

The NBA is awash in national TV money and rising popularity, the key underpinnings to the valuation of the team, which one source who had seen the team’s financial records said loses $20 million annually.

 

“Revenue growth, value growth and prestige are the three drivers for why it could be worth a billion,” said Don Erickson, managing director of Mercer Capital, which values sports teams.

 

When Pera bought the team in 2012, he valued the club at $377 million. The NBA had concerns about Pera affording the team on his own and suggested the unusual buy/sell option between Pera, and Kaplan and Straus.

 

At the time of the purchase, Pera put in $38 million of equity, and Kaplan and Straus put in $25 million each, a source said. Local limited partners put in $78 million, a source familiar with the deal said. The total purchase price includes equity plus debt.

 

The buy/sell option could be triggered after five years, and Straus and Kaplan did so in November. It was not clear why they decided to do so. Now, the next step occurs this week when they set a price.

 

Kaplan is represented by Inner Circle Sports, and Straus by Jac Sperling of Grit Rock Ventures, sources said. Inner Circle declined to comment, and Sperling did not reply for comment. 

 

Pera is reportedly represented by Evolution Media Capital. EMC did not immediately reply for comment.

 

Pera is founder of telecommunications firm Ubiquiti Networks. Shares of the company traded around $12 in 2012 when he bought the team, and last week were near $70. Pera owned 56.2 million shares, as of the October 2017 proxy. Those shares would be worth nearly $4 billion today.

 

Pera has been largely an absentee owner in Memphis, leading to local concerns he might try to move the team after its lease runs out at the FedEx Forum in a few years.

 

Most observers of the Grizzlies process expect Pera to buy out Kaplan and Straus, but not necessarily at the value they place on the team. If he instead sells his interest, then Kaplan and Straus would have to decide between them who is the control partner.

 

A source said there is a process already in place to determine which of the two would become owner of the team if Pera sells his team shares.

 

It could not be determined how much time Pera would have to decide to buy out his limited partners or the timeline to any decision.