Texas Chuck wrote:K_chile22 wrote:So if I'm following this correctly, Lore and A-Rod already bought shares of the team, got the rest locked in at an sweet outdated evaluation that they could pay later (but before March 27th), acquired funding, then just... Let the clock run out????? Wtf
They don't have the money and couldn't get it right? Didn't we just see something last week about a lender dropping out? Whalers will have more details because he's been suggesting this result almost from the beginning.
For what it is worth, I've been told I know nothing repeatedly about how Lore and ARod are super rich and all is good, so this is all probably wrong.
But:
1) I don't know how this will play out in court. I have speculation but that is just that.
However:
2) A-Rod and Lore combined did not have the 80% of 1.5B to invest solely in the team, the deal always relied on significant leverage.
So many people kept saying things like Lore has 4B and ARod has 2B and the two can easily do it, they just need to decide to use checking or savings and rich people like leverage. The national media is lying because Twolves lol. However, looking into the details to get Lore at 4B you had to count about 3b that his partners made on deals, it didn't add up ever. The NY post was writing about A-Rod not having the money in 2020. Even if you had Lore at 1B and A-Rod at 500m, to get there they would have had to liquate everything and have massive taxes etc. The deal was always speculative.
3) The structure of the deal was set up as speculative. Lore and A-Rod got a series of options. If the team lost 1b in value, they could walk away after the first 20%, or after the first 40%. If they couldn't get the cash or the value did drop, Glenn just overcharged for the first 20% based off what minority ownership was worth.
4) Minority ownership was so upset they couldn't get the 1.5B valuation for their ~20% when the deal was struck, Glenn was sued:
https://tcbmag.com/timberwolves-minority-owner-cries-foul-files-suit-over-proposed-sale/For those not interested in clicking, the minority owner at 17% had the right to sell at the same time as Taylor for the same price per share as Taylor. And Taylor claimed that the new deal didn't trigger that clause yet, as he wouldn't sell majority ownership until the 3rd option was exercised. Taylor actually won in court. But this really handily proves that the minority ownership was overpriced at the time because the price included a path to majority ownership, something Orbit didn't have.
5) Here is from an article on that ruling:
Orbit insisted that the pending sale was fraudulently designed to avoid triggering this provision. If approved by the NBA, the sale would initially involve a transfer of 20% of the franchise—the sale date was June 30 but that date has passed and so will be adjusted—with Purple Buyer Holdings able to buy an additional 20% by Dec. 31, 2022, and another option to buy 8.2% from Taylor, combined with 31.8% limited partnership interests, by Dec. 31, 2023.
https://www.sportico.com/law/analysis/2021/minnesota-timberwolves-arod-1234633393/6) Based off that and the final option of the deal falling apart (for now at least), the current ownership should be:
40% new limited partners from Lore and Arod group (which includes other investors)
31.8% Original limited partners
28.2% Taylor
Feel free to look closely at that, and if somehow I missed some weird minority sale transfer last 2 years let me know.EDIT: Looks like the deal was structured so some of the minority interests may have been sold in option 2. If so it could instead be something like:
40% new limited partners from Lore and Arod group (which includes other investors)
11.8% Original limited partners
48.2% Taylor
(Or somewhere in between those two extremes)
Source:
~7) I believe there was something I saw that was something like Lore + Arod = 37%, and other = 3%, but I'm not digging for it now so this is a lot more speculation. {Also, I would assume it would break down something like Lore 20% Arod 17% or whatever, but again this is not fact checked at all, thus the ~ out front.}
8) Carlyle pulled out March 19th/20th. Board of Governors meetings ended March 19th (they lasted two days). If anyone doesn't think that timing is important, I'm not sure what to tell you. Obviously there are a few possibilities:
~8a) Carlyle randomly has some conflict of interests that only Carlyle has and could not be divested or held in separate enough entities to make the NBA comfortable.
This is what Axios reported:
The two sides reached a stalemate in negotiations around two weeks ago, with a source saying something else in the firm's vast portfolio ran afoul of its institutional ownership rules.
https://www.axios.com/2024/03/19/nba-alex-rodriguez-carlyle-minnesota-timberwolves-deal~8b) However, there also have been rumblings about the level of debt and the type of debt involved. Carlyle's financing has always been referred to not as an equity stake, but as structured finance. It would not be uncommon for this to take some form like a bond with some equity component versus a straight equity investment, meaning the new owners would not just be picking up the existing team debt, but also adding on debt in a manner that could make the rest of the NBA uneasy.
For those thinking that NBA teams only go up in value and so are great investments always and no need to worry, look back at what happened with the New Orleans franchise. It was effectively repossessed. Or look at the NBA borrowing program, whereby the entire NBA has set up a loan program so team owners can borrow at better rates than they would individually. There is not a small amount of leverage in some corners of the league, and it has absolutely been worrisome at points. Adding what might be one of the poorest owners after they add leverage to a team that might be forced to be dismantled from a championship contender because of tax and money concerns would give some pause.
9) Carlisle was a huge amount of the round, expected to put in 300m of the amount of money, or almost half of the stage. If it were a straight ownership at the initial team valuation, Carlyle would have owned 20% of the team. As it was structured, it was a ~13% ownership {Based off a 2.4b valuation I have seen sited, which I can add here later if needed}.
~9b) And if you believe the structuring would have been such that Carlyle took a 10% per year payment, then you are talking about 30m out of the team each year, either from team profits or extra borrowing along the way. Feel free to redo at 8% if you want to make it 24m instead. {Also, if you want, speculate that Carlyle had the ability to go from 13 to say 15% ownership with an option attached to the structured deal. Or perhaps up to 20% that is the maximum allowed in the NBA for PE. Such a structure would not be uncommon and actually be pretty easy to accommodate for a wide variety of reasons}.
10) Either way, the NBA absolutely has let word of mouth go out that Carlyle wasn't rejected. Just not accepted... read into that however you feel you should.
11) The new financing was lined up very fast, announced 3/20.
https://www.sportico.com/leagues/basketball/2024/a-rod-marc-lore-tap-dyal-to-complete-sale-timberwolves-1234771796/12) The new deal had a different structure than the old proposed deal with Carlyle.
Existing partners within the incoming ownership, including former Google CEO Eric Schmidt, increased their initial investment to complete the deal, according to a source.
https://www.sportico.com/leagues/basketball/2024/a-rod-marc-lore-tap-dyal-to-complete-sale-timberwolves-1234771796/~12b) I haven't seen if it was just a borrowing decrease in essence, or if Dyal did not have claims on cash flow that I assume Carlyle had.
13) It was stressed that Dyal was a preapproved buyer. This is really strange wording. Even if the NBA has approved you as an owner multiple times before, you still need to be approved again whenever there is a new transaction. If Josh Harris sells the Sixers and in a decade tried to buy the Nets, that isn't just skipping an NGA vote because he was once approved before that.
To me this either suggests that
~13a) There was concern enough with a deal not being accepted again that the Lore ARod group were trying to smooth over fears in advance.
~13b) The Lore ARod group new they had already reached a status where it was going to be litigated about whether a deal already was approved, so tried to claim the partners were 'preapproved' in advance ahead of arbitration on the deadline issue.
14) The Dyal capital is itself an interesting read for those unfamiliar:
See for instance:
https://www.sportico.com/business/finance/2023/dyal-homecourt-nba-assets-1234709900/It is a fund that invests in the teams with clearly the wobbliest ownership structures (Kings, Hawks, Phx before the sale, maybe Minnesota now), and raised 1/10th the money they tried to. They also have to give some profits back to the league, so feel free to speculate on how the NBA feels about them coming in based off all that.
I think this about gets up to now. Avoiding too much speculation on where we fully go, I will add that the current structure might be actually promising for the team and worrying about its payroll/taxes, because
15) If Taylor retains his
majority controlling stake, the structure of cash calls on owners will be very interesting. We have seen more than a few instances where controlling owners rack of giant tax and payroll bills that wreck their minority investors and the minority investors are for the most part helpless except to fund the losses or face shareholder dilution. This was how the Expos were 'purchased' to a wide degree, wrecked havoc on Nets investors, and the Kings and Hawks I believe have had minority owners so upset, it has reached national/shams/woj level stories iirc.