Steve Kaplan

A critical clause in Memphis’ franchise ownership agreement has been activated this week, Jon Krawczynski of The Athletic writes. As we’ve written in the past, the second-largest Grizzlies shareholders will now have an opportunity to possibly buy out majority owner Robert Pera.

In short, Steve Kaplan and Daniel Straus will be presented a chance to purchase Pera’s stake (25-26%) at a price point of their choosing, a caveat being that when they submit their offer, Pera will have the option to instead buy their shares (13.5% each) at the same rate.

All eyes will be on how Pera handles the forced decision. As Krawczynski writes, Pera has been a notoriously absent owner and the franchise appears to be trending in the wrong direction.

The clause, then, marks an opportunity for Pera to cash out on what could prove to be a very successful investment considering that Kaplan and Straus will naturally look to dissuade him from matching and, of course, the rise in franchise valuations across the entire NBA in general.

While the Grizzlies were purchased for $377MM back in 2012, the recent sales of the Clippers and Rockets for north of $2B has obliterated the former precedent.

Pera will have 60-90 days from the day that the clause was activated which means that, barring any complications, we could see a resolution here by the end of January or February at the latest. The exact date that the clause was triggered is not presently known.

If nothing else, the activation of the clause could bring an end to a chapter of uncertainty for the franchise. This year especially, with a lack of familiar faces on the roster, a plethora of injuries and now a coaching change, any semblance of stability could bode well.

Whether that means Pera assumes a larger ownership stake or Straus and Kaplan unseat him altogether, however, remains to be seen.

As of this Thursday, a pair of Grizzlies minority owners will have the opportunity to make a play for majority ownership of the franchise, as Brian Windhorst and Zach Lowe detail in an ESPN.com report.

The unusual ownership situation in Memphis, which we outlined last month, allows Steve Kaplan and/or Daniel Straus, who each own about 14% of the Grizzlies, to make an offer to majority owner Robert Pera, who owns approximately 25-26% of the franchise.

If either Kaplan or Straus makes an offer during a 60-day window, which opens on Thursday, Pera would then have a 60-day window of his own to decide whether to buy Kaplan’s or Straus’ shares at their valuation, or whether to sell his own shares to them at that price.

Kaplan and Straus are under no obligation to initiate the process, but there’s a belief that one or both of them will do so, sources tell Windhorst and Lowe. Still, it’s possible that the process could take months to play out, with Straus and Kaplan standing by and watching to see what the other will do. If neither minority shareholder places a formal bid at this time, they’ll have another chance to do so in 2020.

It will be interesting to see whether either minority stakeholder moves forward with an attempt to supplant Pera as the Grizzlies’ controlling owner. The amount of a potential bid from Straus or Kaplan would be equally fascinating — Forbes’ franchise valuations earlier this year pegged the Grizzlies’ worth at $790MM, but those estimates are typically conservative. For comparison’s sake, Forbes’s valuation for the Rockets was $1.65 billion, and Tilman Fertitta bought the club several months later for $2.2 billion. The current Grizzlies’ ownership group bought the team for about $350MM in 2012.

Of the Grizzlies’ top two minority shareholders, Kaplan appears to be the more likely of the two to make a move, though that’s just my speculation. He has made an effort in the past to gain a more significant stake in an NBA team, but attempts involving the Hawks and Timberwolves didn’t pan out. Kaplan currently has a controlling interest in Swansea City, a Premier League soccer team in Wales.

While the Grizzlies’ ownership situation is somewhat uncertain going forward, the team is off to a great start on the court. Memphis is 3-0 so far, with victories over the Warriors and Rockets.

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.