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In a ruling that will help Purple Buyer Holdings, LLC—led by Alex Rodriguez and technology entrepreneur Marc Lore—join the ownership of the Minnesota Timberwolves and Minnesota Lynx, Judge Eric Tostrud on Thursday dismissed a lawsuit seeking to halt the sale.
Orbit Sports, controlled by New Jersey real estate mogul Meyer Orbach and owner of more than 17% of the two teams, sought a restraining order in Minnesota’s federal district court. The order would have blocked majority owner Glen Taylor from proceeding with the pending $1.5 billion sale.
The key issue in the case: When would Taylor turn control of the franchises over to A-Rod and Lore?
In his ruling, Judge Tostrud emphasized that as of the first date of a potential multi-step transaction, there will be “no definitive agreement to transfer a controlling interest in the teams to Rodriguez and Lore.”
This interpretation was crucial in rejecting an argument proposed by Orbit. It insisted that, pursuant to a partnership agreement, it possesses “tag-along” rights in a sale. Under those rights, if Taylor agrees to transfer his controlling interest in the teams, Rodriguez and Lore would either have to buy out Orbit or Taylor would have the duty to do so.
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.
While Taylor, 80, would maintain his title as controlling owner in this initial phase, Rodriguez and Lore would ascend to seats on a so-called “Advisory Board.” This board would enjoy significant power over franchise decisions. Rodriguez and Lore would also be designated as “Alternate Governors” of the teams, meaning the duo would represent the teams with the NBA and WNBA. This arrangement, Orbit charged, seemed like Rodriguez and Lore would, in fact, be in charge of the team while Taylor would maintain more of a figurehead or ceremonial role.
Judge Tostrud disagreed. He concluded that, under the actual wording of the relevant contracts, there is no control sale. He also rejected any claim of bad faith.
“Nothing in the partnership agreement,” the judge underscored, “prohibits what the defendants have done.” To that end, he stressed, Rodriguez and Lore “will not purchase—and [Taylor] will not relinquish—any general-partnership interests at the June 30 closing.” Instead, the duo will obtain “an option to acquire all of the general-partnership interests at a later date.” A staggered purchase is a lawful approach, the judge reasoned, to selling a business.
Judge Tostrud also distinguished unethical conduct and bad faith from the ordinary legal right of Taylor to “structure the transaction to favor” his own interests. Taylor’s approach “may delay Orbit’s ability to sell” but doing so “does not amount to bad faith.”
The fact that Rodriguez and Lore would become alternate governors also seemed like a distinction without a difference to the judge. Quoting from an affidavit submitted by NBA senior VP and assistant general counsel Joe Maczko, the opinion notes that “appointment as an Alternate Governor does not provide the appointee with any control rights with respect to a team.”
Lastly, Judge Tostrud’s 37-page opinion makes several references to the tentative nature of the proposed sale. Under the NBA’s constitution, at least three-quarters of majority owners must approve a sale. Maczko’s affidavit also indicated that the league “is in the process of reviewing” the proposed transaction. From start to finish, sales of NBA teams can take months to complete due to thorough analyses of financial records and background checks. It’s also worth noting that Rodriguez and Lore might decline to expand their ownership interests; they would receive options, not a duty, to buy more of the teams.
Orbit can appeal the ruling, but for now, A-Rod is one step closer to becoming an NBA owner.
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