Bucksketball Podcast

If no arena is built, NBA has buyback option on Bucks, according to report

| April 22, 2014

Category: Ownership

Share
lasry

From left to right: Marc Lasry, Herb Kohl, Wesley Edens. (Photo credit: Bucks PR)

According to a report by ESPN, the NBA has a buyback provision written into the sale contract of the Milwaukee Bucks that will allow the NBA to buy back the team if an arena deal is not reached by November 2017. Last week, Wesley Edens and Marc Lasry reached an agreement to acquire the team from Herb Kohl for $550 million. If the arena situation isn’t patched together three years from now, then the league would maintain the option of taking control of the Bucks. If activated, the league would pay Edens and Lasry $25 million more than their purchase price.

Sources told ESPN.com that the sale agreement announced last week to transfer the Bucks from longtime owner Herb Kohl to Edens and Lasry for a purchase price of $550 million includes a provision that allows the league to buy back the team for $575 million if construction on a new building in Milwaukee is not underway by the deadline.

Although one source said Monday that the league would likely only take that step if it didn’t see “significant progress” toward a new arena in Milwaukee by then, this provision ensures that the NBA would control the fate of the franchise from that point as opposed to Edens and Lasry.

 The alleged buyback deal makes sense in light of recent quotes from both seller and buyers. Senator Kohl alluded to the Milwaukee-only participation in his press conference to announce the sale (emphasis added):

“We have two outstanding, accomplished men who are buying into Milwaukee and the future of Milwaukee. It has been made abundantly clear to them — and they have embraced the concept — that this is Milwaukee’s team, and that their participation in the NBA is in Milwaukee. That has been gone over with them, and they have advanced that proposition themselves.”

And the new owners made reference to the same stipulation in a Q&A session with Don Walker of the Milwaukee Journal Sentinel (emphasis added):

Q: What if this arena plan fails? Some people have suggested there is a provision in the sale agreement that if you are unable to secure an arena, the NBA would buy the team back from you and start anew. Is that in your sale agreement?

A: Edens: I don’t think it’s appropriate for us to comment about the sale agreement. It’s really the NBA’s place if they want to make a comment on that.

I can just say that it’s not allowed to not happen. We don’t really believe that getting an arena built is anything but an absolute positive outcome for everybody. There’s no real energy or value in coming up with other alternatives. We are going to build an arena. We are going to be part of the community.

Kohl agreed to donate $100 million toward the price of a new arena, and Lasry and Edens similarly pledged to contribute at least $100 million. The combined $200+ million realistically puts the new owners about halfway toward funding the cost of a new arena, but acquiring the remaining funds should be extremely difficult.

The county boards of Waukesha, Ozaukee, and Racine Counties have already taken stands in opposition to any new arena tax. If Wisconsin’s own Senator Kohl, whose net worth is usually estimated to be between $200 and $300 million dollars (and was tied up mostly in the Bucks themselves) couldn’t get access to public arena funds, what chance do two out-of-state billionaires, whose combined worth is ten times what Kohl is worth, have of accomplishing the same?

Other sources of non-public money exist — new investors, private donors, arena naming rights — but will these funds could amount to anything near $200 million?  It’s not impossible. The Golden State Warriors are building their new arena, slated for opening in 2018 or 2019, without public funds or public land, relying solely on money from their own investment group.

Ultimately, these details don’t change the one fundamental fact: if a new arena is not built, the Bucks will eventually leave. It won’t necessarily be Lasry and Edens leading the relocation, but it would be somebody.

What problems does this clause alleviate?

The clause does minimize what could have been a perverse disincentive on the part of the new owners to build an arena. Think about it: Suppose that the New York-based Lasry and Edens only cared about owning an NBA team without regard to location. Suppose further that they would have the option of taking the team with them three or four years from now to a new city. If an arena deal isn’t in place, their pledge of $100 million would be a moot point, an obligation they no longer had to pay. They would save $100 million and get to pick from their choice of cities and situations. Instead, Lasry and Edens now have all sorts of incentives to get an arena built.

What problems does this clause uncover?

If the arena deal falls through, the NBA should want to activate their buyback option. Consider that the Bucks — the 15-67, small-market Bucks — were sold by Kohl for more money than any NBA franchise ever. If the Bucks could fetch ten suitors and a purchase price of $550 million while geographically tethered, then they should be worth much more — perhaps twice as much — when the option of relocation is on the table. If that is the case, the owners of the other 29 teams would be crazy not to flip the team to new owners and divvy up the collective loot. Bye, bye Bucks.

(One possible catch: the timing of the buyback falls shortly after the date of a potential strike/lockout. The NBA and NBPA each have an option to terminate the current collective bargaining agreement on Jun. 30, 2017.)

In light of this deal, the Bucks’ situation is not terribly different that what it was two weeks ago: They need an arena underway by the time the BMO Harris Bradley Center lease expires at the end of September 2017. The only real difference is the new faces working on the deal and the $200 million in the building kitty.

If you compare the Bucks’ situation with that of the Seattle Supersonics, the last NBA team to relocate, it is easy to see how Lasry and Edens are not Clay Bennett, who swooped in to purchase the Sonics in 2006 with an eye toward transplanting them Oklahoma City. He said all (or mostly all) of the right things about keeping the team in Seattle, knowing fully well that he could parry through a passive-aggressive year of making helpless motions for public funds before getting his unspoken wish.

If anything, Lasry and Edens are more like Howard Schultz, Starbucks CEO and the majority owner who sold the Sonics to Bennett. In 2001, Schultz stepped in to buy and save the team as the business-savvy tycoon and lifelong basketball fan. Like Schultz, Lasry and Edens begin with the goal of trying to sort out a team with a messy arena situation: a situation that ends with the team moving if an arena isn’t built.

The situation isn’t quite as dire as it was for Schultz — the Bucks’ revenue streams are better under the new CBA, Herb Kohl made a big donation, and the Bucks aren’t dogged by a team-unfriendly lease — but Lasry and Edens will need a new arena and they will face the same legislative hostility that Schultz did when they make their pitch for public money.

Tags: , , , ,

About the Author ()

Husband. Father. Blogger. Retired mathlete. I covered Larry Sanders' "Three Thumbs Up" game as credentialed media -- and failed to see well enough to witness the thumbing as it happened. On Twitter, I'm anaheimamigos.

Comments (4)

Trackback URL | Comments RSS Feed

  1. Vince says:

    This definitely feels like a Sonics/Bennett-McClendon clause. The bad PR from that sale and move still haunts the league today – even though the Thunder are arguably their most popular team – and if they have to move another team they’d rather that blood be on the league’s hands. Smart.

  2. Aaron says:

    I’m not sure why this is news and not ‘olds’. Milwaukee radio were all over these terms as well this morning. The NBA basically started the ticking clock on the Bucks new arena a year or so ago when they said they needed to have plans and construction in place by 2015. Pretty sure the Bucks were basically going to be removed or ‘bought out’ if they didn’t adhere to this. According to everything I read, the new owners were given an extension to 2017 to get things in order as part of their negotiations.