Why Minnesota Timberwolves Arbitration Result Reinforces Brilliance Of Acquisition

Alex Rodriguez and Marc Lore, prospective buyers of the Minnesota Timberwolves and Lynx, prevailed in arbitration against seller Glen Taylor, paving the way for them to complete their acquisition of the professional basketball franchises.

The dispute was atypically simple, and foresight coupled with a well-crafted purchase agreement, means Rodriguez and Lore are now primed to win much more than arbitration.

ForbesAlex Rodriguez, Marc Lore Reportedly Agree To Buy Minnesota Timberwolves For $1.5 BillionBy Tommy Beer

Timberwolves Ownership Saga Started On May 13, 2021

Let’s do a quick refresher.

Purple Buyer Holdings, an entity fronted by Rodriguez and Lore, had agreed to buy the Minnesota Timberwolves from Taylor in 2021 for approximately* $1.5 billion, payable in four tranches over three years. The structure was beneficial to both parties; for Taylor, a gradual exit. For PBH, time to raise the funds needed to complete the acquisition.

(*The purchase price is adjusted for yearly value escalators — reportedly 4%— and typical closing adjustments like indebtedness, cash and working capital.)

Rodriguez and Lore made the first two payments, but struggled with the third tranche, also the largest, after the NBA nixed investment from The Carlyle Group, a private equity firm. On March 28, 2024, Taylor announced that PBH had missed the deadline for the second tranche and he was walking away.

Arbitrators Ruled 2-1 That Taylor Violated The Timberwolves Purchase Agreement

The agreement contained a clause for a 90-day extension if finances were in order, but NBA approval was pending. Rodriguez and Lore reportedly had finances secure for tranche three on March 21, 2024.

I’ve advised on many disputes; rarely are they this straightforward. There were no objections to price adjustments, no issues around working capital, no argument over indebtedness, and no detailed calculations of damages. Rather, the disagreement was ostensibly whether Rodriguez and Lore had missed their deadline.

As it turns out, the contractual language was clear: they hadn’t. No surprise given that Rodriguez and Lore were represented by renowned corporate firm Wachtell, Lipton, Rosen & Katz.

The Changing Landscape In The NBA

Consider other recent NBA transactions per this database (full disclosure: it’s mine); the Charlotte Hornets for $3.0 billion, the Milwaukee Bucks for $3.5 billion and the Phoenix Suns for $4.0 billion, according to Forbes. In comparison, $1.5 billion (before any closing adjustments and value escalators) for the Timberwolves and Lynx is light.

But consider also the timing: 2021 was a period of uncertainty. Franchise valuations had dropped to the lowest since the Great Recession, and the Timberwolves themselves were worth “only” $1.4 billion. Taylor sought a valuation premium while selling minority tranches first. In sports, minority shares typically trade at valuation discounts.

It’s easy to see why buyers weren’t lining up.

Ironically The Timeline Likely Benefitted PBH

The long runway allowed Rodriguez and Lore to secure their financing. Even after their reported Carlyle deal fell through, they had time to bring sports private equity giants Dyal Homecourt, and billionaires Michael Bloomberg and Eric Schmidt into the fold.

ForbesBillionaire Michael Bloomberg Reportedly Joining Timberwolves Ownership Bid With Alex Rodriguez—Amid Messy DisputeBy Ty Roush

Even better, rising market values meant such minority shares could – and likely would – have been sold at higher valuations than the options PBH held to purchase, a sports arbitrage unlike any I can recall.

Timberwolves Owner Might Have Experienced Seller’s Remorse

A three-year close, especially bridging a black swan event, is long enough that market values can swing wildly and parties can have regrets. Another reason why an airtight agreement was beneficial, and why Taylor may have sought termination.

Doing so would immediately nullify the remaining tranches. Taylor would have, in effect, remained in control, while Rodriguez and Lore would own minority interest at a valuation presumptive on control (the so-called “control premium”). Forbes estimates the value of the Timberwolves at $3.1 billion. All that accretive value since 2021 would have gone to Taylor.

Don’t Ignore The Value Of The Minnesota Lynx

WNBA franchises are on an upward trajectory, buoyed by a visionary commissioner (and fellow accountant), new superstars like Caitlin Clark, and broader momentum for women’s sports. Last year, estimates pegged the Lynx’s value at $85 million, according to Sportico; since, two expansion franchises have been announced and the Lynx advanced to the deciding game of the WNBA championship.

What Happens Next

Presuming Taylor does not challenge the arbitration in federal court, reportedly still possible, the next steps are payment for the last two tranches, and approval from at least 23 of the NBA’s 30 Governors. That vote is normally a rubber stamp, but this is an abnormal situation; Taylor has been the owner for 31 years and is against the sale, while Lore and Rodriguez have faced questions about their finances.

To meet these issues head-on, Rodriguez and Lore have reportedly spent the last few months meeting with other governors to assuage concerns. Having Schmidt, Bloomberg, Dyal and likely other deep pockets on board won’t hurt, either.

In its history, professional basketball has seen plenty of smart transactions, led in 1976 by the Silna Brothers, owners of the defunct Spirits of St. Louis, acquiring a slice of NBA television rights in perpetuity.

Assuming the legal machinations end and Rodriguez and Lore ultimately take control of the Timberwolves and Lynx, this acquisition – the timing, the structure, the leverage and the impact – will be regarded among the smartest.