May 25, 2024

As Timberwolves, Lynx ownership dispute moves to arbitration, legal experts weigh in


Glen Taylor, Alex Rodriguez and Marc Lore are headed toward arbitration.

After no resolution was found in mediation to the dispute holding up, or potentially preventing, the sale of the NBA’s Minnesota Timberwolves and WNBA’s Minnesota Lynx, Lore and Rodriguez, the prospective buyers, intend to commence arbitration promptly, a source briefed on the matter told The Athletic.

They will have their arguments heard by a three-person panel in Minnesota to determine the fates of the organizations, though the timeline for the actual hearings could be prolonged as the sides choose judges and agree on a schedule.

Taylor, the current Timberwolves and Lynx majority owner, publicly announced in late March that Lore and Rodriguez’s attempt to buy the franchises was off after the pair failed to hit the deadline to buy a 40 percent stake in the teams. The tech billionaire entrepreneur and former baseball star bought the franchises in stages, taking 20 percent in each of the previous years and were set to acquire the final tranche this spring. But that hit a wall.

At the heart of the clash is a roughly 1,500-word section of the sales agreement, which not only spells out the terms of the transaction, but how it will be resolved now that those involved are at an impasse. The disagreement lies, according to those who have examined the contract, over section 6.4(a), which stipulated that “the consummation of the exercise of each Call Option must occur, subject to prior NBA Approval, no earlier than sixty days following the Call Exercise Notice and no later than ninety days following the delivery of the Call Exercise Notice (which ninety (90)-day period shall be automatically extended by an additional ninety days if all NBA Approvals or other required approvals of any Governmental Entity have not yet been obtained).”

Lore and Rodriguez say that they had lined up the financing, including pulling in investors like Dyal Capital and former Google CEO Eric Schmidt, and were waiting for league approval, which comes after a vote by its board of governors. The Athletic reported last month that the duo submitted its financial documentation to the NBA the week before the deadline. Because they were waiting for the approval, they say that they are entitled to a 90-day extension per the agreement.

Lawyers who have reviewed the sales agreement — but are not involved in the dispute — say Lore and Rodriguez have a strong case.

“If the buyer can establish that it did everything that it needed to do in terms of delivering the call exercise notice and submitting the information to the NBA then section 6.4A certainly reads as if they’re entitled to (it),” said David Franklin, a lawyer for Cozen O’Connor. “Because it’s not a determination. It’s not a 90-day extension that sort of has any wiggle room to it. It specifically says which 90-day period shall be automatically extended by an additional 90 days if all NBA approvals have not yet been obtained. So if the buyer can demonstrate that it materially complied with its obligations to submit the application with all of the necessary information and they were simply sitting at home waiting for the NBA to say yes, then I read 6.4(a) to me that they get the benefit of that additional 90 days.”

The Athletic’s Jon Krawczynski previously reported that Taylor has other issues with the process, too, including that the prospective buyers did not hit several benchmarks ahead of closing. Taylor may argue that Lore and Rodriguez did not qualify for the extension because they have not yet undergone a final review from the Board of Governors’ finance committee or received a letter of approval or a vote from the full board.

Ryan Davis, a partner at Bryan Cave Leighton Paisner, cautioned that the circumstances that led to the disagreement will prove to be very important. Lore and Rodriguez will need to establish that they complied with the agreement terms and if there were any problems they weren’t significant enough to undo the deal.

“On its face, it sure appears to me like the automatic extension would apply,” Davis said. “But if another condition had failed to be satisfied, if the NBA had said we’re not going to approve it, if another relevant party that had an approval right said we’re not going to approve it, that could make the extension unnecessary because it would be impossible to satisfy all the conditions anyway. It’s a highly facts-and-circumstances kind of test here. On its face, 6.4(a) of this agreement sure reads to me as though there’s a very strong argument for extension based on the specific language in this agreement. However, there must be some basis upon which the sellers are arguing it doesn’t apply.”

NBA commissioner Adam Silver said last month that the NBA would stay out of the dispute. That leaves Lore, Rodriguez and Taylor to settle this through the proceeding that has been laid out in the sales agreement. Because mediation did not work, as was likely to be the case, they are on to arbitration.

That three-person arbitration panel will include one lawyer approved by each side who has not represented one of the two sides before and a retired Hennepin County or magistrate judge from the United States District Court in Minnesota. The chief judge of the Hennepin County District Court would appoint that retired judge if the two sides can’t agree on one.

Lore and Rodriguez have said Taylor is now trying to get out of their deal because of “seller’s remorse.” The Timberwolves are having a season that might just end up becoming the best he’s seen in his three decades as the team’s owner.

Also noteworthy is the money behind the deal. Taylor agreed to sell the team for $1.5 billion, which is now believed to be below market value for the franchise as prices for NBA teams have jumped over the last few years. The Phoenix Suns and Mercury were sold at a $4 billion valuation last year. The Milwaukee Bucks were valued at $3.5 billion in a 2023 sale and the Charlotte Hornets went for $3 billion. One sports investment banker who has reviewed the transaction documents believed Taylor could get more than $3 billion for the team if it went to the NBA Finals.

“I see this as an uphill battle for Taylor,” the investment banker said of Taylor proclaiming the team is no longer for sale, “but something that might make sense for him to have potential asymmetric upside if he can either prevail or find a way to get a settlement or a higher number.”

The Athletic’s Jon Krawczynski contributed.

(Photo of Glen Taylor, Alex Rodriguez and Marc Lore: Bruce Kluckhohn / USA Today)





Source