It is believed to be the largest private equity investment since the league loosened its rules in January to allow for institutional investors. It is the second NBA deal for Arctos, which was co-founded by private equity veteran Ian Charles and former MSG CEO Doc O’Connor, following a smaller investment into the Golden State Warriors in April.
The transaction is still subject to a vote by the league. The NBA committee that reviews transactions sent a memo to league owners Friday recommending its approval. Representatives for the NBA, the Kings and Arctos declined to comment.
The Kings are controlled by chairman Vivek Ranadive, founder and former CEO of TIBCO Software. One of the NBA’s more progressive and tech-savvy owners, Ranadive has pushed the team beyond just basketball, including operation of the Golden 1 Center, which opened in 2016, and a surrounding real estate development with retail, dining and housing.
Sacramento was the first NBA team on Twitter back in 2007, the first to accept Bitcoin inside its arena in 2014, and the first team to mine the cryptocurrency back in 2018. Ranadive is on the league’s newly formed blockchain committee, and has prioritized innovation through the team’s arena and its digital properties.
Ranadive’s group purchased the Kings in 2013 at a $535 million valuation. Sportico’s most recent numbers valued the club at $1.84 billion, essentially the exact valuation as this investment and good for middle of the pack in the NBA.
The franchise has dozens of minority owners, and this transaction is rolling up some of those stakes. Four Kings LPs are exiting as part of the deal, according the people, who were granted anonymity because the specifics are private. One is being bought out by Ranadive, while the others are selling their shares to Arctos, which is also receiving three board seats as part of the transaction.
The NBA’s recent about-face on institutional investors comes in response to two main trends: First, soaring valuations have limited the pool of individuals with the money (and interest) to buy up minority stakes. Second, the COVID-19 pandemic created heightened financial pressure. To offset the revenue shortfalls of empty arenas, controlling owners have added more of their own money, taken on more debt and issued capital calls to LPs. Stake sales are another way to access quick capital.
The NBA’s rules on private equity investors are as follows: A fund can buy as much as 20% of a franchise, and it may own equity in up to five teams. No team can have more than 30% of its equity owned by PE funds.