The pending sale of the Minnesota Timberwolves and the Minnesota Lynx to baseball legend Alex Rodriguez and technology entrepreneur Marc Lore hit a major roadblock on Wednesday, when Orbit Sports, which owns more than 17% of the two teams, sued majority owner Glen Taylor in Minnesota’s federal district court.
Orbit, controlled by New Jersey real estate mogul Meyer Orbach, raises numerous allegations, most notably that the pending sale agreement lacks—contrary to Taylor’s public assurances—language that would prevent new owners from relocating the franchises to other cities, such as Seattle or Louisville.
The complaint raises claims for breach of contract and breach of implied duty of good faith and fair dealing. Among other forms of relief, Orbit seeks an injunction that would block the $1.5 billion sale from advancing. Regardless of the lawsuit, the pending transaction requires approval from at least three-quarters of majority owners. If the league authorizes the deal during an ongoing litigation, it could be brought into that litigation. The same is true for Rodriguez and Lore should they complete their deal with Taylor.
With more equity in the teams than all of the other limited partners combined, Orbit asserts that it has tag-along rights in the event of a sale, rights it claims have been violated. According to its partnership agreement, Orbit and the other limited partners should be allowed to sell their stakes if Taylor agrees to transfer his controlling interest in the teams.
But they haven’t been allowed to do so yet; the reason hinges on the notion of control. Taylor is said to have “privately stated” that he does not intend to enter into a control sale with Rodriguez and Lore at this time—meaning Taylor, 80, would continue to control the franchises after the sale. He would enter a control sale, then, years later.
Orbit, however, contends that the tag-along rights were triggered once Taylor “signed a detailed agreement regarding a transition of ownership and… publicly announced that agreement.” The complaint charges that under the partnership agreement, the tag-along rights arise once Taylor proposes to enter into a control sale, defined as a transfer of interest “in a single transaction or a series of related transactions.” And if the prospective buyers—in this case Rodriguez and Lore—do not agree to also purchase the minority stakes, Taylor must acquire them himself.
To bolster their point, Orbit’s attorneys include, as an exhibit, a letter Taylor sent to Orbach on May 17. The letter indicated that the sale would initially involve the transfer of 20% of the franchise. The letter goes on to mention that Rodriguez and Lore would gain the “option” to buy an additional 20% from Taylor on or before Dec. 31, 2022. Further, they would receive a second option to buy 8.2% from Taylor, combined with 31.8% limited partnership interests, on or before Dec. 31, 2023.
The letter also reveals that Taylor would remain, at least in title, “controlling owner” of the franchises unless the second option is exercised. Until that time, Rodriguez and Lore would occupy two seats on a newly created “Advisory Board.” The board must be consulted before decisions are made. Taylor invited Orbach to serve on this board.
Greenberg Traurig’s attorneys (Michael Krauss and Peter Kieselbach) reject Taylor’s contention that a controlling sale wouldn’t occur for years. They argue, as mentioned above, that tag-along rights are triggered, whether in one sale or a “series of related transactions.” The attorneys also portray as words over substance the notion that Taylor would remain controlling owner. This is in part because Taylor’s deal with Rodriguez and Lore names them as alternate governors, where they could function as a voice and vote for the franchise in important league decisions.
In what may be the most meaningful portion of the lawsuit to Timberwolves and Lynx fans, Greenberg Traurig attorneys say Taylor’s agreement with A-Rod and Lore “contradicts Taylor’s public statements about a purported obligation ‘in the contract’ that the buyer cannot move the Timberwolves and Lynx outside of Minnesota.”
The only relocation safeguard, the complaint charges, is that the possibility of moving must be presented to the Advisory Board. There is no contractual term that would require A-Rod and Lore to keep the teams in Minnesota. Once Rodriguez and Lore become general partners of the teams, the complaint says, they’ll “have unfettered discretion to move the Timberwolves and Lynx outside of Minnesota.” This runs contrary to Taylor’s past comments. “There was no use talking,” Taylor insisted to the Associated Press, to interested buyers unless they pledged to keep the teams in Minnesota.
Next Steps
Taylor issued a brief statement on Thursday. While he declined to comment on the litigation, he stressed that he “stands by” his “prior statements and commitment to keeping the Timberwolves and Lynx in Minnesota.”
Taylor and his attorneys will answer the complaint and likely dispute alleged facts and contend Orbit’s contract interpretation is incorrect. Along those lines, expect Taylor to maintain that A-Rod and Lore only obtain options to augment their equity over the next couple of years. It’s possible, under that arrangement, that the duo never become controlling owners—a point that could advantage Taylor in court.
The NBA will surely be watching. Negotiations between Taylor and Rodriguez and Lore are expected to be completed by July 1. A completed deal would then require league approval. The league would likely have concerns about approving a sale that is subject to federal litigation as the league could in some way be brought in. At the same time, the league’s constitution—which Orbit and Taylor are obligated to follow—makes clear that commissioner Adam Silver has full and final jurisdiction over ownership squabbles. The constitution also clarifies that the commissioner’s decisions on those squabbles are binding and cannot be challenged in court.
It’s possible some NBA owners might worry that Rodriguez and Lore could seek to relocate the teams to a larger market and better arena deal. Seattle, for instance, is the 13th largest in Nielsen’s market rankings (Minneapolis is 15th). It also has a preexisting fan base from the days of the SuperSonics. While at least three-quarters of majority owners must approve a sale, only a simple majority is needed to approve relocation.
This is not the first contractual controversy for Taylor in the NBA. Late commissioner David Stern suspended Taylor in 2000 in the aftermath of his team signing Joe Smith to a “secret agreement.” Smith signed for less in the short-term with the understanding he would later secure a long-term lucrative deal. The agreement was designed to circumvent the NBA’s salary cap. The league figured it out and, in addition to issuing suspensions, stripped the Timberwolves of five first-round picks and fined the team $3.5 million.
