Tuesday, April 3, 2007

Who's to Blame

There have been a lot of articles and commentary recently about the state of the ownership of the Grizzlies. Why can’t a team with a decent core of young players in a brand new state of the art building and no competition from major sports franchises find a buyer? Granted the asking price of $365 million is not only high but a more than 16% above the Forbes valuation of the Franchise this season. Sure the team’s best player has been grumbling about getting traded and the fans have been lukewarm at best about the team but it is still one of only 30 such franchises a person can own. It is not like there are plenty of other options for the multi-millionaire to billionaire jet set to crow about owning.

So why was team sold relatively quickly in Seattle but the process continues to drag on in Memphis? After fighting their local and state government for two years to build a new stadium the owners decide new leadership was needed. The deal was closed with the Oklahoma City investment group relatively quickly afterwards.

What’s the hold up?

It has been speculated that the major hold up has been the local owners with the right to match any offer. Pitt and Staley have long wanted the team for themselves and have made it known publicly. Their right to match any offer for up to 60 days would slow down any attempt to sweep in by a new owner(s) but is that the real reason for the difficulty in selling the team?

I don’t believe so. First, the only way local owners like Pitt Hyde and Staley Cates would be seen as a hindrance would be if the owners secretly wanted to relocate the franchise. Under the current contract any attempt to move the team for the foreseeable future would be prohibitively expensive. Numbers nearing $1 billion in fines and penalties above and beyond the sale price would effectively kill any owners attempt to relocate at this time so it isn’t likely that someone would even enter into negotiations knowing about the leases (and no one is likely to offer $365 million for anything without knowing all of the particulars).

So the right to match by the local owners shouldn’t be a hold up for a serious candidate for ownership on the grounds that they would block the sale to prevent relocation. What about the idea that the local owners right to match artificially inflates the offering price? Surely the bid would have to be high enough to keep Pitt and Staley on the sidelines and their pockets are pretty deep. Does this right actually force a higher value on the team than is justified?

Again I don’t believe so. First, the Brian Davis offer was the asking price of current owner Michael Heisley. The offering price has not come down despite the collapse of Davis’ bid. The local owners want to pay less than $365 million for the team. Significantly less according to some accounts (no more than $300 million is one number I have heard but I believe it could be higher personally). That means there would be no need to offer an amount greater than the asking price to acquire the team. The local owners simply won’t match at that high an amount. They may take all 60 days to decide this but they aren’t going to pay that much for the franchise.

This brings us to the asking price as the main sticking point. Seattle’s owners sold their franchise to an investor group from Oklahoma City for $350 million and that included the Seattle Storm WNBA franchise. Seattle is a wealthier city than Memphis and larger as well so their populace is better positioned to support the new franchise than Memphis’ is. There is more competition in the form of the Seahawks football team and the Mariner baseball team and the stadium will need to be replaced at some point (or the team moved to Oklahoma City), but do those issues account for a $15 million lower price tag for an established team with a successful history?

Actually I don’t believe the price is grossly out of range. Personally I feel the Sonics have greater goodwill and should have been sold at a premium to the Grizzlies but that is just my opinion. So, what is the hold up in selling our franchise? Why has it taken us years to get a deal done and it only took Seattle a few months?

Perhaps it is the process of negotiations that make it so difficult. Michael Heisley can be very gregarious and charming. He is a successful businessman but he is successful because he knows what things are worth and buys and sells them at levels where both sides feel well served in the deal. He hasn’t gotten to where he is today by being unreasonable in contract situations. He has gotten to where he is today however by hiring a shrewd negotiator to handle negotiations. Stan Meadow was almost a deal breaker when the team was discussing moving to the Bluff City. The local owners wouldn’t sit in the same room with Meadows when discussing the deal. Michael Heisley has said publicly that he won’t conduct negotiations in public but that sounds more like Stan Meadows talking than Heisley. Is it any wonder that with such an unlikable person spear-heading your negotiations that people don’t want to buy the team?

For those that think I am being too harsh against Meadows and Heisley think of this. You can find many people that know or have done deals with Pitt Hyde and Staley Cates and no one speaks badly of them. There are many examples of people who have had issues dealing with Heisley and Meadows. The unfortunate off-shoot of this situation is that the community is being held ransom while Meadows attempts to squeeze every last penny out of any prospective buyer. The owners have a poisonous relationship, the front office is in flux, the coach is trying to get off the bench and the players seem to want to either get to the bench or on a trip out of town. How much longer can this franchise exist in this manner without a full-fledged meltdown and mass exodus?

The traditional avenue for differences such is this is to lock the parties involved into a room and force them to come to conclusion before you let them out. In this instance perhaps it would be better if the local owners and Stan Meadows were forced not to be in a room together or be able to communicate directly in any way. Let a messenger bring the offers and counter-offers but in no way should the two parties be allowed to speak directly to each other (or to the media for that matter). Or perhaps a mediator could be hired to work out an equitable solution which is binding on both sides.

One thing seems certain however. As long as Meadows and Heisley are involved directly, nothing is getting done anytime soon and with the team looking at hiring a new GM, Head Coach and staff in the very near future, having the ownership settled would seem to be a prima facie requirement to hiring the best people available. After all, would you take a job as a GM if you knew the team could be sold the next week and the new owners would want their own people in that job?

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