Teams Sales and the Effect on Valuations of Minority Stakes

Irwin Kishner, co-chair of Herrick's Sports Law Group and co-chair of Herrick's Corporate Department, spoke to Sportico about the sale of an ownership stake of the Los Angeles Lakers and the effect on valuation for owners of minority interests in the team. 

“It’s typical that a minority interest would sell in the vast majority of deals like this, because they typically have what are known as ‘tag-along rights,’ which enables them to tag-along on the same valuation, the same terms and conditions,” said Irwin. A sale in which control of the team is being transferred, as with the Lakers, “is generally what the minority interest waits for, because it’s going to be difficult to get full value otherwise.”

The article notes that, "[a]s sports teams become increasingly more valuable, minority ownership is a double-edged sword: A limited partner’s stake in the team gets more valuable on paper, but realizing that as cash is much more difficult" because of a scarcity of buyers interested in a minority stake. 

The one-time limited partners can realize full price "when a control sale triggers tag-along rights—or even drag-along rights, where the buyer has the right to force minority owners to sell as well. Drag-along rights are typically present when there are tag along rights," according to Irwin.

As noted in the article, the details of the Lakers ownership agreements are not public, but typically "minority owners have 30 days after a deal is announced to say they wish to exercise their tag-along rights or hold their equity, if the new buyer can’t or won’t force them to sell."

The article further reports that the sale is expected to close before this end of this year. 

Read the full article in Sportico here. Access may require a subscription.