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Semafor LogoBradley Saacks
Bradley Saacks
business

Banker conflicts cloud sale of Phoenix Suns

Bradley is a Business & Finance reporter for Semafor, joining us from Business Insider. Sign up for Semafor Business to get his scoops and coverage of the industry.

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Title iconThe Scoop

The future of one of the most promising teams in the National Basketball Association, the Phoenix Suns, has been up in the air since one of its owners was accused of using racist slurs.

Now potential buyers of Robert Sarver’s 35% stake are crying foul over possible conflicts of interest posed by the banker leading the effort, according to people familiar with the matter. That has made for an uneasy sales process for a team whose demographics – both the growth of its Sun Belt city and its core of exciting young players – make it a tempting asset.

It’s another twist after Sarver, who declined to comment, was pushed to sell following an NBA investigation, which was prompted by an ESPN report that found he had used racist slurs and publicly demeaned employees, among other offenses. Big-name players like LeBron James, Phoenix city officials, and billionaire minority owner Jahm Najafi publicly condemned the behavior detailed in the investigation.

The concern, people familiar with the matter said, rests on close ties between two men ostensibly on opposite sides of the negotiating table: Najafi, who publicly called on Sarver to resign, and Navid Mahmoodzadegan, the Moelis executive who is advising Sarver on the sale.

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The Suns' Devin Booker dribbles against the Los Angeles Clippers
Reuters/Gary A. Vasquez

Mahmoodzadegan is also an advisor to Najafi, working with the billionaire on the failed SPAC that Najafi launched with former NFL star Colin Kaepernick. The worry, according to potential buyers and their advisers, is that the banker might steer the sale towards a buyer Najafi approves, rather than the highest bidder or most natural fit.

Former Disney CEO Bob Iger and Oaktree co-founder Bruce Karsh are possible buyers, according to past media reports and people familiar with the sales process. The pair declined to comment.

“You just don’t know how much Najafi will be a part of any negotiation, or if you’re negotiating with Sarver or Najafi,” said a person who has been in touch with potential buyers.

Still, even a distressed sale of the franchise is expected to come close to setting a record for the league. Forbes valued the team at $2.7 billion in October. The most expensive transaction was the 2019 sale of the Brooklyn Nets to Alibaba co-founder Joe Tsai for $3.3 billion, though that deal also came with operating rights to the Barclays Center.

Najafi previously said that he had no interest in increasing either his stake or his day-to-day involvement with the team, but plans to “work tirelessly to ensure the next team steward treats all stakeholders with dignity, professionalism, and respect.” He declined to comment for this article.

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A person familiar with Sarver’s thinking said Moelis was chosen for a number of reasons, including the fact that its founder, Wall Street dealmaker Ken Moelis, promised that he and Mahmoodzadegan would work on it personally. Sarver also liked the fact that the banker is based in Los Angeles instead of the East Coast and is aware of Mahmoodzadegan’s ties to Najafi but is not concerned about it interfering with the sale.

“He ultimately knows it will come down to the highest bidder,” this person said, and that Sarver has a fiduciary duty to the rest of the owners — including Najafi — to get the best deal possible.

undefined headshotBradley's view

There are a lot of bankers, even on the West Coast, who can do this job. The last West Coast NBA team sale — the Los Angeles Clippers — was run by Bank of America’s top L.A. banker. There’s only one bank that has obvious deep ties to someone who publicly called for Sarver’s head.

Bankers wield significant influence in the bidding process by sharing information selectively and highlighting certain advantages of any particular bid. This is especially true for private companies, which are bought and sold without the rigorous public disclosures that can weed out shenanigans.

While Moelis will surely fetch an eye-popping price, Sarver’s decision to hire them is puzzling, given the tension between his camp and Najafi’s. It’s a testament to Ken Moelis’ salesmanship and reputation.

The next owner will be critical in transforming the organization into something close to the NBA’s aspirations for it. But the league is mostly hands-off when it comes to the sale of franchises, and a league spokesperson said the NBA doesn’t approve the bank that owners choose to lead transactions.

The Suns under Sarver have been known for dysfunction, with a rotating cast of head coaches and executives during his nearly 20-year run atop the franchise. The selection of a banker with a tangled client list is a continuation of that trend.

Title iconRoom for Disagreement

What every participant in this sales process wants is the best possible price for the team, so there should be an alignment of interests.

Najafi’s own stake in the team, for instance, will be valued based on what Sarver is able to get for his chunk.

And it might be hard to find someone interested in the asset who hasn’t interacted with Najafi, who is deep into the sports and entertainment business. Among his investments are a stake in McLaren racing, production studio STX Entertainment, and the X-Games franchise, which Najafi bought from Disney subsidiary ESPN earlier this year.

The world of high-end sports dealmaking is a small one, and potential buyers trust the bankers with whom they have a long-standing relationship. Because these assets are so rare, “it boils down to familiarity and how comfortable everyone is with everybody,” said Tommy George, the president of The Sports Advisory Group, which focuses mostly on minor-league transactions and is not working on the Suns deal.

“If you own a house with your spouse and then you get divorced and need to sell the house and your ex-mother-in-law is the realtor, is it ok? If you’re comfortable with it, it is,” George said.

Title iconThe View From Phoenix

Whoever the new owner is, it will be a relief to those who work in the Suns organization. NBA commissioner Adam Silver spent an hour before the team’s first game this year apologizing to employees for the conditions they endured under Sarver.

The buyer of the team will get a honeymoon period with fans, some of whom were popping bottles of champagne after the sale was announced. City council members, including Phoenix Mayor Kate Gallego, will also be happy to see someone else atop the organization after the city paid $150 million to upgrade the Suns’ arena in 2019.

Whoever wins the bid will be walking into a money-making machine.

The team’s downtown arena finished the aforementioned renovations in 2021, with the state’s largest sports bar built into the pavilion. The arena signed a new naming deal with Footprint, a material science company, that same year and has seen attendance perk up thanks to the team’s improved performance.

Young stars like Devin Booker and Deandre Ayton are under contracts for several years to come, and long-time NBA stalwarts like one-time players’ union president Chris Paul and Coach of the Year winner Monty Williams give the team a stable base and respect around the league.

Title iconNotable
  • Read ESPN’s original investigation that eventually led to Sarver selling the team.
  • Semafor had the scoop on NBA legend Magic Johnson getting a group of investors together to buy a minority stake in the NFL’s Las Vegas Raiders at an eye-popping valuation.
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