Memphis Grizzlies: Could Robert Pera's Ownership Turn Sour?

Tom FirmeAnalyst IIJune 13, 2012

ATLANTA, GA - FEBRUARY 02:  Lionel Hollins of the Memphis Grizzlies converses with his players during a timeout against the Atlanta Hawks at Philips Arena on February 2, 2012 in Atlanta, Georgia.  NOTE TO USER: User expressly acknowledges and agrees that, by downloading and or using this photograph, User is consenting to the terms and conditions of the Getty Images License Agreement.  (Photo by Kevin C. Cox/Getty Images)
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Memphis Grizzlies fans had reason to be excited after billionaire owner Michael Heisley sold the team to tech magnate Robert Pera on Monday. Pera had been a rising businessman. Grizzlies fans might hope he would spend more money than Heisley. Please note that he only had been on the rise.

One reason Grizzlies fans should trust in Pera, who will become the owner of the Grizzlies as long as the NBA approves the sale, is that he's expected to keep the Grizzlies in Memphis. Heisley told Fox Sports he stipulated that any buyer would have to keep the team in Memphis.

Besides, as Geoff Calkins of The Commercial Appeal tweeted, the city of Memphis and Shelby County could reject the sale if the buyer shows intention to move the team, saying:

To clarify: City and county only have right of first refusal if Heisley sells team to someone who intends to move it. Pera says he doesn't.

— Geoff Calkins (@geoff_calkins) June 12, 2012

Also, the lease on the arena goes through 2021.

Anyway, if fans believe that Pera will ensure that the Grizzlies become a contender in the West for the long term, they should shut down those sentiments. First, Pera, who was on the Forbes list of billionaires in March, lost his billionaire status this spring.

According to Forbes, Pera's Ubiquiti Networks saw its stocks tumble from $35.99 per share to $14.98 at the end of the June 5 trading session. That caused Pera, whose fortune is largely in Ubiquiti stocks, to fall off the list.

Ubiquiti stock has fallen even farther since then. The company closed the Tuesday trading period at 11.83, as The Commercial Appeal noted.

Now, as Forbes states, Pera's net worth is $850 million, down from $1.5 billion in March.

That the expected new owner is rapidly losing money as his company's stocks are crashing should be alarming to Grizzlies fans. According to Herb Greenberg of CNBC, Pera's salary is only $1 per year and his earnings from Ubiquiti largely come from company stock.

Thus, as Ubiquiti goes, so does its 34-year-old CEO. If Ubiquiti's crash in stock value continues, then Pera will lose even more money. A protracted decline is possible since the IPO value is declining and some investors are shorting Ubiquiti stock (a process where they sell the stock on the bet that it will decline).

Greenberg questioned where Pera found the money to buy the Grizzlies. Pera wasn't reported to have filed to use his shares in Ubiquiti as collateral for loans. Pera received $84 million in a recapitalization with venture capital firm Summitt Partners, but Greenberg said it's unclear whether it went into Pera's bank account.

Some may want to compare Pera to Dallas Mavericks owner Mark Cuban, who made his fortune during the boom before buying the team. Greenberg makes the distinction that Cuban had sold his company to Yahoo! before buying Dallas, whereas Pera still runs Ubiquiti.

One may wonder whether Pera can balance decision-making with the Grizzlies and Ubiqiuti, considering Ubiquiti's current situation. He might become so consumed with his primary company that he won't have time for the Grizzlies.

At that, Pera might end up not having much money to invest in the Grizzlies. If Ubiquiti continues down its current path, then Pera might try to ride the Grizzlies to a championship before dismantling the team.

His passion for the game of basketball could keep him interested enough to watch them win a title, but not so invested that he would keep spending a great amount of money on the team.

Another possibility is that a protracted stock loss at Ubiquiti could force Pera to sell the team less than a year after buying it.

If the NBA senses this possibility, then it should deny the sale to Pera. The league wouldn't want to see a new owner whose fortune could fall apart. Also, the NBA wouldn't want to have to intervene in an adverse ownership situation it didn't prevent.

Heisley said, according to ESPN, that he believes Pera would be a good owner. Heisley said, "He's young. He's in his 30s. And I think he's financially well off."

Grizzlies fans would want to believe that the buyer of the team is financially secure. Based on the current path of Ubiquiti's stock, that doesn't seem to be the case. Pera has lost almost 45 percent of his net worth in just three months. That's a startling drop-off.

Grizzlies fans want to see their team not just win a championship, which is very possible with the current core, but also remain a playoff team for the long run. Unstable ownership could hurt those chances. The Memphis faithful shouldn't have to watch this team go back to the cellar because of ownership problems.