Why Robert Pera's Memphis Grizzlies Ownership Bid Is Bound to Fail

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Why Robert Pera's Memphis Grizzlies Ownership Bid Is Bound to Fail
Kevin C. Cox/Getty Images

Robert Pera’s bid to own the Memphis Grizzlies came at a horrible time. When it was announced in June that Pera would buy the Grizzlies, the stocks of his wireless hardware company, Ubiquiti Networks, were in a nose dive. As well, Ubiquiti was embroiled in lawsuits against counterfeiters.

With continued concerns about counterfeiting, the persistent fall of Ubiquiti stocks and the nature of Pera’s earnings plaguing his fortune, Pera has long odds to have his bid approved by the NBA.

Pera became a billionaire earlier this year. In March, his net worth was reported by Forbes to be at $1.5 billion. By the time he was announced to be buying the Grizzlies, it had fallen to $850 million.

Ubiquiti won its lawsuits against distributors that were said to be counterfeiting Ubiquiti products. However, concerns about counterfeiting still loom over the company. While expressing optimism in an earnings forecast, Ubiquiti said that its projections hinge in part on the possibility of counterfeiting and what impact that might have on revenue.

An inability to keep counterfeiters from scuttling sales could deal a crippling blow to Ubiquiti stocks.

Ubiquiti has already seen its stocks drop dramatically. From May to June, the company’s stocks fell from $35.99 to $11.83 per share, as seen in the Wall Street Journal stock chart.

On Thursday, poor-after hours trading sent stocks down to $8.71 per share from $15.01.

Since then, it’s steadily dropped to $7.90 per share.

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As Ubiquiti stocks fall, so do Pera’s earnings. Pera has a $1 per year salary and the rest of his earnings are based on stock performance.

If Ubiquiti stocks continue to tumble, then Pera’s profile will look pitiful when the NBA reviews the deal for approval. Pera won’t be approved to buy the Grizzlies if he doesn’t have the money to support the $300 to $350 million purchase, even if, as The Commercial Appeal reports, he’s seeking local partners.

To further concerns about the purchase, the Wall Street Journal reported that Pera might exploit a couple of risky options in the purchase. First, he has at one point sold $80 million in stock, which could work as a down payment. Second, he could borrow against the team.

The second idea seems destined for catastrophe if he uses it. Borrowing against a team carries risk along with what leverage it provides. But borrowing against a small-market franchise like the Grizzlies has its limits since it may not turn a profit.

David Stern has spoken optimistically of Pera’s purchase of the franchise of “grit and grind.” The Commercial Appeal reported in July that Stern described the evaluation process of Pera as "proceeding on pace."

However, Stern’s view of the purchase will certainly dim as he continues to look at what has happened to Ubiquiti and, consequentially, Pera’s financial portfolio.

The Grizzlies have only recently become a winning team with a good outlook for the next few years. They’ve made the playoffs the last two years and set a record this year for highest winning percentage in franchise history. Their core of Marc Gasol, Zach Randolph, Mike Conley and Rudy Gay is locked up through 2014-15.

The future is bright for the Griz. The league wouldn’t want to change that by putting the team in the hands of someone who’s quickly losing money. Therefore, the NBA won’t approve Pera to buy this small-market franchise.

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