Business venture

Rivals cry foul over Nets owner Joe Tsai’s latest business venture

Brooklyn Nets owner Joe Tsai is looking to expand his NBA investments — and his unusual play is bringing some competitors to tears.

The billionaire co-founder of Chinese e-commerce giant Alibaba is set to take a less than 5% stake in the company behind HomeCourt Partners, a fund that won special clearance from the NBA to raise $2 billion for buy small stakes in numerous basketball franchises, many of which are now losing money.

Tsai — who, as the right-hand man of Alibaba Chairman Jack Ma, has a personal fortune of $11.7 billion, according to Forbes — is making headway as the COVID-19 pandemic has devastated the NBA, with year-long lockdowns wiping out ticket sales and forcing a wealthy ownership team to cough up cash to keep operations afloat.

But as Tsai’s deal progresses, critics point out that NBA statutes explicitly prohibit team owners from taking stakes in competing franchises, even indirectly, unless they get the deal. of the league or own less than 1% through a publicly traded share.

“No owner … shall hold any direct or indirect financial interest in any other member [team]”, without league approval, per the bylaws.”

It’s a huge conflict,” a rival private equity fund manager told the Post of Tsai’s planned ties to HomeCourt Partners. “Looks like there’s one rule for Joe Tsai and one for everyone else.”

Tsai is aiming to complete the deal through her Hong Kong-based hedge fund Blue Pool, which has a stake in Owl Rock Capital, a direct lender that is in the process of merging with Dyal Capital, the private equity firm behind HomeCourt.

Normally, NBA team stakes are sold directly to individuals. But the NBA has given Dyal, a unit of asset manager Neuberger Berman, special permission to raise funds as more minority owners seek exits amid endless capital calls.

The planned $12 billion combination, which is expected to close this summer, promises a big win for Tsai, who will be able to sell preferred shares of Owl Rock as part of the deal, a source familiar with the merger said. This will result in a new investment company called Blue Owl that will be listed on the New York Stock Exchange and manage $45 billion in assets, according to public filings.

The NBA has yet to investigate the matter, the league said. “It is premature to comment given that the Owl Rock/Dyal transaction has not occurred and the league has not yet reviewed it,” an NBA spokesperson said.

Tsai declined to comment, but a representative for Dyal denied the transaction would violate NBA rules, noting that Tsai will own a stake in the asset manager and not the HomeCourt Partners fund itself.

Dyal’s Homecourt Partners fund will invest in passive minority stakes in NBA teams on behalf of its investors. To believe that a public shareholder of Blue Owl owns a stake in a team through their Blue Owl stock is ridiculous,” the Dyal spokesperson said.

But critics say Tsai’s investment in parent company HomeCourt not only violates the letter of the law, but also creates the potential for the Brooklyn Nets owner to gain insight into the rival team’s finances, which which could be used to his advantage in player trade negotiations.

Tsai bought the Brooklyn Nets for a record $2.35 billion from Russian billionaire Mikhail Prokhorov through his J Tsai Sports Group in 2019. Oliver Weisberg is CEO of J Tsai Sports and Blue Pool Capital.

“Either Tsai will have to get a waiver from the league or find a way out of these stakes,” said a former NBA team CEO familiar with ownership rules.

After launching HomeCourt last year, Dyal is expected to close its first $750 million funding round in the coming weeks with plans to buy stakes in six unnamed NBA teams, according to Sportico.

Mark Rosentraub, professor of sports management at the University of Michigan, told The Post that he believed the transaction was a gross violation of NBA rules if it gave Tsai even an indirect financial interest in others. NBA teams. If NBA commissioner Adam Silver has another private equity firm that can quickly replace Dyal, he could choose her and bench HomeCourt, he said.

“If he has an option, I think he should play the option,” Rosetraub said.

Otherwise, Rosentraub thinks Silver should find a way to give Tsai a waiver, including having him place any proceeds he’s supposed to collect from HomeCourt in a blind trust. Sources say Tsai will benefit from the management fees Blue Owl collects from the fund. A performance fee will also come into effect after seven years, when investors in the fund are allowed to sell their positions.

“Let’s solve the problem but let’s not compromise the solution,” Rosentraub said, adding that the biggest problem is helping teams that are losing money get cash to pay their bills. Of course, such an exception would probably never be allowed without the pandemic, he added.

“You would never allow this conflict if there wasn’t a crisis of this magnitude,” Rosetraub said.