How to Sell or Transfer NBA Team Ownership Shares

This guide explains the process for selling or transferring ownership shares in an NBA franchise. It covers the key steps, from reviewing the partnership agreement to obtaining league approval, and highlights common pitfalls. Whether you are a limited partner or a controlling owner, understanding the NBA’s approval process is essential for a successful transaction.

What You’ll Need

• A copy of the current partnership or operating agreement (the “governing document”)
• Financial records and audited financial statements of the team (for due diligence)
• A list of all current owners and their ownership percentages
• Legal counsel experienced in sports law or M&A transactions
• A financial advisor or investment banker (optional but recommended for valuation)
• Contact information for the NBA league office (for approval process)

Step-by-Step

1. Review the Governing Documents. The first step is to read the team’s partnership agreement, LLC operating agreement, or shareholders’ agreement. This document outlines any restrictions on transfer, such as a right of first refusal (ROFR) held by other owners or the team, consent requirements, and procedures for valuation. If you do not have a copy, request one from the team’s general counsel.
2. Determine the Type of Transfer. Identify whether you are selling your entire stake or a portion, and whether it is a sale to an existing owner, an outside third party, or a transfer via inheritance or gift. Different types of transfers may trigger different approval thresholds and rights of first refusal.
3. Value the Shares. Obtain a professional valuation of the team or your specific shares. Valuation methods include discounted cash flow, comparable transactions (e.g., recent NBA team sales), and asset-based approaches. The valuation will help you set an asking price and is often required for tax purposes if the transfer is a gift.
4. Notify the Team and Other Owners. If the governing documents require it, provide written notice to the team and other owners of your intent to sell. This notice typically triggers the right of first refusal, giving existing owners a window (often 30–90 days) to match the terms of any offer you receive.
5. Find a Buyer or Recipient. If you are selling to an outside party, you may use an investment bank or sports advisory firm to identify qualified buyers. For a gift or inheritance, you will need to identify the recipient and ensure they meet the NBA’s ownership eligibility criteria (e.g., financial wherewithal, background check).
6. Negotiate and Sign a Purchase Agreement. Once a buyer is found, negotiate the terms of the sale, including price, payment structure, and closing conditions. The purchase agreement should be drafted by legal counsel and include representations, warranties, and indemnities. It must also be contingent on NBA approval.
7. Submit the Application to the NBA. The buyer must complete the NBA’s ownership application, which includes detailed financial disclosures, a background check, and a personal statement. The team’s ownership group typically submits this package to the league office. The NBA will review the application and may conduct interviews with the prospective owner.
8. Obtain NBA Board of Governors Approval. The NBA Board of Governors, consisting of representatives from all 30 teams, must approve the transfer by a majority vote (typically three-fourths of owners). The league will consider the buyer’s financial capacity, character, and commitment to the team and community. This process can take several months.
9. Close the Transaction. After NBA approval, the sale closes. Funds are transferred, share certificates or membership interests are assigned, and the new owner is officially recognized. The league will update its records, and the new owner may be introduced at a board meeting.
10. Update Records and Notify the League. Ensure that all internal records, cap tables, and tax filings are updated. The NBA will also update its official ownership registry. If the transfer involves a change in control, the team must notify the league and possibly the media.

Common Mistakes

• Ignoring the Right of First Refusal: Failing to offer shares to existing owners first can void the sale or lead to a lawsuit.
• Underestimating the Approval Timeline: The NBA approval process can take 3–6 months or more. Trying to close quickly can lead to breaches of contract.
• Not Checking Buyer Eligibility: The NBA has strict rules about who can own a team. A buyer with a criminal record or insufficient liquid assets will be rejected.
• Misunderstanding Tax Implications: Selling shares may trigger capital gains tax, and gifting shares may incur gift tax. Consult a tax professional.
• Overlooking the Need for a Valuation: Selling without a formal valuation can lead to disputes or IRS scrutiny in case of a gift.

Tips

• Start Early: Begin the process at least 6 months before you want to close, to allow time for league approval.
• Use Experienced Advisors: Hire an attorney who has handled sports team transactions before. They will know the NBA’s specific requirements.
• Keep the League Informed: Maintain open communication with the NBA league office throughout the process. They can provide guidance on the application.
• Consider a Confidentiality Agreement: Have potential buyers sign an NDA before sharing sensitive financial information about the team.
• Prepare a Thorough Buyer Package: Provide the buyer with all necessary financials and legal documents to expedite their due diligence.

Troubleshooting

The NBA rejects the buyer. If the league does not approve the buyer, the sale cannot close. You must either find a new buyer or terminate the agreement. Review the rejection reasons and ensure the next buyer meets the criteria.

Existing owners exercise their right of first refusal. If an existing owner matches your offer, you are obligated to sell to them. Ensure your purchase agreement allows for this contingency, and be prepared to close with the existing owner.

Disputes over valuation. If the buyer and seller disagree on the price, consider hiring an independent appraiser or using a neutral valuation method (e.g., a formula based on revenue multiples).

Delays in the approval process. The NBA may request additional information from the buyer. Encourage the buyer to respond promptly and provide complete documentation to avoid unnecessary delays.

Transfer via inheritance is complicated. If you are inheriting shares, you may need to go through probate, and the NBA will still require approval. Work with an estate attorney and notify the league early.

Frequently Asked Questions

Can I sell my shares to anyone I want? No. The NBA must approve any new owner, and existing owners often have a right of first refusal. The buyer must pass a background check and meet financial requirements.

How long does the NBA approval process take? Typically 3–6 months, but it can be longer if the league requests additional information or if the buyer is complex (e.g., a consortium).

What is a right of first refusal? It gives existing owners the right to match any outside offer you receive for your shares. This is common in NBA team ownership agreements.

Do I need to disclose the sale price publicly? The NBA does not require public disclosure of the sale price, but it may be reported by the media. The league does review the price for fairness.

Can I transfer shares to a family member as a gift? Yes, but the recipient must still be approved by the NBA. You may also need to pay gift tax, and the valuation for tax purposes is based on fair market value.

What happens if I sell without NBA approval? The sale would be invalid. The NBA could fine you or the team, and you could face legal action from other owners. Always follow the league’s approval process.

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