Ownership groups in professional sports are far more complex than the cameos of Mark Cuban sitting courtside at a Dallas Mavericks playoff game or Jerry Jones sitting in his box with his family at AT&T Stadium indicate. Most Major League Baseball (“MLB”) teams have principal, majority owners in addition to minority owners consisting of operating entities comprised of a handful of partners. For example, John Henry is the principal owner of the Boston Red Sox. But Henry also runs companies like Fenway Sports Group, LLC and Boston Red Sox Baseball Club LP with a few other partners, and these companies are considered minority owners.
In Tampa, years of litigation within the Rays ownership group epitomizes the fluid, ever-changing dynamics of ownership groups in the sports industry. Specifically, a minority group of owners (who comprise 9.6% of franchise ownership) is suing majority owner Stuart “Stu” Sternberg in a case that could stall Tampa’s stadium redevelopment and relocation talks, lead to ownership group fallout, and affect the franchise’s long-term future.[1]
The minority group alleges three major claims against Sternberg: (1) he committed fraud, (2) violated both Florida’s Unfair and Deceptive Trade Practices Act and (3) violated the partner-to-partner fiduciary obligations codified in Florida’s Revised Uniform Limited Partnership Act of 2005 ("FRULPA").[2] Further, the minority group has called for Sternberg to be removed from franchise ownership. Both the Rays and Major League Baseball initially declined to comment on the allegations.[3] The primary issue alleged in the suit is that Sternberg transferred the club into another business entity without the minority’s knowledge, allegedly to be part of a scheme devised to squeeze the minority group out that can be traced back to 2004.[4] The partners claim this is proven through Sternberg’s ownership stake increasing from 49% to 85% since 2004. [5] The court sent all counts (except removal) to arbitration. In contrast, the hearing for the minority owners’ removal request will take place later this month. [6] This suit was filed June 27 in the Pinellas-Pasco Circuit court and follows similar claims from February and May 2021. [7]
Date | Allegations | Result |
May 2021 | Breach of contract, constructive fruad | Arbitration |
February 2022 | Same as May 2021 | Arbitration |
June 2022 | Fraud, violation of Florida Unfair and Deceptive Trade Practices Act, violation of FRULPA | Arbitration for all claims, except request that Sternberg relinquishes control of team |
In June, the minority group claimed that Sternberg failed to disclose $376 million of revenue from Bally Sports Sun, the team’s regional network. Additionally, the partners’ notification occurred after Sternberg had transferred the club into a new business entity, moving it from Tampa Bay Rays Baseball, LTD to the new Rays Baseball Club, LLC. Failing to report this money meant the $376 million would not be included in the revenue or net cash flow calculations, leading to far less revenue split between the minority group. [8] This seemingly purposeful failure to report paired with the national television deal the MLB has with ESPN makes it so teams make roughly $100 million before even selling tickets, a revenue stream the Rays struggle with. This makes media rights revenues even more important to their owners (majority and minority). [9]
Moreover, the minority owners assert that the partnership has been reduced to a mere shell with little to no revenue or responsibility going to the limited partners, which is precisely why this partnership was formed. [10] On top of stripping them of their individual rights as partial owners, Sternberg has relieved himself of his obligation to protect the partners’ investment. This has led to the minority owners claiming they have been saddled with additional taxable income without receiving proper revenue distribution from the team. [11]
The Rays and Sternberg eventually addressed the allegations, calling them baseless and desperate. [12] Though these statements were not part of any court filing, the Rays legal team filed an answer to the lawsuit on July 5. [13] Their argument claims this sort of restructuring is common among corporations, and that a lawsuit opposing something so fundamental to large business is a waste of all parties’ time and resources. [14] A key component of this argument is that the reorganization was approved by the MLB. [15]
While the litigation is clearly a primary concern for all parties involved, there are peripheral concerns that could affect the Rays organization and the League as a whole. Stadium development should be at the forefront of all conversations about the Rays, aside from on-field topics, because Tropicana Field has been subject to frequent renovation discussions since 2007. Those discussions have hit roadblocks that line up with the legal battle between owners. [16] Former St. Petersburg Mayor Rick Kriseman proposed stadium redevelopment plans, but the City Council of St. Petersburg vowed to not approve those plans right as the initial lawsuit came about in 2021, effectively putting the plans to rest for the time being. [17] In an effort to keep stadium negotiations moving, Kriseman went so far as to ask Sternberg to step down as owner (this was an unsuccessful request as Sternberg did not end up relinquishing power). [18] At the end of June 2022, as litigation ramped up once again, newly inaugurated Mayor Welsh officially re-started the decision-making process for stadium redevelopment[19]
The Rays’ agreement with Tropicana Field runs through 2027 and stadiums take years to build, thus there is a clear timeline for them to build a new stadium in Tampa Bay or look elsewhere. In-fighting between owners and the unfortunate timing of political turnover slowing the redevelopment talks down may end up creating the perfect storm for a potential uprooting of one of the most successful MLB expansion teams from their original home. [20] While the Rays have proven to be a model organization at the forefront of the analytical revolution and maximization small-market budgets a-la Moneyball, the litigation between owners dovetailing with the imminent relocation timeline amplifies just how much goes into running a professional sports team from the top down.
One of the suits is going to trial this month, and it will reveal how courts evaluate the relationship between majority and minority ownership groups in Florida. Majority owners typically have immense autonomy in running their teams’ businesses, and it is incredibly difficult to force one to relinquish control of their team. [21] Minority owners that invest in sports teams expect decision-making authority proportional to their investment stakes, and this case will determine how courts may view the fraudulent expansion of a one owner’s control at the cost of another owner’s investment.
References:
[1] Evan Drellich. Rays minority owners sue principal owner over ‘fraudulent transfer,’ other claims. (29 Jun 2022) https://theathletic.com/news/rays-lawsuit-stu-sternberg/0LRIagBcWIpf/
[2] Owen Poindexter. Minority Owners Sue Tampa Bay Rays, Alleging Fraud. (29 Jun 2022) https://frontofficesports.com/minority-owners-sue-tampa-bay-rays-alleging-fraud/
[3] Drellich, Supra.
[4] Id.
[5] Evan Axelbank. Tampa Bay Rays’ principal owner Stu Sternberg sued for alleged fraud scheme. (24 May 2021) https://www.fox13news.com/news/tampa-bay-rays-principal-owner-facing-suit?taid=60ac5dab7e2160000118d8ef&utm_campaign=trueanthem&utm_medium=trueanthem&utm_source=twitter
[6] Id.
[7] Jay Cridlin. Rays, Sternberg call team partners’ latest lawsuit ‘baseless,’ ‘desperate’. (8 Jul 2022) https://www.tampabay.com/news/business/2022/07/08/rays-sternberg-call-team-partners-latest-lawsuit-baseless-desperate/
[8] Drellich, supra.
[9] Blake Williams, MLB Teams Will Receive At Least $100 Million Annually From TV Rights Contracts (12 Feb. 2022) https://dodgerblue.com/mlb-teams-receive-at-least-100-million-annually-from-tv-rights-contracts/2022/02/12/
[10] Thomas Barrabi. Tampa Bay Rays’ owner Stu Sternberg sued for alleged ‘fraudulent transfer’ of team control. (29 Jun 2022) https://nypost.com/2022/06/29/tampa-bay-rays-owner-stu-sternberg-sued-for-alleged-fraudulent-transfer-of-team-control/
[11] Drellich, supra.
[12] Cridlin, supra.
[13] Id.
[14] Lucille Lannigan. Tampa Bay Rays respond to lawsuit filed by minority owners. (8 Jul 2022) https://www.wtsp.com/article/sports/mlb/rays/tampa-bay-rays-respond-lawsuit-sue-sternberg/67-e69ca3f1-690f-4d73-9c4a-885dfad9a212
[15] Id.
[16] Dan Matics. City council vows to block Kriseman redevelopment plans as mayor calls for Rays’ owner to step down. (24 May 2021) https://www.fox13news.com/news/city-council-vows-to-block-kriseman-redevelopment-plans-as-mayor-calls-for-rays-owner-to-step-down
[17] Id.
[18] Josh Solomon. Kriseman says he ’can’t negotiate’ with Sternberg on Rays deal. (26 May 2021) https://www.tampabay.com/news/st-petersburg/2021/05/26/kriseman-says-he-cant-negotiate-with-sternberg-on-rays-deal/
[19] Brian Zucker. Mayor Welch restarts process for 86-acre Tropicana redevelopment site. (29 Jun 2022) https://stpeterising.com/home/2022/6/29/mayor-welch-restarts-process-for-86-acre-tropicana-field-redevelopment-site
[20] @cknaim8. 5 Potential Relocation Spots for Rays. (31 Mar 2022) https://halfsthighheat.com/2022/02/02/5-potential-relocation-spots-for-rays/
[21] David Roth. Donald Sterling and how to fire an owner. (14 May 2014) https://www.sbnation.com/2014/5/14/5712500/donald-sterling-la-clippers-racist-owner