The NBA notified owners that it is considering loosening team ownership rules. The proposed change could basically nullify the current “Jay Z Rule,” which sets the minimum team ownership stake at one percent.
According to Bloomberg, the NBA notified owners of a potential change to team ownership rules last month. In an Aug. 5 memo, the league said it wanted to develop a system that would enable smaller ownership positions.
Creating NBA Investment Pools
The value of an NBA franchise has grown substantially over the years. These higher prices have made it more difficult to find qualified buyers and investors who can afford the league’s minimum ownership requirements. So the NBA wants to find a way to make it easier to buy and sell ownership stakes.
While the memo doesn’t specify the structure of the proposed system, it implies that owners could sell into an investment pool that would be open to smaller investors and investment groups. This would allow more people to buy into NBA teams, making it easier for existing owners to sell all, or a portion, of their stakes.
Don’t Blame Jay-Z for Strict NBA Ownership Rules
If enacted, this system would allow for smaller ownership positions in NBA teams than is currently allowed. At one time, tiny NBA ownership stakes were popular. But the NBA wasn’t comfortable with the growth of super minority owners.
So the NBA enacted a rule in 2015, limiting the number of team owners to 25 and setting a one percent minimum ownership stake. At the time, people referred to it as the “Jay-Z rule,” based on the rapper’s one-time 0.15 percent ownership of the Brooklyn Nets.
But it wasn’t really Jay-Z’s fault. By the time the NBA ownership rules changed, Jay-Z had already divested his stake. Instead, Marc Lasry was probably to blame. After he bought the Milwaukee Bucks in 2014, he cut in dozens of his friends and relatives. By early 2015, there were 37 owners of the Bucks, including Lasry’s hedge fund and poker playing buddy David Einhorn.
The potential new system for NBA team investors will be discussed at the upcoming owners meeting on Sept. 20.