Off the Field, one adviser Raines supreme

The Deal
By Michael Brown
August 19, 2016

 

How it came to pass that the three largest sports transactions in history—involving martial arts, basketball and soccer—have been handled by one merchant bank.

When the owners of the Ultimate Fighting Championship were contacted this spring about selling their mixed martial arts league, there wasn’t even a debate about whom the company and its stakeholders would call to evaluate offers.

“We didn’t even really have to make a call,” said UFC CFO Nakisa Bidarian of Raine Group LLC, a New York-based boutique advisory and merchant bank. “We were, you could say, already on the phone with them when the inquiries came in.”

Ultimately, in July, UFC got sold for $4 billion sale to a group including Ari Emmanuel’s talent and entertainment company WME/IMG Holdings LLC.

Raine Group is not like your typical investment bank, explains Bidarian, a former Morgan Stanley and Citigroup Inc. banker in his own right.

The firm has been having a phone dialogue with UFC and its owners, brothers Frank and Lorenzo Fertitta, for more than a decade. Bidarian noted that Raine not only cultivates client relationships, advising them on all financial verticals, but it sometimes even invests alongside them.

“They are involved with the strategy meetings,” he explained. “Involved with management. You don’t get that typically with a lot of banks.”

Certainly, Raine Group’s founders have the pedigree you’d expect. Joseph Ravitch is a former Goldman Sachs & Co. banker and Cleary Gottlieb Steen & Hamilton LLP attorney, and Jeff Sine is an erstwhile UBS and Morgan Stanley banker. They founded the firm in 2009, deriving the Raine name from the first two letters of Ravitch and the last three from Sine.

But in the seven years since, their brand of client service has led Raine to advise on three marquee sports team deals. Besides the UFC transaction, Raine in May 2013 helped the New York Yankees and the English Premier League’s Manchester City FC start a Major League Soccer club called New York FC, and then last December helped Manchester City sell a 13% stake in the club to agroup of Chinese investors at a $3 billion valuation. On Aug. 12, 2014, Raine announced it had advised on Steve Ballmer’s then-record- setting $2 billion purchase of the Los Angeles Clippers. Ravitch had already helped the National Basketball Association on a number of transactions both as part of Raine and during his Goldman days.

Raine has been involved with less traditional sports, too. In 2012, it helped establish the Afghan Premier League professional soccer league with the help of the Afghanistan-based media company, Moby Group, and in November 2013, it invested in action sports entertainment company NitroCircus.

And it doesn’t just do sports.

Over the years, Raine has also invested in companies such as New York-based media company Vice Media Inc. and daily fantasy sports website DraftKings Inc. Sine advised the Japanese telecommunications giant SoftBank Corp. in its takeover of Sprint Corp. in October 2012. And in June, Raine partner John Salter advised Softbank on the sale of its stake in Finnish video game maker Supercell Oy to Tencent.

Raine’s co-founders have a long history with the Softbank, advising the Japanese telecom on a number of transactions even before starting the firm.

But that’s a running theme with the 70-person Raine. The firm has either gained depth with clients either before its founders started it, or from the time shortly after they initially joined forces.

Witness UFC, which is an example of the latter.

“We worked with the UFC for a long time,” Ravitch explained. “We were on their TV deal with Fox and investments from Abu Dhabi before this [sale to WME/IMG], so when they were approached, we didn’t have to necessarily ‘win the mandate.’ We were the only call they needed to make. [Our goal is] not so much winning the mandate, but building that relationship to be the first call.”

Raine never invested in UFC but was highly involved in all financial aspects of the league throughout much of the past decade, with one of its vice presidents, Colin Neville, pivotal as the day-to-day lead adviser to the fight promotion company, according to Bidarian, the league’s CFO.

“We worked with them closely on every strategic outcome,” he went on. “From continuous inbound interest to deciding whether or not we should spin off our digital assets.”

In January 2010, Raine helped the UFC negotiate a 10% stake sale to a group backed by the Abu Dhabi government called FlashEntertainment in a deal that valued UFC parent company Zuffa LLC—which is Italian for fighting—at more than $2 billion. And in August 2011 the firm advised the UFC on its seven-year television deal with 21st Century Fox Inc.’s (FOXA) Fox Sports division.

On July 11, just two days after the league’s 200th pay-per-view event, the relationship between Raine and the Fertittas came to a head. The league announced it was sold to WME-IMG, with backing from Silver Lake Partners LP, Michael Dell’s investment firm MSD Capital Inc. and KKR & Co. (KKR) in a $4 billion deal, the richest price ever paid for a sports franchise.

Raine was the lead sell-side adviser along with J.P. Morgan Chase & Co.

The Fertittas would retain a minority stake but Lorenzo Fertitta has agreed to step down from his post as CEO. Dana White will remain the president and the voice of the franchise.

The transaction has Raine threads running all through it. For one thing, WME invested in Raine in 2010 alongside private equity pioneer Ted Forstmann and Mubadala Development Co., the investment group that purchased a stake in UFC just after Raine’s founding. Ravitch’s former employer Goldman Sachs, meanwhile, worked alongside KKR Capital to advise the buyers. Silver Lake is an investor in WME/IMG and played a key financial role in the talent and entertainment company’s acquisition of Forstmann Little & Co.-backed IMG Worldwide Holdings Inc. in December 2013—a transaction Raine advised on.

Raine will remain a valued adviser to the UFC post-acquisition, said Bidarian, who happened to work at Mubadala before joining UFC in 2011.

With the Clippers assignment, Ravitch’s long-standing relationship with the NBA proved pivotal in Raine’s advisory work for the bidder, Ballmer, the former CEO of Microsoft Corp. (MSFT).

Ravitch helped the league sell a portion of its Chinese media rights to sports network ESPN in the early 2000s and also helped sell the New Jersey Nets and Seattle Supersonics before leaving the the firm in 2009. During his 23-year career at Goldman, he also worked side-by-side in the media department with the NBA’s current CFO, Jason Cahilly.

“They were a resource,” said Ed Dresser, who spent 23 years with the NBA in television operations and business development and has known Ravitch for years, about Goldman. “When we had problems with ownership or M&A-related work, they were someone we could call.”

While the Clippers sale was controversial and remains the NBA’s largest, it may actually not be the most noteworthy when it comes toRaine’s history with the NBA.

That honor may go to when Raine in July 2011 helped the NBA pull a 30-year old thorn from its side relating back to the league’s merger with the American Basketball Association.

In 1976, when the two then-struggling leagues agreed to merge, it was agreed that four of the ABA’s remaining teams—the New York Nets, the Indiana Pacers, the San Antonio Spurs and the Denver Nuggets —would go into the NBA and two others—the St. Louis Spirits and Kentucky Colonels—would liquidate.

John Y. Brown Jr., the owner of the Colonels, took a $3 million payout to sell off his players and cease operation. But brothers Ozzie and Daniel Silna, owners of the Spirits, refused to liquidate under the NBA’s terms.

Instead, in addition to an upfront payment of $2.2 million the Silnas wanted to be paid “in perpetuity” via a share of the television revenues the four surviving ABA teams would make after joining the NBA. They’d each pay one-seventh of their national TV money to the Silnas. The league agreed.

In 1976, the NBA’s television contract was less than $1 million, but by 2011, it was $1 billion per season. The league knew it had to do something about the Silnas.

Enter Ravitch and Raine, who were part of the team the NBA used to negotiate a settlement which, in January 2011, was reported to be $500 million.

“We had three or four attempts to settle the contract but every time there was some issue—[either] some vote we couldn’t get or some deal we couldn’t exactly hammer out,” explained Desser, who was President of NBA Television and New Media Ventures LLC, its multimedia operation, before retiring. “It depressed the valuations of those [four] franchises. It was a huge operational problem.”

Since then, those valuations have recovered. In 1991, a defunct magazine, Financial World, valued the Spurs at $47 million, the Nets at $43 million, the Nuggets at $41 million and the Pacers at $33 million. Today, Forbes magazine puts different values on them—the Nets ($1.7 billion, the Spurs ($1.15 billion), the Nuggets ($855 million) and the Pacers ($840 million.)

It’s not surprising that Raine and its principals have been part of that tremendous change in that before and after. It also has seen that dichotomy with UFC, Softbank and other clients.

“As a merchant bank we’ve had the opportunity to invest alongside growth. We can watch a company grow and also be invested with management. I think it’s something that has really helped us over the years,” said Raine president and COO, Brandon Gardner, a former Cleary Gottleib attorney like Ravitch who spent two years as the general counsel at New York-based alternative asset manager Serengeti Asset Management LP before coming to Raine. “We have the ability to go deeper with our advising assignments rather than just broader.”