South East Melbourne Phoenix joins Illawarra Hawks in legal action against NBL
The increasingly heated NSW Supreme Court stoush between the Illawarra Hawks’ Jared Novelly and NBL owner Larry Kestelman has been joined by another top-flight basketball team.
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Larry Kestelman’s ownership and leadership of the National Basketball League is “no way to run a junior amateur league, never mind a professional league”, according to the owner of a club who has joined legal action against the competition.
In a potential blow to Mr Kestelman, South East Melbourne Phoenix – majority owned by US entrepreneur Romie Chaudhari – has officially joined the Illawarra Hawks’ NSW Supreme Court action against the NBL.
The Hawks are owned by another American businessman, Jared Novelly, who has been a constant critic of Mr Kestelman’s ownership of the league and who claims there is little financial or strategic say in the way the league is run and operated for the owners of the 10 NBL clubs.
Mr Chaudhari, who has real estate and private equity investments and stakes in US and UK soccer clubs, and heads a Phoenix ownership consortium which includes tennis ace Nick Kyrgios, was deeply concerned about what he said was a lack of transparency for the league’s operations under Mr Kestelman.
“Buying into SE Melbourne was about seizing the opportunity to be part of building a world-class league with passionate fans. So far, we’ve invested tens of millions of dollars but remain deeply concerned that we are potentially exposed to self-interest and integrity issues,” Mr Chaudhari said.
“For the league to reach its potential, it must be built on a bedrock of transparency and fairness, and that’s why we are taking this step.”
Mr Novelly had taken to court his concerns about the way the league is governed under Mr Kestelman and his management team, asking for access to documents about the private league’s financial position, licence agreements and distribution of funds.
He has argued that Mr Kestelman, as league owner, has implemented a financial system which mostly benefits him and leaves NBL club owners like Mr Novelly having to cover what they claim are potentially up to $30m of combined losses each year.
Mr Kestelman, a member of The List – Australia’s Richest 250, has disputed the figures and held firm, claiming his leadership has led to the NBL to recently having its best season ever in attendance, viewership and sponsorship terms, while the capital values of clubs keep appreciating.
In a move first reported by the Margin Call column, Mr Novelly previously discussed with other club owners the prospect of putting forward a $44m package for Mr Kestelman’s NBL stake.
But Mr Kestelman, who for $7m bought a majority of what was then a struggling competition 10 years ago, said in a March interview with The Australian that his reaction when he learned of Novelly’s offer was “huge disappointment …(and) that it was also completely unwarranted. Insulting is the other word that comes to mind.”
Mr Chaudhari said he did not take the legal move by the Phoenix “lightly” but argued he had “been left with no other option after years of questions going unanswered.
“Earlier this year, the owners voted for change and were ignored. It’s a shame it has come to a legal process but we consider it necessary to get the information we need as a first step to fixing the game,” Mr Chaudhari said.
“It (the current ownership model under Mr Kestelman) is no way to run a junior amateur league, never mind a professional league with millions of fans.”
Mr Kestelman has recently started paying a distribution to clubs of 25 per cent of the NBL’s net profit, but clubs accused him of not showing exact financial details as to how the profit was calculated. (The NBL says it has shared full financial reports audited by PwC but owners have disputed this.)
In late February, the clubs were sent an “advisory services final report” conducted by KPMG, showing the NBL made about $6m in net profit annually for the past three years and had about $15m in related party transactions with various parts of Kestelman’s business empire (including apparel, legal, media, advisory and other services).
The report found “no significant (issues) were noted from the … scope areas it considered.”
It said that as the NBL grows and matures “there is a need to consider how the clarity or approach to how transactions impacting on clubs is communicated”.
Mr Kestelman has claimed the league could be worth at least $300m to $400m, given similar valuations for soccer’s A-League and other competitions.
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Originally published as South East Melbourne Phoenix joins Illawarra Hawks in legal action against NBL
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