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Rays minority owners sue Stuart Sternberg over alleged scheme to 'squeeze' them out

A lawsuit claims unknown dealings have been happening for years. Now, those who own 9.6 percent of the team want action.

PINELLAS COUNTY, Fla. — Minority owners of the Tampa Bay Rays have filed a lawsuit against the team's principal owner Stuart Sternberg for taking part in what they describe as "a relentless scheme to squeeze" them out.

The 24-page complaint, first uncovered by the Tampa Bay Times, takes several issues with Sternberg's actions since 2004, including what the minority owners say was his failure to adhere to his duties of honesty, loyalty and good faith. 

A total of five minority owners are involved in the lawsuit against Sternberg who, as of 2020, owns 85 percent of the team, compared to their collective 9.6 percent.

"We are disappointed that a handful of our limited partners have filed suit," the Rays wrote in a statement published Tuesday on Twitter. "The suit is deceptive and inflammatory and is fraught with error and falsehood. We have abided by the partnership agreement and the Tropicana Field use agreement."

According to court documents, the minority owners say Sternberg seized partnership opportunities that culminated in him transferring the entire baseball club and franchise to a separate entity called Rays Baseball Club, LLC.

The issue? The lawsuit claims the company, based on sworn state corporate filings, is solely managed by Sternberg. And the minority owners claim they were not aware of such actions until 2020.

Other claims outlined in court documents include accusations of Sternberg misappropriating money from the Tampa Bay Rays, Ltd. "by secretly paying himself and several of his 501SG investor's salaries," withholding distributions and devaluing memberships interests.

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The minority owners say they believe their limited partnership interests were purposely devalued by these actions through Sternberg's alleged acts of strategically withholding distributions and leveraging "enormous" tax liability to keep them from increasing their interest.

For example, the lawsuit states in spite of exceeding a half-billion dollars in taxable income, Sternberg would not allow for distributions due to the MLB not liking teams to do so and the adverse impact COVID could have on the team.

But the minority owners claim that's not the case.

According to their reports, eight days after closing on an interest purchase Sternberg made his "first-ever distribution" with 85 percent of it going to 501SG to pay its own taxes that were due the following week.

Allegations are also made against the Rays' principal owner of encouraging people to "fire sell" their interests to his company, 501SG, at prices that were "far below fair value."

Credit: WTSP
Rays owner Stuart Sternberg speaks to media members. Team president Brian Auld is also pictured.

Court documents show found partners paid $800,000 per 1 percent ownership interest in the Tampa Bay Rays Baseball, Ltd., while limited partners later paid $1,000,000 per 1 percent.

"The limited partners rely absolutely on the fair dealing, loyalty and disclosure by Sternberg as general partner and managing partner to comply with his contractual and fiduciary obligations to the limited partners and the Partnership to maintain the value of their investment in the Partnership," the lawsuit states.

To catch up to the lawsuit allegations, we will need to go back to 2004 when Sternberg, through 501SG, is reported to have acquired 49 percent interest in the team. 

From there, the lawsuit alleges he "entered into a secret series of contracts" with Vince Naimoli who was the original founder of the Rays in an effort to bring MLB to Tampa Bay.

In their contracts, Naimoli would cede his position as managing partner to Sternberg under the pretense that in return Naimoli would get "management fees" for 12 years after he resigned, according to court documents.

Then in 2012, court documents show a "Put-Call Agreement" lined up for the purchase of all Naimoli's interests. The minority owners claim partnership funds were used to make the purchase but that Sternberg was the only one to benefit. 

501SG allocated all of Naimol's general partner interests and "a vast majority" of the limited partner interests to itself, according to the lawsuit. It adds that only a small portion of the limited partner interests were allocated elsewhere.

"Thus, by taking for himself all of Naimoli's general partner interests, Sternberg made himself the only general partner, remained the managing partner of the Partnership, and exercised complete and unfettered control over the Partnership," the minority owners wrote.

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Fast forward 16 years to 2020, and court documents say Sternberg now owns 85 percent of the team.

But why after all these years is a lawsuit now being filed? Minority owners claim it's because the listed acts were unknown to them until a buyout letter last year "raised a flag" that 501SG was acting against their best interests.

One of those red flags includes the allegation that Sternberg and 501SG "have significantly enriched themselves" through loan transactions and paying Naimoli, fellow 501Sg investors compensation from the Tampa Bay Rays Baseball, Ltd.

"This includes two presidents of the Rays who are also 501 SG investors and whose salaries, paid by the Partnership, Sternberg refuses to disclose to Plaintiffs," the lawsuit adds.

There is one final claim in the lawsuit that scratches the surface of a sore spot between the Rays and the City of St. Petersburg – the stadium saga.

According to the lawsuit, the minority owners also have uncovered that Sternberg has been "secretly negotiating to sell an interest in the franchise and club to a Canadian businessman." 

"Insulting, based on information and belief, these secret negotiations have been going on since the Spring of 2014," the lawsuit continues.

Credit: AP
Private equity mogul Stephen Bronfman speaks to the media about the prospect of Major League Baseball returning to Montreal on Wednesday, June 26, 2019.

That Canadian businessman's name is Stephen Bronfman, court documents show. And if he sounds familiar, that's because he was involved in discussions about making the Rays a sister-city team with Montreal back in 2019.

But the Rays’ lease runs through the 2027 season at Tropicana Field. Plus, the team is under an agreement that makes it unable for them to pursue hosting home games outside of St. Petersburg during that time period.

Approval from Mayor Rick Kriseman could have opened up that possibility; but as we saw through countless back-and-forths since, that isn't happening.

The City of St. Petersburg mayor offered the following statement on the matter via Twitter: 

"The verified legal complaint against Tampa Bay Rays Principal Owner Stu Sternberg is very concerning. As it relates to the City of St. Petersburg, we will carefully review the complaint as it appears to give rise to the question of whether the Rays Organization has defaulted on our use agreement. Regardless, Mr. Sternberg should consider relinquishing control of the organization. The residents of St. Petersburg and fans of the Rays should not be made to wait any longer for clarity related to the future of the team in Tampa Bay or redevelopment of the Tropicana Field Site."

In the meantime, the city's plans for the redevelopment of Tropicana Field are pushing forward. In a memo from Kriseman, the city will now review information collected to narrow down proposals from the site from four to two. 

Developers were asked to provide proposals to reimagine the 86-acre site with and without a baseball stadium.

As for the Rays' leadership group, they have other hopes for a new "world-class" eco-friendly outdoor stadium to be used year-round for the team, Tampa Bay Rowdies and other sports.

Sternberg, who is a part of the leadership group, in April said the plan would allow the Rays to play in St. Petersburg during the nicer parts of the year before moving north to Montreal.

10 Tampa Bay has reached out to Sternberg for comment. This story will be updated if he decides to comment beyond the statement the Rays released Tuesday.

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