Jim Crane, owner of the Houston Astros, has sued the club’s former owner. The lawsuit alleges fraud in a business deal that included not only the baseball team but also a 40 percent stake in the television network that broadcasts Houston Astros games locally. According to the lawsuit, Drayton McClain, Jr., the former owner, fraudulently inflated the fees that cable providers would pay for access to the network. But because providers were unwilling to pay those fees, the network was available in only 40 percent of the region’s homes. The suit states that those misrepresentations caused a loss in revenue to the tune of hundreds of millions of dollars.
McClane has responded to Crane’s allegations, saying that the details of the deal were well known and available for Crane to see. He said that thousands of pages of documentation were provided to Crane before the sale was completed.
Agreeing to the sale of even a small, local business can be very complex. The business’s assets are only one part of the transaction. Often, contracts with customers and other third parties, like suppliers, are crucial to the success of the business. If those relationships aren’t stable, the real worth of the business may be far lower than what was represented during negotiations. Take a small company that’s up for sale as an example. If 40 percent of the company’s revenue comes from a contract with a single customer, and the seller doesn’t disclose that his relationship with that customer has soured to the point of breaking, it could mean big trouble for the new owner.
The purchaser should conduct due diligence and ensure that the relationships that make the business valuable are stable and likely to last for the long term. But if the seller has actively taken steps to hide the business’s condition, the purchaser may have legal recourse against the seller. If they complete the transaction and it turns out that the seller lied, a lawsuit may be in order.
Proving that you were misled in a business purchase and didn’t just get yourself into a bad deal can be challenging. That’s why it is essential to have a competent Houston business dispute attorney on your side.