Hours after the Oklahoma City Thunder clinched its first-ever berth in the NBA Finals comes a report that one of the team’s co-owners has used his stake in the team for two bank loans.
The Reuters report is another in a line of stories about how Aubrey McClendon has used creative financing to fund his company and personal investments. It indicates McClendon has built a “lavish but leveraged lifestyle” by mixing the two more than most shareholders may realize, according to Reuters’ review of public records and hundreds of pages of internal Chesapeake documents.
The company and McClendon’s spokesman declined to comment in the latest report, according to Reuters.
The Chesapeake Energy Corp. co-founder has been under increasing scrutiny since Reuters reported April 18 that he had used his personal stake in company wells to secure up to $1.1 billion in loans. Some of those funds came from a private equity firm that also had invested in Chesapeake, raising questions about a possible conflict of interest.
A subsequent Reuters report indicated McClendon had run a lucrative hedge fund inside the company with former partner Tom Ward, who is now CEO of SandRidge Energy Inc.
The company has been largely silent about the questions raised by those reports, especially as shareholder lawsuits against its board mounted. The tally has grown to at least 15 since the initial Reuters report.
One of the issues in those lawsuits is how much information Chesapeake should disclose to its shareholders.
Its involvement with the Thunder has been well documented, but McClendon’s 2009 and 2010 loans against future proceeds from his stake in the team have not been disclosed.
Chesapeake has invested in the Thunder as well, as one of the team’s founding sponsors since it arrived in Oklahoma City in 2008.
That relationship had been laid out in a succession of one-year contracts that covered advertising, game tickets and use of a suite at the team’s downtown Oklahoma City arena until last year, when Chesapeake signed a 12-year sponsorship agreement with the team, according to the company’s 2012 proxy statement.
Chesapeake paid about $1.9 million pursuant to that agreement last year, a figure reduced by the lockout, but the deal calls for the company to pay an average annual fee of $3 million a year.
The company paid about $4.6 million for playoff tickets last season and regular season tickets this year. It also has committed to buying playoff tickets and other sponsorship benefits during this year’s playoffs, according to the proxy statement.
Chesapeake also an annual fee over the next dozen years for naming rights to the arena now known as Chesapeake Energy Arena. The company paid $2.9 million for 2011-2012 season, but that figure will escalate to $4.1 million a year by 2023.
The company expects the naming rights deal to “provide Chesapeake with enhanced public awareness through recognition locally, nationally and internationally,” according to the proxy.
McClendon will not benefit from the company’s investment in the team he co-owns because he will donate his share of the proceeds from those deals to Oklahoma schools.
In January, Forbes pegged the Thunder’s value at $348 million, 15th highest in the NBA, That is about about $45 million below the NBA average and well behind the $900 million Los Angeles Lakers, the league’s most valuable team.
McClendon’s 19.2 stake in Thunder is worth nearly $67 million, based on that valuation.
That is only a fraction of what McClendon owes on loans to finance his obligation’s under Chesapeake’s controversial Founder Well Participation Program, which allows him to buy a stake in every well the company drills.
McClendon and his affiliates owed $846 million at the end of 2o11 on loans related to the well program, he disclosed April 26. He estimated his 2.5 percent share of oil and natural gas production from Chesapeake’s wells was worth $852 million at that time.
As details of McClendon’s personal finances have emerged, Chesapeake’s board has begun a search to replace him as chairman. The company also will end McClendon’s well participation program early.
Continued questions from shareholders –including the two largest investors in the company — spurred this week’s announcement that Chesapeake would replace four of its nine-member board later this month.
The new directors will be appointed by the company’s largest shareholders, Southeastern Asset Management and activist billionaire Carl Icahn.