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Credit: G.Bitvinskas, Tesonet | BasketNews iliustracija/E.Alšauskas Credit G.Bitvinskas, Tesonet | BasketNews iliustracija/E.Alšauskas

After announcing the new co-owner of Zalgiris Kaunas a week and a half ago, negotiations lasting more than a year and a half were closed, which led to the first such investment in the club's history.

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Lithuania's largest IT company, Tesonet, has acquired 25 percent shares of the country's largest sports club, Zalgiris.

How much did a quarter of the legendary club cost? What are the aims of one of the two unicorns of the country joining Zalgiris? And how will the Lithuanian powerhouse benefit from the new co-owner?

BasketNews tries to answer these questions.

Financial terms

15min.lt journalist Rokas Pakenas reported about the possibility of Tesonet joining Zalgiris at the end of December 2020. 16 months later, after the establishment of two new companies and the payment of the largest amount in Lithuanian history for the shares of the basketball club, Zalgiris Kaunas has a new shareholder.

As Zalgiris announced in an official announcement, Tesonet has acquired 25 percent shares of the Zalgiris group. Until then, Paulius Motiejunas was the sole shareholder of this company.

The holding company, established at the end of 2020, now combines all Zalgiris-related companies - 'Zalgirio krepsinio centras', 'Kauno Zalgirio remejas', Zalgiris Football Club, 'Kauno Arena', 'Delegatai', which is responsible for managing Zalgiris online shop, and others.

According to BasketNews, after the start of negotiations between Zalgiris and Tesonet on the possible acquisition of shares, an independent valuation of Zalgiris was performed. According to BasketNews, the value of the club is estimated at around €20 million.

This means that a 25 percent share of the club would be worth around €5 million.

Zalgiris, which announced the deal, did not disclose the financial terms of the agreement, and Tesonet also did not comment on them based on the terms of confidentiality.

According to the publicly available data of the Center of Registers, on April 15 of this year, Zalgiris group increased the company's share capital and distributed a new issue of registered shares with a value of just over €1.72 million.

This does not mean that the new shareholder paid this amount for the shares – the increase in the authorized capital is the amount contributed by all the company's shareholders for the benefit of the company.

According to BasketNews, Tesonet could have paid a total of around €3.5 million for the shares. This amount would include an increase in the share capital. Motiejunas split the remaining amount, around €1.7 million, equally with Arvydas Sabonis, a former club shareholder. Lithuanian basketball legend sold his 25 percent shares to Motiejunas before Zalgiris' deal with Tesonet.

Although the exact figures of the transaction are not disclosed, and the numbers above are preliminary, it is clear that this is the largest acquisition in Lithuanian sports ever.

Credit BNS

For comparison, last year 'Sostines Krepsinio Mokykla' (basketball academy in Vilnius) acquired 22.5 percent shares of the company managing Vilnius Rytas for €50,000.

In the past, Zalgiris shares were generally transferred basically for free. In 2006, Bank Snoras acquired 14% of the shares from Arvydas Sabonis for a symbolic price – 1 Lithuanian Litas (former Lithuanian currency, approximately €0.28) and committed to donate at least €870 thousand as a general sponsor for three years.

However, the bank only fulfilled its obligations in the first season, and the shares soon returned to Sabonis.

In 2009, another shareholder of Zalgiris, Vladimir Romanov, a businessman who owned Ukio Bankas, became a shareholder. He took over 75% of the club's shares for nothing but committed to pay off the debts that were more than €7.5 million.

This debt has never been paid.

When Ukio bankas collapsed in 2013 and Romanov fled to Russia to hide from law enforcement, he transferred his shares to his former associates, Angela Dementaviciute and Mindaugas Ugianskis. They transferred 25% of the shares to Motiejunas, who soon bought back the remaining 50%.

The debts of the Zalgiris club and the arena at the time were reported to be around €11.6 million.

Investing in growth not results on the court

Nine years later, Tesonet joins a very different Zalgiris than the one in 2013. And the role of the new shareholder will be completely different from that of any previous club owner.

Instead of giving a fish, Tesonet will give Zalgiris a fishing rod and teach them how to catch it for themselves.

Tesonet, which officially became the second Lithuanian unicorn (a company worth more than 1 billion), understands a thing or two about business.

"An investment in Zalgiris is not just an investment in basketball," Tomas Okman, co-founder of Tesonet, told BasketNews. "The legendary Zalgiris is one of Lithuania's strongest brands, with a long history, a name that is dear to the country, and today - a strong management team that delivers strong business results."

"We believe in this team and the opportunity to make a breakthrough together, expanding Zalgiris into an internationally recognized brand in the field of sports innovation," he adds.

Okman is open that sports matters or advising on which player or coach should be acquired is not and will not be his responsibility. By applying Tesonet's experience, Okman and his colleagues hope to help Zalgiris find new sources of revenue.

Examples include Real Madrid Next and Barca Innovation. These are projects of football teams that have nothing directly to do with on-field matters but at the same time apply the knowledge of organisations and help them earn money elsewhere.

In the case of Real, it's working on e-health and sports technology projects. In the case of Barcelona, it is a combination of different courses, training, and innovative companies.

"By combining sports business and technology competencies, both teams will be able to learn from each other," said Okman. "There are already many good examples around the world where the line between sports business and technology is blurring. There is a lot of value in exchanging know-how between organisations and technology companies, and technology is simply becoming part of every business."

The technology development projects will be handled by a newly established company Zalgiris Ventures, whose main goal will be not only to improve Zalgiris fans' experience in the arena and on the internet but also to expand abroad.

Viktorija Jokantaite-Kutke, who has made a name for herself in another fast-growing Lithuanian start-up, Kilo health, has been appointed as the director of this company.

"Our immediate plans will include a strong focus on developing sports innovation - business lines that enhance fans' experience both online and live in the arena," explained Okman. "We will develop the Zalgiris Insider content platform, and we are also discussing projects that would help improve the health of players, prevent injuries, and make things easier for team staff. We will focus on products and services that are relevant outside the local market."

Tesonet's or this company's brands will not be visible in the brightest advertising spots of Zalgiris. According to Okman, business visibility is not their goal.

"Unless we see synergies in individual projects," said Okmanas.

The new shareholder of Zalgiris delegates Jonas Karklis, a member of the board of Tesonet, to the board of the club.

Last month, Tesonet announced that it had attracted an investment of €100 million, bringing the company's value to €1.6 billion. It is Lithuania's most valuable IT company, with the largest number of employees, around 2 000.

The founders of the company, Tomas Okman, and Eimantas Sabaliauskas, are highly respected in the Lithuanian IT community. It is noted that they are people with the right values who have not been changed by the huge amount of money they have earned quickly.

Jonas Karklis and Viktorija Jokantaite-Kutke are also mentioned in the best words among colleagues.

A solid foundation has been laid for the union of Zalgiris and Tesonet. Only time will tell what this will turn into.

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