Court seals complaint against Sky owner Michael Alter, debt conversion at center of lawsuit

The juiciest details in the Sky’s ownership dispute will remain filed away. On Wednesday, the Circuit Court of Cook County granted plaintiff Steven Rogers’ request to file his complaint under seal.

Rogers, a former Northwestern professor and entrepreneur, is suing principal owner Michael Alter for breach of contract and fiduciary duty. In his motion to seal, Rogers argued that the team’s operating agreement and a nondisclosure agreement prohibit public disclosure of confidential information. Alter’s counsel did not object.

That leaves the public with a heavily redacted complaint in which the mechanics of how Alter allegedly “seized a major stake of the team, with no lawful basis and at an unfair price and at the expense of the other investors,” remain unclear.

Reading between the lines, Rogers’ two broad claims emerge: that Alter, as sole manager of the investment trust, ignored record-keeping and approval procedures required by the operating agreement, and that he engaged in opportunistic self-dealing that diluted minority investors as the franchise’s value surged. Alter, through his lawyer, has called those allegations “meritless.”

Multiple investors who spoke to the Sun-Times believe Rogers’ allegations center on a debt-to-equity conversion Alter conducted around the time of the team’s 2023 capital raise.

In 2023, the Sky raised $8.5 million from a small group of investors including Laura Ricketts, Mary Dillon and Dwyane Wade, at an $85 million valuation. At the time, the team said the funds would be used to improve player experience and help finance a dedicated practice facility, which they needed to keep pace in a growing league. Since then, the league has boomed; expansion franchises are now paying $250 million fees to join.

On its face, there is nothing nefarious about swapping debt for equity. Investors estimate Alter loaned between $20 million and $30 million to the Sky over its 20-year history to keep the team afloat. In a debt-for-equity swap, instead of the team repaying that money in cash, the lender converts the debt into additional ownership. The consequence is dilution: existing minority owners’ percentage stakes shrink.

The key questions are whether the conversion was authorized under the operating agreement and whether the process was fair. Because Alter owes fiduciary duties to minority investors, courts typically examine whether there was proper disclosure, approval and independent oversight.

With the operating agreement now sealed, what remains are competing accounts from Sky investors.

Linda Friedman, a member of the original investor group and one of the largest investors behind Alter, strongly disagrees with Rogers’ claims and believes Alter has always operated the business with integrity.

“The idea that he cheated anybody is so unfair,” Friedman told the Sun-Times.

She said investors received “complete disclosure” of the transaction and that Alter converted at the same valuation as the outside group, providing documentation that illustrated the dilutive impact on her ownership stake.

In her view, the debt conversion was essential to the $8.5 million capital raise. She said Alter initially sought to raise a much larger amount, but outside investors balked at the franchise’s history of losses and significant debt load. Converting the debt, she said, made the limited capital raise possible.

Another early investor, speaking on the condition of anonymity, offered a different view. He said the capital raise fell short because of a scattered approach to fundraising. He echoed Rogers’ concerns about governance and transparency, saying he did not realize Alter’s loans were convertible and did not understand how the conversion was valued. Past suggestions to strengthen oversight, he added, were dismissed.

Still, he acknowledged that for much of the Sky’s history, minority investors paid little attention to governance because the franchise didn’t have much economic value. As the asset has grown more substantial, he expects oversight to improve.

At this time, no other minority investors have joined Rogers’ suit.

Alter has been served, and the court set a status date for April 20. He now faces a mid-April deadline to either answer the complaint or move to dismiss it.