Ten questions: Prokhorov-Nets deal
Answering the big questions surrounding the potential sale of the New Jersey Nets
The question has already been flying around north Jersey for days: Is the tentative agreement for Russian billionaire Mikhail Prokhorov to buy an 80 percent share of the New Jersey Nets a done deal?
Or, in English: N'yet -- as in, not yet.
Several unresolved issues must be settled before current majority owner Bruce Ratner's controlling interest in the team can be transferred to the richest man in Russia, and it is far from certain that those hurdles can be overcome in time to get this deal done by Dec. 31 -- a significant deadline explained in detail below.
There also is the matter of the league's background check, and the question of whether legislators will stand in the way of an overseas entity's becoming one of the primary financial beneficiaries of tax breaks being paid for by the citizens of the state of New York.
So let's have a look at the top 10 questions surrounding the sale of the Nets:
1. Who is Russian oligarch Mikhail Prokhorov, and how did he make his fortune?
It's a long, complicated story, so here is the abridged version.
As a young banker with solid ties to the Kremlin, Prokhorov gained control of a formerly state-owned nickel mining company following the allegedly rigged auctioning of state-owned assets after the breakup of the Soviet Union. A scandal in January 2007 in which he was alleged to have flown prostitutes to a French Alpine ski resort forced him to sell his stake in the mining company, Norilsk Nickel, and the sale happened just before the global financial crisis hit. Prokhorov managed to cash out at exactly the right moment, making him so cash-heavy that he is considered the richest man in Russia. The business magazine Finans estimates his worth at $14.9 billion. Forbes says it's $9.5 billion.
2. Will the sale go through?
That's a big, big question, because the Nets sale is contingent on Ratner's obtaining financing and control of the land for his mammoth Atlantic Yards project in Brooklyn by the end of the year.
Part of the answer will come in the next few weeks, as Ratner and the Nets have a date in the New York State Court of Appeals on Oct. 14; a group opposing the Brooklyn project is seeking a reversal of its previous court loss in which it challenged eminent domain procedures used to acquire land for the project. The Nets are confident of victory, saying they are 25-0 in court cases related to the Brooklyn project, and they note that the U.S. Supreme Court has already declined to hear the appeal from the group fighting Ratner.
In the Nets' eyes, they're entering the bottom of the ninth with a sizeable lead.
3. So if the Nets win in court on Oct. 14, that's the last hurdle?
Not exactly. The group opposing the Brooklyn project, "Develop Don't Destroy," has indicated it will seek other avenues to delay the start of construction through the end of the year, because if Ratner and the Nets don't sink a shovel into the ground in Brooklyn by Dec. 31, they will lose access to tax-exempt bonds that Ratner is planning to use to finance a portion of the 22-acre, $4.9 billion development. The law that created those bonds has been rewritten, but the Nets project was grandfathered in with the caveat that their special exemption expires Dec. 31.
After initially predicting a 2007 opening, the Nets are now projecting their $800 million Brooklyn arena will be ready for the 2011-12 season.
4. Why would Prokhorov target the Nets from among the available franchises in the league?
Unlike the Charlotte Bobcats and Memphis Grizzlies, both of whom are locked into long-term leases tied to the construction of their recently built arenas, the Nets are desirable because of the size of the market they play in, because the team is on a year-to-year lease at the Meadowlands (and therefore is potentially portable) and because the upside of relocating to Brooklyn -- becoming a major threat to the Knicks' hold on the New York metropolitan area's fan base -- is so huge.
Also, Ratner was so eager to make a deal to secure additional financing for the Atlantic Yards project, because of the tightening of the credit markets, that he yielded to many of Prokhorov's terms in order to speed up the deal. Remember, Ratner paid $300 million when he bought his share of the Nets. This sale places the franchise's overall value at $250 million, which means Ratner is taking a substantial haircut.
5. How would this sale affect the Nets' pursuit of LeBron James and other free agents?
A year or two ago, the Nets were often discussed as a possible free-agent destination for James because of his relationship with rapper Jay-Z, who owns a small share of the Nets and will retain that share if the sale to Prokhorov goes through.
New Jersey is poised to be a major player on the free-agent market next summer with $20-22 million in cap room after the big contracts of Bobby Simmons ($10.6 million), Tony Battie ($6.3M), Rafer Alston ($5.25M), Trenton Hassell ($4.35M) and Jarvis Hayes ($2.06M) expire.
Devin Harris and Brook Lopez are the team's main building blocks and Courtney Lee and Yi Jianlian might be keepers, but it still seems like a stretch to imagine James forsaking the possibility of remaining in Cleveland or relocating to Madison Square Garden (home of the Knicks) in favor of spending one or more seasons in the Meadowlands. "The Swamp" is no place for The King.
6. What about the futures of Rod Thorn and Kiki Vandeweghe, two of the most respected front-office executives in the NBA, and coach Lawrence Frank, who has the longest tenure of any Eastern Conference head coach?
All of them are lame ducks, in a way, because all are in the final years of their contracts, and the franchise has been unwilling to make any long-term commitments until the ownership issue is settled. Some of the Nets' assistant coaches had to take pay cuts (lead assistant Brian Hill refused to do so and joined the Pistons), and the front-office staff was reduced.
Like everyone else surrounding the Nets, Thorn, Vandeweghe and Frank will have to wait and see what happens in court on Oct. 14, and whether Ratner gets that first shovel into the ground in Brooklyn before those tax-exempt bonds expire Dec. 31. (Along those lines, Ratner cleared another significant hurdle last month when the Empire State Development Corporation, a New York regulatory agency, approved the Atlantic Yards project.)
7. How will the other owners react to having a free-spending Russian billionaire in their midst?
Will his checks bounce? Forget all the other stuff about background checks, personal skeletons and/or questionable connections. Is his wealth verifiable? And how much of it is in cold, hard cash? The legitimacy of the money behind this deal is the No. 1 question the 29 other owners will have, and NBA bylaws require that only three-quarters of the owners approve the sale.
And let's be real here: The more frugal of the league's owners will be especially welcoming to any prospective owner who would try to spend his way to the top and pay the luxury tax, since that money is divided among the non-taxpaying owners. With Mark Cuban and James Dolan both a lot less free-spending than they once were, the owners would like nothing more than to bring aboard a guy with extremely deep pockets and little conscience when it comes to opening up his wallet. (When CSKA Moscow's basketball team, partly owned by Prokhorov, won the Euroleague title in 2008, the players in the victorious locker room sprayed each other with Magnum bottles of Cristal champagne that cost $650 apiece.)
8. How could this sale change the overall business landscape of the NBA, both in the U.S. and overseas?
The NBA has been at the forefront of going global, and approving majority foreign ownership of one of the 30 franchises was the next logical step along that road -- especially after Chinese investors reached a deal with the Cavaliers to buy a 15 percent minority stake in Dan Gilbert's franchise.
The league's 30 owners have shied away from expansion in recent years, in no small part because of their reluctance to going from having 1/30th equity in the league to 1/31st or 1/32nd, but the prospect of having another deep-pocketed dude -- doesn't matter what country he calls home -- come in and pay something in the neighborhood of $500 million for an expansion franchise in Las Vegas, for example, would be difficult to turn down. Those owners were more than happy to take Bob Johnson's $300 million (he paid much of his expansion fee with Viacom stock) and divvy it up, and there's always someone on the outside of the NBA with money to burn who needs a new toy and is looking to get in. They like those kinds of guys.
9. What happens to the Prokhorov deal if Ratner is unable to break ground in Brooklyn by Dec. 31?
The deal would be off; the team would still be Ratner's, it would go back on the market, and there would immediately be a franchise as a candidate to relocate to Seattle (if a new arena deal is approved), Anaheim, Kansas City, St. Louis or some other city with designs on getting an NBA team.
The Nets have never had a strong fan base in New Jersey and routinely play before thousands of empty seats. Ratner, tired of absorbing millions in operating losses annually on the Nets, would presumably find another buyer. And as noted above, the Nets are singularly attractive among franchises with the "For Sale" sign posted because they are not locked into a long-term lease.
10. So, does the Prokhorov deal go down, or not?
When a deal this big is contingent on getting something built in New York, it's inherently tenuous. There are tons of wonderful architecture and infrastructure around New York, nearly all of it built decades and decades ago. Just ask the people who have been waiting 50 years for the Second Avenue subway to be built. You'll find them by the thousands packed like sardines on the Lexington Avenue subway line, the only one serving Manhattan's densely populated Upper East Side.
Unless your name is Donald Trump or you own a baseball team, it takes forever to get stuff built in New York, and all it takes is one or two temporary restraining orders from one or two judges sympathetic to Ratner's opponents to grind the process to a halt and possibly keep that first shovel from going into the ground by Dec. 31.
With that in mind, we should call this one a 50-50 proposition. But Ratner has overcome a ton of hurdles already on the Atlantic Yards project, so we'll tilt the odds in his favor: 60-40 that the big Russian has his hands on the Nets by the time the 2009-10 season ends.
Chris Sheridan covers the NBA for ESPN Insider.