The annual Forbes list of NBA team valuations came out last week, and while the Knicks and Lakers got notice for being worth more than $1 billion, the 48% rise in value of the Brooklyn Nets, bringing the team value to $530 million even before assessing the full impact of the new arena and location, is astonishing.
Forbes reported:
The increase is due to higher revenue from television, new and renovated arenas, and the NBA’s new collective-bargaining agreement, which reduced player costs from 57% of revenues to roughly 50%. The labor deal also increased the amount of money high-revenue teams provide low-revenue teams.
Also, player costs went down because of the lockout, though the latter didn't affect some locked-in revenues.
Nets value leaps
The Nets were big winners:
The move from New Jersey to the $1 billion Barclays Center has transformed the team from one of the league’s financial laggards to one of its elite, with luxurious floor level suites that rent for $550,000 a year.
(Actually, the arena cost $845 million, as Forbes states elsewhere.)
Shouldn't this news make New York City and State officials rethink their pattern of agreeing to renegotiate deals for the Vanderbilt Yard and other subsidies/project benefits?
The Nets posted the NBA’s second-biggest operating loss in their final season playing in Newark’s Prudential Center, but it is a new era for the Nets after their move to Brooklyn and the opening of the Barclays Center. Jay-Z, a small investor in the Nets, opened the arena to rave reviews with a series of eight concerts in the fall. The team is adding the NHL's Islanders as a tenant starting in 2015, which will help offset the arena's operating expenses. Russian billionaire Mikhail Prokhorov owns 80% of the Nets and a 45% stake in the arena, while real estate developer Bruce Ratner owns a controlling interest in the Barclays Center and will operate the arena. Ratner also owns 20% of the basketball team.
Note that the Nets are worth $292 million alone--near what each of Prokhorov and Ratner put in, albeit before paying for losses--based on NBA revenue sharing.
Now the revenue sharing figure may adjust down because of the Brooklyn move, but surely the team's value attributable to city and market size, to arena, and to brand--all far, far lower than the comparable figures for the Knicks--will grow.
In other words, Ratner and Prokhorov--buying into a new arena, and new market--made a very smart deal, however long it took. (They don't own the arena, just the operating company. Remember, the arena is "publicly owned," for purposes of issuing tax-exempt bonds.)
And since Ratner and parent company Forest City Enterprises have considered selling the team, now might be a good time to take some profits--or, they could wait and see the value grow even further.
(Here's one blogger who contends that, in the past, Forbes has actually undervalued teams, which sell for even more than estimated value.)
In an era of ballooning television contracts fueling leaps in sports franchise values across every league, it’s easy to see why someone would–allegedly, mind you–offer up a ridiculous number for a team based in Boston, perhaps the most rabid sports market in the Western Hemisphere and home to a legacy that includes 17 NBA world championships. After ten years and hundreds of millions in added value under [Wyc] Grousbeck, the Celtics are primed to be flipped. You can’t blame someone for asking.
“It speaks to how valuable teams are becoming because of media rights,” he says. “Sports deliver the most valuable demographic to advertisers.”
Wealthy owners certainly carry more value in smaller markets. Money for things like arena fix-ups, which [Paul] Allen largely financed for Portland’s Rose Garden, and brand new buildings to escape New Jersey in, which the Brooklyn Nets got thanks to [Mikhail] Prokhorov’s partial buyout of Bruce Ratner, can get done despite relatively limited cash flows.
Yes, Prokhorov bought most of the Nets and a 45% share of the arena operating company, but the arena relies even more on naming rights/sponsorships and other cash flow to pay back the $511 million in tax-exempt bonds.
Would you believe that Russian oligarch/billionaire Mikhail Prokhorov, principal owner of the Brooklyn Nets, now has his own comic book, joining such luminaries (see bottom) as Bill Gates, Mark Zuckerberg, and Gabrielle Giffords.
It's another example of how a relatively modest investment in an American sports franchise has layered respectability on a controversial figure.
According to the promotion:
As a leading industrialist in Russia’s precious metals sector, Mikhail Prokhorov quickly rose to become the 7th richest man in the country. He ran against the mighty Vladimir Putin in the 2012 presidential elections and purchased the NBA team the Nets, moving the former Garden Staters to Brooklyn this year. As the center of his fair share of controversies over the years, the Russian billionaire has become one of the most talked about figures in Europe and beyond.
Looking more closely I haven't seen the comic book (available in print and via iTunes) but can't say the sample pages are necessarily well-researched. As noted in the sample panel below, Prokhorov is described as owning "45% of the real estate project currently developing Brooklyn's Atlantic Yards, where the NBA's Nets will relocate in September 2012, playing at Barclays Arena. He also owns the Nets."
Actually, he owns 45% of the arena (holding company), not the full Atlantic Yards project. nor is the real estate project "developing Brooklyn's Atlantic Yards," since the latter is a project, not a place. And, if we're talking percentages, Prokhorov owns 80% of the Nets--and that more prominent role should've come first.
Also, the panel could be updated to account for the fact that the Nets have already relocated and, to be graphically precise, to include the corporate logos on the seats. Prokhorov Comic Book page
The cover story in this week's Sports Illustrated, with Nets guard Deron Williams in front of a art-directed 1970s-style graffiti wall that melds Dodgers and Nets, is "Brooklyn Rising," by Rick Telander, author of the legendary 1976 book on Brooklyn street hoops, Heaven Is a Playground.
As noted in the Daily News, it's the first Nets cover since 2003, the Nets are the first NBA team this season to make the cover, and they're also "the subjects of NBA TV’s reality show, “The Association,” which will document their entire first season in Brooklyn."
“It’s been above and beyond what any of us expected,” General Manager Billy King told the Times of the publicity, “but it’s been great. It’s been a great launch.”
Telander spends more time reconnecting with the old street hoopsters of his/their youth, Albert King and Fly Williams, who took two very different paths, than analyzing the actual 2012 Nets, who, of course, haven't yet played together.
The cover animation
The history of Atlantic Yards
It's a sports magazine, so Telander provides an understandably potted history of Atlantic Yards:
And on and on. That's how he summarizes what I call the Culture of Cheating.
Enter Prokhorov, just like Ratner?
Telander writes:
Wait a sec: "connections, shrewdness, no-bid purchasing"? Isn't that exactly what Ratner deployed in Brooklyn? Sure.
In closing Just like Brett Yormark, Telander's all in. For some, the Dodgers connection is the romantic one. Telander remembers Flatbush in 1974, and it warms his heart. Everybody brings the Brooklyn they know.
TV host Charlie Rose was his sycophantic self in A discussion about the Barclays Center in Brooklyn, 10/1/12. with Karen Brooks Hopkins of BAM, Nets' principal owner Mikhail Prokhorov, his sister Irina Prokhorov, and arena developer Bruce Ratner.
In fact, though Rose was slightly more informed than he was when interviewed arena developer Bruce Ratner last March, his performance was even more embarrassing, since even Rose should have seen some tougher-than-before New York Times coverage. And he still couldn't get the name "Atlantic Yards" right.
He not only let Ratner get away with diminishing neighborhood opposition and claiming the arena was a gift to Brooklyn, Rose asked uninformed, leading questions about public concerns, Ratner's liberalism, and why his subject is misunderstood.
There were a few telling moments, however, in which Ratner contradicted his own words, such as acknowledging how he's "manipulated" (Rose's word) politicians "in the traditional way."
Leading off
"The Barclays Center in Brooklyn has been a dream of developer Bruce Ratner for the last decade," Rose began. "Its much anticipated opening marks the latest step in the revitalization of Brooklyn. It is not without controversy. There have been protests about what development does to neighborhoods."
Actually, the protests go much deeper. Nor has the "Barclays Center" been Ratner's dream, since the naming rights sale was announced only in 2007.
Ratner's dream
Rose led off, "You have been dreaming and dreaming and dreaming..."
"Now it's finally here," Ratner picked it up. "It's been hard and long, but worth it... there was every single impediment, from the recession to 35 litigations to the difficulty of constructing in the city... Also, I was called different names and so on."
35 litigations? I guess he means legal decisions.
(Videos are excerpts as recorded watching the computer.)
"You were called lots of names," the ever-uniformed Rose continued. "Because people didn't know what your intent was. And they worried that what you were promising you weren't going to deliver."
No, that's not why people question Ratner. They question Ratner because he's not trustworthy; as the Times said, he has a "reputation for promising anything to get a deal, only to renegotiate relentlessly for more favorable terms.
"That's true," Ratner said. "hey were worried that it wouldn't be attractive... that we wouldn't do it."
"What's the level of neighborhood protest," Rose continued, "community activists that worry that this kind of size will disrupt?"
"The actual strong opposition is relatively small," Ratner said. "I think there was 20 protesters out one day. It's generally quite small."
Brooklyn finished? Rose raised the cover of New York magazine with a long article about Brooklyn: "The Barclays Center--it's the center of the revitalized Brooklyn, yes?"
"It is," Ratner confirmed. "First of all, where it's located. It's right in the downtown, above 11 subway lines. "As such, it's a place where everybody can go to.... all kinds of entertainment.. a major major shift in the way people in Brooklyn spend their extra time."
And money.
Wait a sec. The C and the G train are a long walk away, and the D/N/R lines are best reached overground, at Fourth Avenue and Pacific Street.
"Did you know early on that you had to get a sports franchise to make this whole Atlantic project work?" Rose asked, misidentifying the project for the second time. (In March, Rose called the project "Atlantic City Yards.")
Ratner said no. "It was in reverse... Marty Markowitz, bless his soul, kept pestering me... so the idea was to get a sports team.. the best place to put them was where all these subways were."
Actually, it was Ratner's cousin Chuck who said 9/9/05, "We had finished a whole bunch of office and we completed MetroTech and we didn't have the next great site in Brooklyn. That was one of the reasons we got so aggressive and creative, Bruce and his team did in this Atlantic Yards project. We saw that land sitting there for this last 10 years, realizing it would be a great opportunity if somebody could turn it on."
Rose asked if buying the Nets was an easy deal.
Ratner said no, "because taking them out of New Jersey wasn't easy," as there were three other bidders.
Rose: "You won the bid because you offered the most?"
"That's the usual way, yes," Ratner responded, beaming. That provoked knowing, comfortable chuckles from the others at the table.
Except it's not the usual way when it came to the Vanderbilt Yard, the key piece of public property. Ratner offered $50 million in cash; rival Extell offered $150 million.
The Metropolitan Transportation Authority, controlled by political appointees, chose to negotiate only with Forest City Ratner. Even if the MTA thought Forest City's overall bid more valuable, as it claimed, why didn't it ask Extell to revise its bid?
About Brooklyn and the arena
Mikhail Prokhorov at one point said, buttering up his new borough, "for me, Brooklyn is like Moscow, multinational, very active, gutsy, so I feel like home."
Ratner called it the best basketball arena in the world: "Transportation, architecture, the way the seating is done.. food.. every aspect was done with the fan in mind."
Prokhorov agreed, and presented Rose with a Nets t-shirt and hat.
What could go wrong?
"So what could go wrong here, Bruce," Rose asked, not so probingly.
"I hope nothing," Ratner replied.
"What worries you," Rose continued. "You're a worrier--a soft-spoken worrier."
(Soft-spoken sometimes, but, as the Times reported, Ratner "loudly berated Rafael E. Cestero, then the housing commissioner, and Seth W. Pinsky, president of the city’s Economic Development Corporation, after not getting his way.")
"I guess, I'm worried about traffic a little bit, even though everybody had better take public transportation," Ratner continued. "There's always issues of safety.. everybody's looking at us.. it's really all the attention we've gotten, which means that anything that doesn't go right is going to be magnified."
Brooklyn's soul
"It is, I assume, to make sure that none of this causes Brooklyn to lose Brooklyn, to be what it is," Rose pontificated. "I mean, if you have the definition of something that has soul, you want to make sure that nothing gets in the way of that soul."
He looked toward Ratner.
"That's really it," Ratner affirmed, "and y'know something, throughout all of this, that was very critical, whether it be the food or everything, how do we continue the soul of Brooklyn? That's not easy to define, the soul of Brooklyn--
"--so it doesn't look like Brooklyn has been bought," Rose continued.
"That's correct," Ratner affirmed. "That is correct."
Wait a sec. Even Atlantic Yards supporter Steve Hindy of the Brooklyn Brewery told the Observer that he couldn't get his product out front at Barclays because others were paying more for sponsorship.
Other voices
Rose turned to Prokhorov: "You're smiling--do you think I'm right or wrong?"
"I think the Barclays Center is in keeping with the spirit of Brooklyn," the oligarch replied. "It's very energetic, it's passion, y'know, if you look at history, there were a lot of claims to change urban landscapes."
He suggested it was "just a matter of years and years" until the Barclays Center is considered an integral part of the landscape, not unlike the Eiffel Tower in Paris.
"You can't imagine New York without Central Park.... or the Empire State Building," Rose continued..
Brooks Hopkins observed, "I would say that Brooklyn today sort of represents the urban energy of 21st century New York City. "Our audience is very young, very diverse, they're ready to be challenged... I think that's sort of the vibe and whole attitude of Brooklyn. So the sports, the culture, everything that's happening sort of fits together right now. It's the Brooklyn moment."
"In other words, you want people, when they think New York, to think Brooklyn," Rose responded.
"Yeah," said Brooks Hopkins. "And I think people are thinking Brooklyn, because of all of this energy we are talking about. Because there is all this edge and attitude that is Brooklyn. And I think BAM has been a large part of driving that revitalization."
Misunderstood Ratner
About two-thirds of the way in, Rose tossed a big softball to Ratner: "What's the biggest misconception about you, that you would people like to know is simply not true?"
"You ask very good questions," Ratner replied, buttering up his interviewer. "I think that, this idea that was to do something great for Brooklyn, it really was. It was not economic, it was not all this, it was to really do something great for Brooklyn."
That, of course, is why he renegotiates deals so often and why he wanted to build a "airplane hangar" arena before public outcry changed his plans. (And why water at the arena costs $4.50 and soda $5.)
"I love Brooklyn. I've been working in Brooklyn for 25 years, chairman of BAM for ten years, I like every aspect of Brooklyn," Ratner continued, in an exercise of hyperbole. "So that was the idea. On the other hand, it's been described that I had all these other motives. That's really, I think, been the biggest."
"You had to all kinds of things to get there," Rose said with a smile, and a nudge toward reality. "A lot of roadblocks, you had to manipulate politicians."
"That's another thing. We did it in the traditional way in which large projects are done," Ratner replied, with a smile and a shrug. (That would mean lobbying and political contributions.)
Just last August Ratner told the Wall Street Journal, on video, "When you work with government, it's heavily on a staff level. It's really more about working on a staff level. On that level, we work in a very unpolitical way. We work just on the merits."
Family business/liberalism
Ratner told Rose that "occasionally it was very difficult" to present his plans to the family-controlled Forest City Enterprises. "And of course, they're not from New York... when you see litigations, the kind of noise, it was not easy."
"You always have been a liberal politically," Rose said, missing the point, "but people say, he's a liberal, but he's in real estate development?"
"The day I started in real estate development, I said I'd only do real estate development if it had a civic purpose, or employment," Ratner said. "And every project I've done I've attempted to do that."
But "civic" is a weasel word, encompassing a large number of things. I thought Ratner left public service and the non-profit world to go into business so he could make more money to raise his children, as he's said.
In closing
Rose said at the end, "Brooklyn has had a romance around it for a long, long time... you will see that it is a place that has a firm foundation to build something new, and that is what is taking place today."
