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Accounting issue? Forest City fails to fund capital call for Nets, pays fee to Prokhorov instead of shrinking ownership share

It's unclear why, but the Forest City Enterprises subsidiary that owns 20% of the Brooklyn Nets failed to fund a July 2013 capital call required to support the team's operating needs, but instead of losing a percentage of ownership to pay majority owner Mikhail Prokhorov agreed to pay a fee.

The numbers were undisclosed. The difference between paying a fee and funding that capital call may simply be a matter of accounting and/or tax savings.

While Nets Sports and Entertainment (NSE) is still losing some money on its share of the team, according to the Form 10-Q document Forest City Enterprises filed yesterday with the Securities and Exchange Commission, that loss has declined significantly.

Also, though it goes unmentioned, the value of NSE's stake in the team has risen significantly, as the team's value, according to Forbes, has risen to $530 million as of January (or more, according to Prokhorov's people), and surely will rise even more. Last October, a Forest City executive hinted that they were considering selling their share of the Nets.

From the SEC document

According to the Form 10-Q, with emphasis added:
The Nets
Our ownership of The Nets is through Nets Sports and Entertainment LLC (“NS&E”). NS&E also owns Brooklyn Arena, LLC (“Arena LLC”), an entity that through its subsidiaries oversaw the construction of and has a long-term lease in the Barclays Center, the home of The Nets. NS&E consolidates Arena LLC and accounts for its investment in The Nets on the equity method of accounting. As a result of consolidating NS&E, we record the entire net loss of The Nets allocated to NS&E in equity in loss of unconsolidated entities and allocate, based on an analysis of each respective members’ claims on the net book equity assuming a liquidation at book value, NS&E’s noncontrolling partners’ share of its losses, if any, through noncontrolling interests in our Statement of Operations.
On May 12, 2010, entities controlled by Mikhail Prokhorov (“MP Entities”) invested $223,000,000 and made certain funding commitments (“Funding Commitments”) to acquire 80% of The Nets, 45% of Arena LLC and the right to purchase up to 20% of Atlantic Yards Development Company, LLC, which will develop non-arena real estate. In accordance with the Funding Commitments, the MP Entities agreed to fund The Nets operating needs up to $60,000,000. 
The MP Entities met the $60,000,000 funding commitment during the three months ended July 31, 2011. As a result, NS&E was required to fund 100% of the operating needs, as defined, until the Barclays Center arena was complete and open, which occurred on September 28, 2012. Thereafter, members’ capital contributions are made in accordance with the operating agreements.
We did not fund the July 2013 capital call related to the 2013-2014 NBA basketball season. This does not constitute a default of any agreements related to our Nets investment. However, under the terms of the Operating Agreement, the MP Entities had the right to dilute NS&E's ownership interests upon NS&E not funding capital calls. During the three months ended July 31, 2013, we entered into an agreement with the MP Entities, in which they agreed to fund NS&E's portion of the July 2013 capital call and not exercise the right to dilute NS&E's ownership interests for a period of two years in exchange for a fee. As the Nets are not a core investment for us, beginning in the first quarter of 2014, The Nets will no longer be presented as a separate reportable segment and the results will be aggregated within the Corporate Activities segment.
The amount of equity in earnings (loss), net of noncontrolling interests, was $268,000 for the three months ended July 31, 2013, representing a decrease in our allocated losses of $8,540,000 compared with the same period in the prior year. The amount of equity in earnings (loss), net of noncontrolling interest, was $(2,713,000) for the six months ended July 31, 2013, representing a decrease in our allocated losses of $12,517,000 compared with the same period in the prior year. These decreases are due to impacts of our funding commitments as discussed above.

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