Tuesday, April 29, 2014

With value of Brooklyn Nets rising, Ratner finally planning to sell that remaining 20% share

Yes, Forest City Enterprises'  20% share of the Brooklyn Nets is finally on the market, and likely will get a good price. The Wall Street Journal's Eliot Brown reports:
Developer Bruce Ratner is looking to sell his company’s 20% stake in the Brooklyn Nets, and has tapped investment bank Evercore Partners to advise him on the sale, according to multiple people familiar with the team.
As I reported in October 2012, Forest City--a real estate company--was not wedded to keeping the team, which was used to leverage a real estate project. ("That was really the impetus to it, really, bringing professional sports back to Brooklyn," Ratner claimed in May 2010.)

"We're currently evaluating the economics of the team in Brooklyn," executive Jim Lester said obliquely in 2012, according to a webcast of an Investor Day event. "As [arena/team CEO] Brett [Yormark] said, the sales going well. Player salaries are expensive, and the new CBA penalizes franchises for having hefty player salaries, so we're working through that now."

Since then, beginning their second year of existence, the Brooklyn Nets assumed the NBA's highest payroll. While that was the work of principal owner Mikhail Prokhorov, it also hit Ratner's ownership group.

Previous deals

Ratner and co-investors originally paid $300 million for the New Jersey Nets in 2004, then in 2009--facing cash flow problems--announced a sale of 80% of the money-losing team and 45% of the arena operating company to Prokhorov's Onexim Group. As summarized by Sports Business Journal via NetsDaily:
Onexim Group has agreed to put down $200 million in cash; assume about $180 million in franchise debt from Forest City Enterprises, Bruce Ratner's parent company; eat $60 million in costs--including losses--sustained while the team remains in New Jersey; and purchase up to $106 million in junk bonds needed to finance Barclays Center infrastructure, for a total of around $550 million.
(It turned out that Prokhorov offered a $75.8 million loan rather than buy those junk bonds.)

New value

The Nets are still losing money--Forest City's share was about $4.67 million last year. As I wrote last September, 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 agreed to pay Prokhorov a fee.

Thanks to a new arena and market, the value of the Brooklyn Nets, Forbes calculated this past January, has continued to skyrocket, from $357 million in 2012 (#14 in league, a 14% rise) to $530 million last year (#9, a 48% jump), to $780 million this year (#5, a 47% leap), the largest increase in the National Basketball Association.  

That number is of course debatable, but the Milwaukee Bucks, a losing franchise in a third-tier market, were just sold for $550 million.

So it may be an opportune time to sell. If that $780 million is solid, that would mean a $156 million take.


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