Monday, October 13, 2014

As rumors fly about possible (partial) sale of the Nets and arena, valuations skyrocket thanks to new TV contract

Or, as Slate put it, Russian Plutocrat Set to Make $1.6 Billion in Brooklyn Via Tax Money, Threat of Property Seizure.

There's been a lot of chatter in the past ten days on the possible sale or "combination of assets" involving the Brooklyn Nets, the Barclays Center, and the owners of the Los Angeles Dodgers and other sports properties.

Many of the sources are unnamed and/or on background, so it's hard to tell how serious the deal is, and how much each source is using a leak to jockey for advantage. 

But the bottom line is this: Nets' principal owner Mikhail Prokhorov has seen a huge rise in the value of his share of the team and the Barclays Center operating company. 

So too has Forest City Ratner scored on its 55% share of the arena, and though Bruce Ratner sold the Nets and a share in the arena to Prokhorov at an unwise time, in retrospect, the boom in the team's value has made Ratner's 20% remaining share of the team quite valuable.

NetsDaily's Bob Windrem (aka "Net Income") broke the story 10/2/14, Brooklyn Nets in talks with Guggenheim, Dodgers owners, on "combination of assets":
The ownership of the Brooklyn Nets is in "ongoing discussions" with Guggenheim Sports and Entertainment Assets on a "combination of assets." Mikhail Prokhorov would remain in control of the Nets and Bruce Ratner would remain in control of Barclays Center, say sources close to the discussions.
Guggenheim Sports and Entertainment Assets is an affiliate of Guggenheim Partners. Another affiliate, Guggenheim Baseball Management, own the Los Angeles Dodgers.
In the discussions, the team is being valued at $1.7 billion and the arena at $1.1 billion, said multiple sources. There is no agreement yet, nor a deadline for a conclusion of the discussions. The next step would be an agreement in principle followed by a closing. The combined assets of a new entity could be as high as $8 billion.
... Presumably, in a combined entity, both Prokhorov and Ratner's shares would be reduced, but still be controlling.
...Also uncertain: would Nets ownership have any role with the Dodgers following a combination of assets. 
Note that in April of this year Forbes estimated the Nets were worth $780 million, while in May those selling Ratner's share valued the team at $1 billion. That now seems conservative. In other words, it's possible that Forest City will get more in cash for the sale of 20% of the team than the $200 million it did for 80% of the team. 

(Prokhorov also some of Forest City's losses, up to $60 million, took on debt, and has absorbed ongoing losses due to the league's most expensive payroll.)

The league's TV deal

Increasing the value of the team and the rest of the league, and complicating future labor negotiations, was a TV deal announced last week that triples revenues. The Times reported 10/7/14, Owners Can’t Line Their Pockets Now and Cry Poverty Later, LeBron James Says:
At the Cleveland Cavaliers’ practice facility,LeBron James threw down the gauntlet on future collective bargaining negotiations three years after the players were locked out and lost ground with team owners in a settlement on shared revenue.
“The whole thing that went on with the negotiation process was that the owners were telling us that they were losing money,” James said. “There is no way they can sit in front of us and tell us that right now.”
The Times reported 10/7/14, ESPN Will Stream Out-of-Market Games on Web as Part of N.B.A. Deal, with an incredible quote from one owner:
The N.B.A.’s new deals with ESPN and Turner Sports, which are worth $24 billion over nine years, provide the two media giants with the sort of sweeteners that are common in sports television contracts: more games, more highlights and more video to enhance their studio shows, as well as new programming like a postseason awards show on TNT.
...The renewals with ESPN and TNT, which go into effect in 2016, represent the first television deal done by [NBA Commissioner Adam] Silver since he became commissioner this year. The deals will bring an average of $2.66 billion to the league each season, up from the average $930 million it will receive for the final two years of the current deal.
The increased media revenue will fuel salaries, raise the salary cap and almost certainly push up consumer’s cable bills.
For owners, the new deals symbolize the increased value of their franchises and could lead to profits for teams that had been losing money.
Expectation of the payoff provided a rationale for the sale of the Milwaukee Bucks at $550 million and the Los Angeles Clippers at $2 billion. Ted Leonsis, the owner of the Washington Wizards and head of the league’s media committee, said, “There’s never been a better time to be an owner of an N.B.A. franchise or frankly any professional sports team.”
The Brooklyn Game reported 10/6/14, What does the new NBA deal mean for the Nets?
With the NBA slated to make an incredible amount of money in the new television deal, owners looking to sell their teams have never had a higher valuation. Enter the Nets, who have reportedly engaged the Guggenheim partners in discussion about a "combination of assets" that would combine Brooklyn Nets ownership with Los Angeles Dodgers ownership.
The details of the combination are unclear, and could change in an instant depending on either side's desires. If Nets owner Mikhail Prokhorov wants to sell his stake in the Nets franchise, his return could be 15 times his original investment of about $200 million. If they merely decide on some sort of partnership with Guggenheim, the proprietors of the Brooklyn Dodgers trademark, there's still an incredible amount of money to be made off that branding alone, and the ability to cross-brand the Nets & Brooklyn Dodgers could drive the price up further.
The deal off, the deal on

Since then, conflicting reports have emerged. The Wall Street Journal reported 10/7/14, Nets GM: Team Isn’t Cutting Costs or Looking for Sale:
The Nets are not cutting costs, they are still competing for a championship, and principal owner Mikhail Prokhorov is not selling the team, general manager Billy King said prior to Tuesday night’s preseason opener against Israel’s Maccabi Tel Aviv.
That still leaves room for other deals.

The New York Post reported 10/9/14 Dodgers-Nets parent companies uniting unlikely:
The parent companies of the LA Dodgers and the Brooklyn Nets will not be getting hitched after all, The Post has learned.
Although the two sides held talks recently, they have broken down and are unlikely to begin again, sources tell The Post.
...Prokhorov still wants to sell some of his 80 percent stake in the Nets — and Ratner wishes to unload his 55 percent Barclays stake, sources said.
The talks about combining assets would have allowed Prokhorov and Ratner to remove some cash from the deal.
If Ratner's selling his share of the arena, that would be a shift, since in May 2013 he described it as a unique investment:
So I realize that and having an arena is a very special thing because I use the word fortress. It's fortress real estate in a way. meaning it is something when you create it that can't be duplicated easily. Look, in almost half a century, this is only the second arena after MSG in an area this large."
NetsDaily reported 10/9/14:
NetsDaily received an email yesterday from a Guggenheim spokesman stating much the same. However, sources tell NetsDaily that things are not so dire, noting that deals like this are often difficult. The Guggenheim entity reportedly involved in the talks, Guggenheim Sports and Entertainment Assets, is different from Guggenheim Baseball Management that owns the Dodgers and that its range of investors could be different from those who have interests in the Dodgers, noted one source.
NetsDaily reported 10/10/14 that Nets CEO Brett Yormark told Reuters:
"Mikhail Prokhorov, our principal owner, is not looking to sell the team and for that matter, he's not necessarily looking for investors. He loves the Brooklyn Nets. He plans to be an owner for a very long period of time and is really focused on how we build the Brooklyn Nets brand as well as the Brooklyn Nets product. And that is what he is most focused on."
Then again, Yormark was the guy who insisted in March 2009 that original architect Frank Gehry was still on the project and still "loves" it, though it later emerged that Forest City had dumped Gehry Gehry's arena in November 2008.

Most recently, the Daily News reported 10/10/14, Nets still reviewing ‘multiple’ proposals from Dodgers parent group: source:
The Nets are currently reviewing “multiple” proposals from the Dodgers parent group about a possible merger of corporate assets, meaning the Dodgers could still be returning to Brooklyn despite repeated claims by the baseball group the deal is dead, a source close to the Nets told the Daily News on Thursday.
...However, because of the amount of media attention paid recently to the business talks and due to the Nets' current trip to China, the discussions have been tabled and are in a holding pattern, the source said, but they have not been terminated.
Walter recently released a statement through a spokesman saying that he has no interest in the Nets, but the source dismissed that claim as nothing more than a negotiation ploy.
Stay tuned.

No comments:

Post a Comment