Sunday, November 02, 2014

As TV deals bolster value of Nets, Prokhorov said to have pressure to sell; Blackstone Group helps team (and maybe arena) with financing

Depending on what you read, the Brooklyn Nets's valuation has risen thanks to a new TV deal, Mikhail Prokhorov is struggling to sell the team, and a refinancing means better terms for the team and possibly the arena.

In Team valuations reflect hot market, Sports Business Journal reported 10/27/14 that the Atlanta Hawks should sell for $750 million, which suggests the Brooklyn Nets would be worth much more.

As one SBJ source noted, "you are not just buying that team but buying a one-thirtieth interest in the NBA, which has proved to be a very solid and sustainable investment, and it’s obviously a league poised for global growth.”

Not only did the NBA nearly triple the value of its TV deal, the Nets will be able to renegotiate their local deal for far more. (Currently, the $25 million a year is dwarfed by the $35 million a year deal signed in the backwater market of Sacramento.)

Still, Bruce Ratner has had trouble selling his 20% of the Nets, aiming for a price based on an overall valuation of $1 billion, apparently because Mikhail Prokhorov, who owns 80% of the team, is operating at steady losses, based on a very high payroll.

NetsDaily added:
According to someone familiar with the negotiations, that [local TV] number is actually closer to $23 million and the Nets would like to see it considerably higher. The source noted that the Nets could potentially add more revenue from an increase in a renegotiated local TV rights deal than it will from an increase in the national TV package set to go into effect in 2016-17. In the national deal, each team will get $89 million annually. That's up from $31 million in the current deal.
Is Prokhorov selling, and why

Moscow-based independent journalist John Helmer, who covers oligarchs with a gimlet eye, wrote Here Are Some Reasons Why Mikhail Prokhorov Is Trying To Sell The Brooklyn Nets, published both on Business Insider and his Dances with Bears blog:
Mikhail Prokhorov thinks that his American basketball franchise, the Brooklyn Nets has grown eightfold in value in the five years since he acquired it for $223 million.
For the time being, though, no one agrees with him. That’s to say there is no buyer at Prokhorov’s asking price of $1.7 billion. If Prokhorov drops his price to $1.2 billion, as some sports media reporters claim, there is still no buyer.
NetsDaily notes that the $1.2 billion price was noted by ESPN earlier in the month. Helmer adds:
Today, if he’s obliged to accept a deal at the current industry valuation of $780 million for the team, Prokhorov must count that he has spent an additional amount of more than $600 million in player purchases, loss cover, debt service, and luxury taxes, ending up with no profit at all. If up was power in 2010, is down impotence today?
That looks like a loss, if not closer to a wash. (Prokhorov has also made money on arena financing, at least, given his loans to Forest City Ratner, while his share of arena revenues count as a small gain, I believe. And the value of the arena for selling purposes is $1.1 billion, according to ESPN.

Helmer suggests there's a pattern to Prokhorov's investments, in which hype exceeds performance:
On Prokhorov’s profit-loss record and his score for delivering on his promises, Bloomberg and the New York sports media have been mesmerized by Prokhorov’s How-to-spend-it advertising. The Russian media have investigated his corporate performance more carefully to discover that what Prokhorov advertises in asset value, he often fails to realize or deliver. Here is the loss making record at Polyus Gold, Uralkali, Rusal, and Renaissance Capital.
Though talk of Prokhorov's potential sale has slowed in the U.S., Helmer suggests that Russians believe Prokhorov is selling, trying to steer clear of the United States government's imposition of sanctions aimed against President Vladimir Putin.

Prokhorov sister, Irina Prokhorova, in July resigned from Civic Platform, Prokhorov’s political party, because "she opposes Russian policy in Ukraine, particularly the accession of Crimea," a dicey position from which her brother has steered clear.

The Blackstone Group steps in

The New York Post's Josh Kosman reported 10/29/14, Blackstone Group is the Barclays Center’s white knight that Stephen Schwarzman's Blackstone Group is very involved with the Brooklyn’s Barclays Center and the Nets:
Meanwhile, Blackstone in recent weeks through its GSO arm refinanced $60 million of Brooklyn Nets debt. That piece of the team’s $210 million loan was coming due, and Blackstone had the most enticing offer, sources said.
The Nets — likely worth nearly $2 billion but posting $144 million in losses last year — are likely paying about 7.5 percent, a source said.
Blackstone, too, has lent the Brooklyn Nets new Sunset Park practice facility $50 million, a source said.
Schwarzman also may help the Barclays Center get a better interest rate on the $511 million in state-authorized bonds that enable the arena developers to get a tax-exempt rate, via payments in lieu of taxes (PILOTs).

The Post noted that Blackstone Real Estate Debt Strategies principal Robert Tarulli formerly worked for Forest City Ratner, and worked on financing for Atlantic Yards

1 comment:

  1. Interesting that while Stephen A. Schwarzman’s Blackstone is getting involved representing oligarch Prokhorov in his sale of the Nets (where he may take a loss), Evercore, that David Offensend was involved with spinning off from Blackstone, is representing Bruce Ratner in connection with his sale of his 55% share of the arena itself (where he may take a loss).

    See earlier AY Report article: Tuesday, October 21, 2014, Current management seen as continuing at Barclays Center (operating company), though not clear how long; why is Ratner selling for seeming low price?

    To read more about Schwarzman of Backstone and Offensend of Evercore and the way they have both been involved in the sale and shrinkage of NYC libraries and a lot about our elected officials in connections therewith, see: Friday, October 31, 2014, Plutocratic Class Warrior Stephen A. Schwarzman: Public Impoverishment When Such An Individual Gains The Economic and Political Upper Hand?