Tsai buys Nets, Barclays Center operating company, in faster-than-expected transaction; Yormark leaving; should NY get some of the Prokhorov's profits?
In a faster-than-expected second and final phase (which could have taken until 2021) of the sale of the Brooklyn Nets to fellow billionaire Joe Tsai, Mikhail Prokhorov is out, with some huge profits, selling the team at a valuation of $2.35 billion, a league record.
Note: the transaction was announced in April 2018, well before the Nets' surprisingly strong season in 2018-19, as well as the coup of signing star free agents Kyrie Irving and Kevin Durant. In other words, the value was based on the New York market and the NBA's future as a global brand, not the Nets' specific performance. Now there's surely reason for Tsai to take over earlier than he had to.
Prokhorov's also selling the Barclays Center operating company (not the arena itself, a common error) to Tsai, maybe not at a significant profit. The Post reported it at $700 million, which is less than the $825 million valuation in 2016 when Prokhorov bought the remaining 55% of the company from Forest City Realty Trust/Forest City Ratner. (Prokhorov also bought the remaining 20% of the team, at the valuation of $875 million.)
That said, Prokhorov's initial 45% purchase came much cheaper, part of a 2010 investment when Bruce Ratner faced a cash crunch.
Separately, NetsDaily reported that "a league source involved in the transaction said the final price tag for the team and venue is $3.5 billion," including $320 million in arena debt.
Does that value the arena at $1 billion-plus? Unclear. It's always tough to trust the number when the sources are shrouded. Either way, it's not detracting from the huge Nets haul. (The NBA likes team owners also to control the arenas.)
Also out is BSE Global and Nets CEO Brett Yormark, with a purported large exit package, which means a replacement is being recruited. It's understandable that Yormark would leave--or ultimately be pushed--upon an ownership change.
A big profit, and a big question
What's Prokhorov's overall profit? Easily $1 billion, but the numbers are murky. I'll try to address that at another juncture.
Slate's Ben Mathis-Lilley, in "How an Outrageous NBA Transaction Supports Elizabeth Warren’s Case to Be President," wrote:
Utlimately, Prokhorov did help raise the value of the time, finally hire a good General Manager, and he did build a new practice facility.
But a key bonus was the league's cartel-like structure and new labor and television deals, which increase the value of franchises plus, as Mathis-Lilley wrote, the significant value of subsidies, tax breaks, and eminent domain (he left out naming rights):
But it's a reminder, as two scholars wrote in 2003 of sports team owners: "while on the verge of their greatest growth and prosperity as private business enterprises, they succeeded in shifting an important element of their cost structure to the public sector."
Then there's the reminder of the unfulfilled promises:
“If the Nets are bad and the Knicks become good no one would care about the Nets,” one anonymous source said. Then again, the Nets without their new stars are probably better than the uncertain--and likely short-term--Knicks roster.
Note: the transaction was announced in April 2018, well before the Nets' surprisingly strong season in 2018-19, as well as the coup of signing star free agents Kyrie Irving and Kevin Durant. In other words, the value was based on the New York market and the NBA's future as a global brand, not the Nets' specific performance. Now there's surely reason for Tsai to take over earlier than he had to.
Prokhorov's also selling the Barclays Center operating company (not the arena itself, a common error) to Tsai, maybe not at a significant profit. The Post reported it at $700 million, which is less than the $825 million valuation in 2016 when Prokhorov bought the remaining 55% of the company from Forest City Realty Trust/Forest City Ratner. (Prokhorov also bought the remaining 20% of the team, at the valuation of $875 million.)
That said, Prokhorov's initial 45% purchase came much cheaper, part of a 2010 investment when Bruce Ratner faced a cash crunch.
Separately, NetsDaily reported that "a league source involved in the transaction said the final price tag for the team and venue is $3.5 billion," including $320 million in arena debt.
Does that value the arena at $1 billion-plus? Unclear. It's always tough to trust the number when the sources are shrouded. Either way, it's not detracting from the huge Nets haul. (The NBA likes team owners also to control the arenas.)
Also out is BSE Global and Nets CEO Brett Yormark, with a purported large exit package, which means a replacement is being recruited. It's understandable that Yormark would leave--or ultimately be pushed--upon an ownership change.
A big profit, and a big question
What's Prokhorov's overall profit? Easily $1 billion, but the numbers are murky. I'll try to address that at another juncture.
Slate's Ben Mathis-Lilley, in "How an Outrageous NBA Transaction Supports Elizabeth Warren’s Case to Be President," wrote:
What did Prokhorov do to increase the value of the Nets franchise, which was based in dismal northern New Jersey when he purchased it? Well, he did almost nothing. The state and city governments of New York, though, did quite a bit...I wrote in 2010, when Prokhorov was being embraced as an oligarch savior (who of course would not, had he been the applicant for Atlantic Yards and the arena, been able to work the system the way local real-estate veteran Bruce Ratner did), that he should've paid full freight.
Utlimately, Prokhorov did help raise the value of the time, finally hire a good General Manager, and he did build a new practice facility.
But a key bonus was the league's cartel-like structure and new labor and television deals, which increase the value of franchises plus, as Mathis-Lilley wrote, the significant value of subsidies, tax breaks, and eminent domain (he left out naming rights):
What if, instead of doing this, New York had just bought a stake in the Nets itself, then sold the team after 10 years like Prokhorov did? I’ll tell you what would have happened: It would have $2 billion more than it does now, enough to, for example, cover several years’ worth of the budget shortfall that’s helping cripple New York City’s delay-ridden subway system.That's an argument for a piece of the upside, though it would also be an argument, perhaps, for a piece of the downside in the overall Atlantic Yards/Pacific Park project, as well as the not-so-successful Barclays Center.
But it's a reminder, as two scholars wrote in 2003 of sports team owners: "while on the verge of their greatest growth and prosperity as private business enterprises, they succeeded in shifting an important element of their cost structure to the public sector."
Then there's the reminder of the unfulfilled promises:
The China bonusBig payday for @BrooklynNets owner Prokhorov as rest of #Brooklyn waits for #affordablehousing, open space, more at #AtlanticYards @pacificparkbk. https://t.co/WWJXoi3ibb— Gib Veconi (@GibVeconi) August 16, 2019
The NY Post's Josh Kosman and Brian Lewis last night noted that, though the Taiwanese-Canadian Tsai paid a record price (though other teams are worth more, they haven't been put up for sale) and the team had the league's worst attendance, there is an upside: international growth, especially in China:
In just one sign of how hot China is getting for the NBA, tech company Tencent Holdings last month announced a five-year expansion of its existing digital media partnership with the basketball league. And it agreed to pay $1.5 billion for the rights — or triple the previous price of $500 million, a source said.Also, of course, the Nets expect more wins, more attendance, and more revenue--which could be jeopardized if star Kevin Durant doesn't successfully complete rehab.
“If the Nets are bad and the Knicks become good no one would care about the Nets,” one anonymous source said. Then again, the Nets without their new stars are probably better than the uncertain--and likely short-term--Knicks roster.
Their summary of the financials:
"This transaction has no impact on Webster Hall and NYCB LIVE, including its surrounding Hub development, which will continue to be managed by [Prokhorov's] Onexim," according to the press release (bottom).
As Newsday's Jim Baumbach tweeted, The question of the day on this story: Did Prokhorov want to hold on to the Coliseum... or did Tsai not want the Coliseum?" The answer he got? Silence. Of course, as I've written, the operator of the Coliseum will be severely threatened by the new Belmont arena.
Newsday's Randi Marshall noted, in The Point yesterday:
What about the Paramount?
Though it wasn't mentioned in the press release, BSE Global is also involved in the slower-than-expected renovation of the Paramount Theater in Brooklyn.
The departure of Yormark, and Prokhorov's vastly diminished ambitions to be a venue magnate, suggest the Paramount would be much less of a priority.
The verdict on Prokhorov
Well, he made a lot of money. He rescued the Nets, owned by the financially-straitened Bruce Ratner and partners. He left them in surprisingly good shape.
But he had a losing record, 300-504, and some pretty bad attendance in Brooklyn, at least after the initial bloom wore off.
And he made some serious mistakes, notably overpaying for aging Boston Celtics stars, in a win-now move (that cost oodles in luxury taxes), and sacrificing the team's draft picks. Then again, he re-set, with a new General Manager (Sean Marks) and Coach (Kenny Atkinson), and let them do their job.
Mikhail Prokhorov Leaves a Complicated Legacy With the Nets, Sports Illustrated's Chris Mannix wrote yesterday, suggesting a mixed verdict.
“I’m not sure if at the beginning [Prokhorov] fully realized how the NBA worked,” says Irina Pavlova, a high-ranking Nets executive from 2010-2017, told Mannix. “At first, it was just throwing money at the problem … but you can’t just throw money at it, and he did learn that.”
"He just wasn’t around," added former Nets executive Bobby Marks. But Pavlova credits Prokhorov for hiring Marks and staying hands-off on the rebuild.
Mikhail Prokhorov was a total failure running the Nets, except in the way that counts, wrote SB Nation's Tom Ziller 8/14/19, calling Prokhorov's overall take--even with a fantasy level of annual losses--more than $1 billion.
Writes Ziller:
How the Nets will be different with future owner Joe Tsai, the New York Post's Brian Lewis wrote 8/14/19.
Tsai also offers deep pockets, albeit via his stock holdings rather than a cash pile. He's expected to be far more visible, given ties to New Jersey and New York (he lives in Hong Kong and La Jolla, Ca.).
He also owns the Long Island Nets and the WNBA's Liberty; the latter might end up playing at Barclays.who suffered through lean years will just want to see what he does with those teams.
Perhaps most importantly from a business standpoint, Tsai offers connections to the China market.
The verdict on Yormark
In NetsDaily, Net Income (aka Bob Windrem) wrote, in BRETT YORMARK LEAVING NETS AFTER 14 YEARS AS CEO:
Willis called Barclays "one of the top four boxing venues in the country" and suggested "It will be tough to match Yormark’s passion for the sport.
The press release
MIKHAIL PROKHOROV TO SELL FULL OWNERSHIP OF BARCLAYS CENTER AND CONTROLLING INTEREST IN THE BROOKLYN NETS TO JOE TSAI
AUGUST 16, 2019 | BROOKLYN NETS
BROOKLYN – Mikhail Prokhorov has entered into a definitive agreement to sell full ownership of Barclays Center and his 51% controlling interest in the Brooklyn Nets, which he has held through his company Onexim Sports and Entertainment Holding USA, Inc., to an entity controlled by Joe Tsai. With the purchase of Prokhorov’s shares of the Nets, Tsai will become the sole investor in the team. Tsai purchased 49% of the Nets in 2018.
Upon the closing of the arena and team transactions, which is expected by the end of September, Tsai will assume the role of Chairman of the Board of Directors for Barclays Center, and NBA Governor of the Nets and its affiliates. The transaction requires the approval of the NBA Board of Governors.
The current management team will continue to run the venue and team under new ownership. Brett Yormark, CEO of BSE Global, will oversee the transition to new ownership before departing for a new role. Yormark will announce his next career move in the coming weeks.
“It has been an honor and a joy to open Barclays Center, bring the Nets to Brooklyn, and watch them grow strong roots in the community while cultivating global appeal,” said Prokhorov. “The team is in a better place today than ever before and I know that Joe will build on that success, while continuing to deliver the guest experience at Barclays Center that our fans, employees, and colleagues in the industry enjoy. Without Brett’s innovative foresight and leadership, we would not be where we are today with the Nets and Barclays Center. Brett had always made it clear to me that when the arena and team sold, he would move on and begin his next journey. Thank you to Brett, who has been a true partner and friend over the past 15 years.”
“I’ve had the opportunity to witness up close the Brooklyn Nets rebuild that Mikhail started a few years ago. He hired a front office and coaching staff focused on player development, he supported the organization with all his resources, and he refused to tank,” said Tsai. “I will be the beneficiary of Mikhail’s vision, which put the Nets in a great position to compete, and for which I am incredibly grateful. I also want to thank Dmitry and Brett for their guidance and friendship, and I hope to see them often in Brooklyn.” Tsai continued, “We are committed to maintaining Barclays Center’s iconic status by bringing together culture, community, and entertainment for our fans and everyone in New York.”
“I want to personally thank Mikhail and Onexim CEO Dmitry Razumov for their loyalty and support. We have shared an incredible partnership and I am so grateful to have been part of this team," said Yormark. “When I was hired nearly 15 years ago, my goal was to realize the vision for Barclays Center, move the Nets to Brooklyn, and build a world-class sports and entertainment company. It has been a tremendous honor leading BSE Global, and working alongside some of the most brilliant professionals in the industry. I have always envisioned beginning my next chapter when Mikhail and Dmitry sold the arena and the team, and with today’s announcement, that time has come. I have the utmost confidence that Joe and his group, alongside current management, will continue to lead the way in shaping a strong future for Barclays Center and the Brooklyn Nets. While overseeing a smooth transition of Barclays Center and the Nets to new ownership, I will also continue to oversee Mikhail’s other Onexim assets.”
Yormark was hired in 2005 to lead all aspects of the Nets move to Brooklyn and the opening of Barclays Center, including the branding, marketing, event programming, and sales. As CEO, he has transformed the Nets, revolutionized the team’s consumer appeal, and led Barclays Center to become a top-grossing arena worldwide. This was Yormark’s third stint with the Nets, during which he served as the team’s longest tenured business chief. He first worked in the ticket sales department in 1988. He also oversaw the major transformation and reopening of NYCB LIVE, home of the Nassau Veterans Memorial Coliseum on Long Island, which is home to the Brooklyn Nets’ G League team, the Long Island Nets. Most recently, BSE Global partnered in the acquisition, renovation, and reopening of the iconic Manhattan venue Webster Hall, which Yormark was instrumental in facilitating.
This transaction has no impact on Webster Hall and NYCB LIVE, including its surrounding Hub development, which will continue to be managed by Onexim.
In addition to the team, Tsai also forked over $700 million for the Barclays Center arena, the Nets’ home since they moved to Brooklyn. Because the arena also comes with $325 million in debt, the total cost to Tsai sits at $3.38 billion, according to a person with knowledge of the transaction.What about the Coliseum?
"This transaction has no impact on Webster Hall and NYCB LIVE, including its surrounding Hub development, which will continue to be managed by [Prokhorov's] Onexim," according to the press release (bottom).
As Newsday's Jim Baumbach tweeted, The question of the day on this story: Did Prokhorov want to hold on to the Coliseum... or did Tsai not want the Coliseum?" The answer he got? Silence. Of course, as I've written, the operator of the Coliseum will be severely threatened by the new Belmont arena.
Newsday's Randi Marshall noted, in The Point yesterday:
County officials also noted that a clause in the Coliseum lease requires that any change in control of the Coliseum be approved by the county legislature if it occurs within five years of the newly amended lease’s adoption, which happened last year. That means that if Onexim wants to transfer the lease or sell its holdings over the next four years, the legislature would have to approve the change.Do note that the Nassau Legislature has previously blessed changes in the lease.
As for the Hub, RXR Realty, which is Onexim’s partner on the Hub’s development, will still take the lead, sources said.
What about the Paramount?
Though it wasn't mentioned in the press release, BSE Global is also involved in the slower-than-expected renovation of the Paramount Theater in Brooklyn.
The departure of Yormark, and Prokhorov's vastly diminished ambitions to be a venue magnate, suggest the Paramount would be much less of a priority.
The verdict on Prokhorov
Well, he made a lot of money. He rescued the Nets, owned by the financially-straitened Bruce Ratner and partners. He left them in surprisingly good shape.
But he had a losing record, 300-504, and some pretty bad attendance in Brooklyn, at least after the initial bloom wore off.
And he made some serious mistakes, notably overpaying for aging Boston Celtics stars, in a win-now move (that cost oodles in luxury taxes), and sacrificing the team's draft picks. Then again, he re-set, with a new General Manager (Sean Marks) and Coach (Kenny Atkinson), and let them do their job.
Mikhail Prokhorov Leaves a Complicated Legacy With the Nets, Sports Illustrated's Chris Mannix wrote yesterday, suggesting a mixed verdict.
“I’m not sure if at the beginning [Prokhorov] fully realized how the NBA worked,” says Irina Pavlova, a high-ranking Nets executive from 2010-2017, told Mannix. “At first, it was just throwing money at the problem … but you can’t just throw money at it, and he did learn that.”
"He just wasn’t around," added former Nets executive Bobby Marks. But Pavlova credits Prokhorov for hiring Marks and staying hands-off on the rebuild.
Mikhail Prokhorov was a total failure running the Nets, except in the way that counts, wrote SB Nation's Tom Ziller 8/14/19, calling Prokhorov's overall take--even with a fantasy level of annual losses--more than $1 billion.
Writes Ziller:
Prokhorov’s story shows how there is no penalty for poor leadership for NBA franchisees, not at this point in the NBA’s history. Prokhorov’s story shows how timing and luck matter much more than competence. Prokhorov’s story shows how the NBA’s landmark labor deal in 2011 — following a short, but brutally efficient lockout — immediately vaulted franchise values and put the league in a whole new capital arena.
...Prokhorov landed the cheapest NBA franchise available at the best time available, both in terms of the amount of leverage on then-owners and in terms of the proximity to a fortune-changing relocation and labor cost shift. Really, this was like buying Mars for a song two years before NASA deems it habitable.What's changing?
How the Nets will be different with future owner Joe Tsai, the New York Post's Brian Lewis wrote 8/14/19.
Tsai also offers deep pockets, albeit via his stock holdings rather than a cash pile. He's expected to be far more visible, given ties to New Jersey and New York (he lives in Hong Kong and La Jolla, Ca.).
He also owns the Long Island Nets and the WNBA's Liberty; the latter might end up playing at Barclays.who suffered through lean years will just want to see what he does with those teams.
Perhaps most importantly from a business standpoint, Tsai offers connections to the China market.
The verdict on Yormark
In NetsDaily, Net Income (aka Bob Windrem) wrote, in BRETT YORMARK LEAVING NETS AFTER 14 YEARS AS CEO:
Yormark’s tenure has been marked by some huge successes —like moving the Nets to Brooklyn— as well as huge failures —like moving the Islanders to Brooklyn. The Nets move took eight long years and as an homage to Yormark’s efforts, then Nets owner Bruce Ratner had the arena open officially on September 28, 2012, Yormark’s birthday.In New York Islanders: A Farewell To Brett Yormark, Eye on Isles Matt O'Leary cited the much-criticized Yormark changes that alienated fans (new jerseys, ending the goal horn), as well as Yormark's projection-quality blame:
With the Nets finally playing in Brooklyn, Yormark embarked on an expansion of the team brand, attempting to make the team’s black-and-white colors and Brooklyn Grit identity into a “lifestyle” brand.
He also added Nassau Coliseum and two smaller venues, Webster Hall in Manhattan and Brooklyn Paramount Theater in Brooklyn, to Prokhorov’s mix of sports and entertainment assets. He was also instrumental in establishing the Long Island Nets G League franchise and in getting the HSS Training Center opened. Ultimately, he established Brooklyn Sports & Entertainment as Prokhorov’s holding company, overseeing all those assets.
His aggressiveness, often seen as abrasive, was often controversial.
Unfortunately, they were like a rent-a-team. This team never really embraced Brooklyn, unfortunately.Then again, the New York Post's George Willis yesterday wrote Brett Yormark’s exit from Barclays a blow for boxing, though Yormark, in an interview, suggested the ownership was committed to boxing.
Willis called Barclays "one of the top four boxing venues in the country" and suggested "It will be tough to match Yormark’s passion for the sport.
The press release
MIKHAIL PROKHOROV TO SELL FULL OWNERSHIP OF BARCLAYS CENTER AND CONTROLLING INTEREST IN THE BROOKLYN NETS TO JOE TSAI
AUGUST 16, 2019 | BROOKLYN NETS
BROOKLYN – Mikhail Prokhorov has entered into a definitive agreement to sell full ownership of Barclays Center and his 51% controlling interest in the Brooklyn Nets, which he has held through his company Onexim Sports and Entertainment Holding USA, Inc., to an entity controlled by Joe Tsai. With the purchase of Prokhorov’s shares of the Nets, Tsai will become the sole investor in the team. Tsai purchased 49% of the Nets in 2018.
Upon the closing of the arena and team transactions, which is expected by the end of September, Tsai will assume the role of Chairman of the Board of Directors for Barclays Center, and NBA Governor of the Nets and its affiliates. The transaction requires the approval of the NBA Board of Governors.
The current management team will continue to run the venue and team under new ownership. Brett Yormark, CEO of BSE Global, will oversee the transition to new ownership before departing for a new role. Yormark will announce his next career move in the coming weeks.
“It has been an honor and a joy to open Barclays Center, bring the Nets to Brooklyn, and watch them grow strong roots in the community while cultivating global appeal,” said Prokhorov. “The team is in a better place today than ever before and I know that Joe will build on that success, while continuing to deliver the guest experience at Barclays Center that our fans, employees, and colleagues in the industry enjoy. Without Brett’s innovative foresight and leadership, we would not be where we are today with the Nets and Barclays Center. Brett had always made it clear to me that when the arena and team sold, he would move on and begin his next journey. Thank you to Brett, who has been a true partner and friend over the past 15 years.”
“I’ve had the opportunity to witness up close the Brooklyn Nets rebuild that Mikhail started a few years ago. He hired a front office and coaching staff focused on player development, he supported the organization with all his resources, and he refused to tank,” said Tsai. “I will be the beneficiary of Mikhail’s vision, which put the Nets in a great position to compete, and for which I am incredibly grateful. I also want to thank Dmitry and Brett for their guidance and friendship, and I hope to see them often in Brooklyn.” Tsai continued, “We are committed to maintaining Barclays Center’s iconic status by bringing together culture, community, and entertainment for our fans and everyone in New York.”
“I want to personally thank Mikhail and Onexim CEO Dmitry Razumov for their loyalty and support. We have shared an incredible partnership and I am so grateful to have been part of this team," said Yormark. “When I was hired nearly 15 years ago, my goal was to realize the vision for Barclays Center, move the Nets to Brooklyn, and build a world-class sports and entertainment company. It has been a tremendous honor leading BSE Global, and working alongside some of the most brilliant professionals in the industry. I have always envisioned beginning my next chapter when Mikhail and Dmitry sold the arena and the team, and with today’s announcement, that time has come. I have the utmost confidence that Joe and his group, alongside current management, will continue to lead the way in shaping a strong future for Barclays Center and the Brooklyn Nets. While overseeing a smooth transition of Barclays Center and the Nets to new ownership, I will also continue to oversee Mikhail’s other Onexim assets.”
Yormark was hired in 2005 to lead all aspects of the Nets move to Brooklyn and the opening of Barclays Center, including the branding, marketing, event programming, and sales. As CEO, he has transformed the Nets, revolutionized the team’s consumer appeal, and led Barclays Center to become a top-grossing arena worldwide. This was Yormark’s third stint with the Nets, during which he served as the team’s longest tenured business chief. He first worked in the ticket sales department in 1988. He also oversaw the major transformation and reopening of NYCB LIVE, home of the Nassau Veterans Memorial Coliseum on Long Island, which is home to the Brooklyn Nets’ G League team, the Long Island Nets. Most recently, BSE Global partnered in the acquisition, renovation, and reopening of the iconic Manhattan venue Webster Hall, which Yormark was instrumental in facilitating.
This transaction has no impact on Webster Hall and NYCB LIVE, including its surrounding Hub development, which will continue to be managed by Onexim.
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