The Brooklyn Nets basketball team is up for sale. From summer until October of last year, the press had been writing that the team’s owner Mikhail Prokhorov was ready to part with some of his shares in the team, yet retain control. Now, representatives of the billionaire actually confirm that he is prepared to sell the club completely; all that remains is to find a good buyer.
A giant sees a giant from afar. More than six feet tall, Prokhorov feels comfortable around basketball players — it is possibly the only type of photograph in which he is shorter than other people — and he himself, as is logical, sometimes shoots hoops. Buying the Brooklyn basketball team in 2010 was certainly easy and enjoyable for him. The Russian economy was growing, the Medvedev thaw bloomed outside the window, and the “restart” with the U.S., and investment in international sports allowed him to combine pleasure with business: that is, an attempt to establish himself among the American elite.
But recently, being approved of in America is both irrational and politically harmful, and the Brooklyn team, despite Prokhorov’s promises, has not achieved great success. In the last five years, they only once reached the quarter finals of the Eastern Conference. There were difficulties with trainers, and the veteran players on which the club placed its bets did not live up to expectations. Last Wednesday, the Nets lost their sixth consecutive game.
Business isn’t going any better on the financial side. The Brooklyn Nets are the most unprofitable basketball team in America, suffering a $140 million loss in the last season alone. There were unthinkable expenditures on salaries and record tax payments, which were assessed for exceeding the salary cap for players, an anti-monopoly measure introduced by the National Basketball Association, so that one or several clubs are not able to sign all the best players.
In this sense, the basketball adventures of Prokhorov would be similar to the history of eMobile, if it were not for the fact that the basketball business turned out very lucky for him: Having invested $400 million to $500 million in the team, he could receive, according to various estimates, $1.3 billion to $1.8 billion and walk away from this unprofitable venture with enormous earnings.
For now, it is not expected that the sale of the Nets will exceed the record $2 billion which former Microsoft CEO Steve Ballmer paid last summer for the Los Angeles Clippers, a sum which became the new reference point for American basketball. However, such a sum is theoretically possible. A number of factors will go into the calculations, including the sheer size of the New York market and the team’s home arena, the splendid new Barclay’s Center in Brooklyn, in which Prokhorov also has a 45 percent share.
But it’s quite obvious that Prokhorov came to the market in a timely fashion, at a low point, at the very start of growth. Since 2010, when he purchased the Nets, transactions involving basketball clubs have successively increased in value. A year ago, Forbes estimated the Brooklyn Nets to be worth $780 million, but that was before the appearance of Ballmer, and indeed recent transactions have involved figures notably higher than those which Forbes expected.
No less successfully, as it turns out, Prokhorov is exiting the market. It’s as if he gambled and won at the casino, since fall transactions in American basketball already take into account future colossal investments by TNT (Time Warner) and ESPN (Disney), two television companies that in October concluded new contracts with the NBA to show games beginning with the 2016-17 season all the way to 2025. Nobody expected that they would invest $24 billion for nine seasons; this is almost three times (!) more than the NBA currently receives for the rights to televise games.
Sports are part of the economy. America’s economy, in contrast to Russia’s, is growing — by 5 percent in the third quarter of 2014, the highest rate in the past 11 years. Economic growth leads to the growth of demand and consumption. Basketball is an extremely popular sport among the young paying audience, and television networks are ready to recapture their huge investments in the form of advertising, and advertisers are banking on increased sales. (In this area, the healthy American economy sends a big hello to Russian legislators, who with faux concern just recently prohibited cable television, and indeed all Russian business, from earning money in advertising.)
This golden rain will change, in fact is already changing, conditions in American basketball and in international athletics. To put it crudely, today it is clear to everyone that tomorrow everyone will earn more. ”There’s never been a better time to be an owner of an NBA franchise — or, frankly, any professional sports team,” said Ted Leonsis, a powerful sports operator and owner of the Washington Capitals (hockey team), Washington Wizards (basketball team), and the renowned Verizon Center, where these and other teams play.
Since the fall, stars such as Kevin Durant and LeBron James have not been rushing to sign long-term contracts. The infamous salary cap will be raised and they are already counting on a new salary level in two years — the price in question, about $10 million a year. And those who recently tied themselves to obligations several years in advance are today regretting their decision. The teams themselves will also receive their share, and those same Brooklyn Nets after 2016 will earn about $60 million from television broadcasts, compared to $20 million today. Add the $90 million in taxes, paid for exceeding the salary cap — it will be increasing — and Prokhorov’s basketball team breaks even.
Of course, this figure is an estimate, from which one still has to deduct, for starters, the increasing salaries of athletes, but the fact remains the same: Basketball stands on the cusp of a new boom and in several years will operate according to different financial figures. Basketball is a leading sports industry, but behind it follows football, boxing, tennis, golf, etc. The profits involved in the most popular sports, derived from growth in the world economy and ownership of sports teams by figures on the Forbes list, is not an only a fun toy, but also good business.
But to earn money here in Russia on the sale of potash and to spend comparable sums there, in faraway Brooklyn, on some beanstalks who aren’t even that good at putting the ball in the hoop — today in Russia, this is called capital flight and is not looked upon kindly. Before New Year’s, the president specially asked business to act a bit more responsibly. It’s understandable how business will react to this request if a powerful industrialist, who has just had his oil company taken away for more than $2 billion and later almost imprisoned, will now all of a sudden say that he is not offended, because he is “flesh and blood of this country.”
In a word, basketball would be good business if Prokhorov could be certain that new market conditions were ordered rationally; he could hire capable managers and trainers, buy the necessary players, inspire in them a belief in victory and so on. In this way, the journey of Russia’s tallest entrepreneur into international basketball can be compared with a successful player on the stock market: He entered, capitalized on the upswing and left. The job of developing international sports as an actual business remains that of Steve Ballmer and other investors, who do not have any political obligations in the face of a rapidly plummeting national economy.