Prokhorov Says Nets Will Make Profit in 2011-12
- By Nadia Popova
- Oct. 08 2009 00:00
Billionaire Mikhail Prokhorov said he was counting on his newly acquired New Jersey Nets basketball team to become profitable as soon as it moves to Brooklyn for the 2011-12 season.
Prokhorov, who has agreed to invest $200 million into the construction of a sports arena for the team in Brooklyn, also said he believed that the $4.9 billion stadium and a nearby development project would soon overcome a legal challenge.
“We have carried out our due diligence. We understand the current state of the team, and we understand how it will be transformed into a successful and profitable undertaking when it moves to Brooklyn,” Prokhorov said in an interview.
“We understand the legal situation around the arena, our lawyers have attentively looked through all the documents. Under the agreements, we are protected from delays at the arena and expect that the management team will be able to deal with this,” he said.
The team’s move from New Jersey to Brooklyn has been delayed repeatedly because of a legal challenge from Brooklyn residents led by the community coalition Develop Don’t Destroy Brooklyn. A New York court will hold a hearing on eminent domain issues linked to the project next Wednesday.
“We don’t see any problems there,” Prokhorov said. “I think we will win in all the courts.”
Prokhorov’s investment vehicle, Onexim Group, signed an agreement with Forest City Ratner Companies, headed by Bruce Ratner, on Sept. 23 to invest $200 million into the construction of a $800 million arena in Brooklyn. In exchange, Prokhorov received an 80 percent stake in the Nets, 45 percent of the arena and the right to buy up to 20 percent of Atlantic Yards Development, a company that will oversee construction on a 9-hectare real estate development around the arena. The development is to include a rail yard, warehouses and several high-rises containing residential and office space, and the first high-rise is expected to be completed 69 months after the ground is broken, which, barring legal hurdles, is to take place this year.
Prokhorov said that while Onexim Group has sufficient funds, it might raise the financing required from Western banks. The New York Times reported Sept. 25 that the agreement also envisioned future Nets losses, up to $60 million, that are expected to accumulate before the move to Brooklyn. Prokhorov also will be responsible for 80 percent of the team’s $207 million debt, the newspaper said, citing an unidentified executive involved in the transaction.
Prokhorov declined to provide details about the deal.
“We borrow the money and essentially give the loan to someone else,” Prokhorov said. “For that, we get the team and a share in the real estate project. To use simple language: the group doesn’t spend any of its own money.
“We are in the process of negotiating with Western banks,” Prokhorov added, declining to identify the banks or disclose the interest rate of the loans. “We will attract the full sum of the needed investment.”
The deal is contingent on Ratner obtaining financing for the arena and control of all the land required for it by Dec. 31, The New York Times said.
Prokhorov, who has to secure the approval of 23 of the 30 team owners in the National Basketball Association to finalize the transaction, said he could not confirm the details of the deal. “Our contract is confidential. I can only say that we are fully protected in this venture,” he said.
Forest City Ratner Companies spokesman Joe DePlasco also declined to comment on the terms of the agreement.
Prokhorov said negotiations to buy the Nets had not taken long because he had seen a great opportunity in the team. “My associates first met with Bruce Ratner’s team and realized that the venture was interesting,” Prokhorov said. “Then Ratner came to Moscow, and we discussed the venture.”
The negotiations were also discussed at the highest levels of government in both the United States and Russia. “As I understand it, President [Dmitry Medvedev] even told Barack Obama about it,” Kremlin spokeswoman Natalya Timakova told reporters last week.
Prokhorov said it took about two months to hammer out the details of the deal. “I know the NBA and basketball in general quite well,” he said. “So when the opportunity came up, we quite quickly realized that it was an attractive one.”
Prokhorov said he planned to fly to the United States to meet the Nets management and NBA officials before the end of the year.
When asked which position on a basketball team he would prefer to play, the 6-foot-7 Prokhorov said he would prefer not to go out onto the court. “I would be either the head coach or the general manager,” he joked.