The Prokhorov Effect: If I Were a Rich Man...

As ground-breaking for the Barclays Center approaches, NetsDaily is offering a series of reports on "The Prokhorov Effect".

Sunday's report focused on Prokhorov the man, Monday's on an examination of his wealth . Tuesday's focuses on how his ownership could affect the future of the Nets.

When Mikhail Prokhorov becomes principal owner of the Nets--we're no longer saying if, the team’s fortunes will change. That’s a no-brainer, but how?

A lot has been written about how a Prokhorov-owned Nets team would immediately be the front runner for LeBron James’ services, perhaps even a two-fer of top free agents would be bound for Brooklyn, minor investor Jay-Z introducing them to his home borough. Prokhorov’s cash will drop like confetti or flow like champagne. Choose your extravagant metaphor.

The real story is the flexibility the Nets would have with Prokhorov as owner. When you have money, you have options and when you have a LOT of money, you have a LOT of options...and Prokhorov has a LOT of money. In fact, he has already committed a lot of it to the Nets. He has agreed to pay $200 million for 80% of the team, 45% of Barclays Center and an option to purchase up to 20% of the overall Atlantic Yards project. He also agreed to pay off 80% of the team debt, about $170 million; eat up to $60 million in losses and "cash needs" while the team is in New Jersey and will likely purchase $106 million in other, privately issued arena bonds, needed to finance infrastructure nearby. His people were also involved in discussions about the Nets move to Newark, which is costing the team $4 million in lease penalties.

Let's assume Prokhorov would want to spend lavishly, and that is certainly his record in Russia--where his CSKA Moscow payroll regularly exceeded $50 million.  In fact, the Nets’ strategies could change quite quickly because the team has set in place several building blocks: good young players on rookie contracts, at least $23.3 million in cap space, and more draft picks over the next three years than any other team (and with fewer and lesser protections). But that is the foundation. Prokhorov's money is the cement.

Grabbing Free Agents

Free agency is the most obvious way Prokhorov could make his mark. The Class of 2010 is the richest in NBA history, with one of the game’s all time great players, LeBron James, leading the pack. Dywane Wade, Chris Bosh, Amare Stoudemire, Joe Johnson, and others will be available as well. Then there’s the 2011 class as well, headed by Carmelo Anthony.

 

All that said, the Nets could in theory—"if we so choose" are Rod Thorn’s words—sign two top-tier players to long-term contracts. That would prove Prokhorov’s value, but might not be the only or the smartest way to rebuild the team. With Prokhorov, there are other options and most of them are based on the central element of the NBA’s collective bargaining agreement: there is a priority assigned to teams building from within. Team can spend more money on their own players than on others, whether those players were previously drafted, traded for or picked up in free agency. As any one of the NBA’s richest owners know, there is a salary cap, but it is a "soft" cap with a lot of exceptions.

Using Bird Rights

The essence of "Bird Rights" is that a team can sign its own players outside the collective bargaining agreement. That may not be much of an advantage this year.  It's hard to believe that the Nets will want to re-sign any of their veteran players, particularly when it would cut into their cap space.

But imagine it’s next year and as the trade deadline approaches, Prokhorov is the Nets’ owner and Barclays Center is well underway. (You don’t want to imagine the alternate scenario.)

Across the NBA, GM’s with expiring contracts are looking for ways to get something in return for players on expiring deals, knowing they aren't likely to re-sign. They may have to accept the usual pu-pu platter of expiring contracts, draft picks, young players, cash and trade exceptions in return for big names. This being February, GM’s may be a bit desperate…they want to get some value for a player who they know won’t re-sign with them, or they want to get under the luxury tax on owners’ orders. It becomes a buyer’s market. And after years of being sellers, the Nets could now be in position to be buyers.

The advantage in any such trade is the players’ Bird Rights. The Nets can sign their newly acquired player to a contract outside the CBA come the next July. There is the complicating issue of cap holds but in signing your own free agents, the bottom line is that you can go over the cap if you want. You can go over the luxury tax if you want…as long as the owner agrees.

Re-signing Your Kids

The Nets have six kids on rookie contracts: Josh Boone, Yi Jianlian, Chris Douglas-Roberts, Courtney Lee, Brook Lopez and Terrence Williams. CDR's is a bit different since he was a second round choice, but he is on his first contract. So to simplify things, let's call his three-year deal, with team options, a rookie contract. There’s virtually no chance they’ll resign Boone. The rest appear to be keepers. The bill for their services starts coming due next summer, when the Nets can open negotiations with Yi's agent. Yi would start getting paid in 2011-12. CDR’s contract would have to be renewed in 2011-12 as well. Then, in 2012-13, it’s Lopez and Lee and the following year, TWill, assuming of course none of them get traded. The smart strategy, setting aside changes in a new CBA, is to get the young players’ deals done early. If you have a rich owner, it’s a lot easier to make a deal.

Again, as the CBA stands now, teams have an easier time signing their own players to big deals. You can sign them to contracts that put you over the cap or luxury tax. If the Nets are going to be successful long-term, they will want to sign at least several of those kids. Now, they would be at least competitive.

Stretching Restricted Free Agent Limits

Rudy Gay is having a good year for the Memphis Grizzlies, averaging 20 and 6 for team that is the biggest surprise in the NBA. The athletic 6'8" small forward had a 41-point game early in the season and four others of 30 or more. He's still a defensive liability but has improved other parts of his game as well as his physical strength. He's not so selfish any more for one thing. And he's still only 23, younger than Courtney Lee and Kris Humphries and all the other top tier free agents.

And by all accounts, the Nets are interested in him...particularly if they think they don't have much a shot at some of the bigger names like LeBron, D-Wade or Chris Bosh. But unlike them, he'll be a restricted free agent in July. The Grizzlies can match any offer made by another team...but will they?

Gay became a restricted free agent last October when he turned down the Grizzlies' last offer, a five-year deal worth about $50 million. He reportedly wanted $10 million more. Gay's message was clear: he’d like to see what he can get this July and then force the Grizzlies to match if they want. Under the collective bargaining agreement, the Grizzlies would have seven days to match any offer sheet sent Gay by another team. It's increasingly rare that teams take that chance because most of the time, the player's team matches.

That's where Mikhail Prokhorov comes in. Along with the Bobcats, Sixers and the Pacers, the Grizzlies are in bad financial shape. The Nets, with Prokhorov, could be the team that can come up with an offer that would scare off Memphis.

And even if the Grizzlies did want to keep Gay, there are ways around the CBA to make it more difficult. Ask Thorn or Kiki Vandeweghe. They were on opposite sides of the Kenyon Martin poker game five years ago. Here’s what happened and it’s instructive for the future: the Nets said they would wait for Martin to get an offer sheet, knowing only two teams, the Hawks and Nuggets, had enough cap space to sign him to the max deal, which was clearly what Martin wanted. Instead, Vandeweghe called the Nets' bluff and informed Thorn what the Nuggets were prepared to offer: a break-the-bank contract that included a $15 million bonus up front and a 12% trade bonus at the back plus another onerous add-on: Martin would get his first year salary up front rather than over the course of the year. The effect was that the Nets would have had to pay Kmart $23 million on signing…in less than two weeks. Bruce Ratner was, at the point, cash-poor and the Nuggets, i.e. Vandeweghe, knew it. Besides, he had a billionaire owner backing him in Stan Kroenke.

Instead of formalizing the offer sheet, and take the risk that the Nets might match, Vandeweghe decided discretion was the better part of valor: he proposed a sign-and-trade. The Nets would sign Martin to a more standard contract, then trade him to the Nets for three lottery-protected draft picks (two of which were the cornerstone of the Vince Carter trade five months later). Done deal.

Not much has changed since then: teams that offer a restricted free agent a contract can add in a signing bonus of up to 17.5% of the contract total and a trade bonus of up to 15%. So in Gay’s case, if the Nets signed him to a five-year $60 million contract, he can get a bonus of $10.5 million up front upon signing. So for his first year, Gay would get $10.5 million upon signing plus the first year's salary of $9.9 million, paid any way he wants, as a lump sum upfront, every month, every two weeks, etc. If he wants it upfront, that could mean an immediate payout of  $20.4 million in salary and signing bonus! Think the Grizzlies can afford that when they'll have to sign O.J. Mayo, Marc Gasol and possibly Hasheem Thabeet over the next three years? The trade bonus is also onerous. If traded at any time in the five year length of the contract, Gay would get 15% of his remaining contract as a bonus.

Proving Cash is King on Draft Night

Straight cash deals do happen on Draft Night…and a lot of time they’re a Euro-stash deal: cash for a pick that's used to pick an international player. The player is expected to stay overseas until the NBA team is ready for him and/or he’s ready for the NBA. It’s a money-saving deal long term, but costly upfront. First round picks can cost up to $3 million, the maximum allowed in any NBA transaction.

Over the last few years, cash deals have become more common on Draft Night with things likely to get even crazier this June. Many cash-starved teams are looking to pick up spare cash and may sell their picks.

The Blazers, owned by billionaire Paul Allen, have bought first round picks on five occasions in the past six drafts, once from the Nets. In at least four of those deals, the price tag was that $3 million max.

--On Draft Night 2004, the Blazers sent $3 million and the expiring contract of Eddie Gill to the Nets and got a Nets’ first round pick (#23 – Viktor Khryapa of Russia). The Nets then cut Gill.

–On Draft Night 2006, the Blazers sent $3 million to the Suns and got a Suns’ first round pick (#27 – Sergio Rodriguez of Spain)

–On Draft Night, 2007, the Blazers sent $3 million to the Suns and got a Suns’ first round pick. (#24 – Rudy Fernandez of Spain).

--On Draft Night 2007, the Blazers sent an undetermined amount of cash and the rights to second round pick, Derrick Byars to the 76ers and got a 76ers first round pick (#30 pick Petteri Koponen of Finland). Byars was later cut by the 76ers.

–On Draft Night, 2008, the Blazers sent $3 million in cash to the Hornets and got a Hornets’ first round pick (#27 – Darrell Arthur of Kansas). Arthur was immediately sent to the Rockets, with a smaller amount of cash, in return for draft rights to Nicolas Batum of France, taken at #25.

So at least $12 million--and probably closer to $15 million--of Allen's cash hoard was used to pick up Rudy Fernandez, Nicolas Batum, Sergio Rodriguez (since traded) and a very good European point guard, Petteri Koponen, still stashed overseas. Khryapa was later used as filler in the Tyrus Thomas-LaMarcus Aldridge trade. (He then left the NBA and ironically went back to CSKA Moscow, Prokhorov’s team).

Allen isn’t the only billionaire owner who feels this way about the value of cash on Draft Night.  Here’s what Mark Cuban wrote back in 2008 defending his decision to trade two first round picks to the Nets in the Jason Kidd trade: "There are almost always teams willing to sell a pick in the 20s for 3mm dollars." Translation: I got the money. Don't worry.

Beyond a straight purchase, cash can have another benefit on Draft Night. The Nets have two first round picks in 2010 and 2012. If they wanted to move up in the lottery on either of those nights, and a cash-starved team has a pick they covet, the Nets could offer not just their two first round picks, but also a cash sweetener to the deal. Chuck Dolan shelled out more than a million dollars to the Lakers on Draft Night 2009 to sweeten the deal with the Lakers that brought the Knicks Toney Douglas.

Indeed, the Nets have on occasion been short on cash needed to make a deal. On Draft Night 2005, Ed Stefanski has said the Nets waned to move up from #43 in the second round to take Monta Ellis. Ellis had dropped out of the first round because of knee issues. For whatever reason, they failed, but having more cash wouldn’t have hurt in that situation. Ellis went to Golden State at #40. (Same night, the Magic sent cash to the Suns for their second round draft pick that turned into Marcin Gortat. Must be fun being a Suns fan on draft night.)

We've also heard reports that on Draft Night 2008, the Nets tried to get a third first round pick to take CDR who they had passed on at #21 and tried to get a late second round pick to take Jaycee Carroll.  In both cases, they got their man, but they might not have if someone else had decided to take them.

Sweetening Deals

As noted, the most cash that can be moved in any NBA transaction is $3 million. Greasing a lopsided deal with some green can make things happen quicker, particularly if one team is cash-starved. The Nets demanded and got $3 million from Cuban in the Kidd deal. In fact, Cuban said the Kidd deal cost him $11 million in cash, luxury taxes, and the money he had to pay Keith Van Horn to come out of retirement. If a rich owner wants someone bad enough, the Collective Bargain Agreement can become quite elastic.

Opening the Checkbook for Coaches

There are no restrictions on paying coaches or front office staff, other than David Stern's recent lament that contracts are getting out of control. If the Nets get into a bidding war in April or May, when Rod Thorn says the coaching hunt will intensity, the Nets will have an advantage...and a big one.  Would Mike Krzyzewski want to finally try his hand at the NBA? Is there a way to lure Jeff Van Gundy out of the TV booth? "Money conquers all", as one NBA owner said recently of Prokhorov's advantages. What about hiring his pal, Scottie Pippen, as an assistant coach?  Pippen has expressed interest in returning to the NBA as a coach.

Same holds true for the front office. Only one of the guys in suits, capologist and vice president of basketball operations Bobby Marks has a contract extending beyond June 30. His goes for another year. Thorn, Vandeweghe, etc. and the rest are all up for renewal or replacement.

Добро пожаловать

That’s welcome in Russian. Just as Jay-Z’s personality could help the Nets lure his friends to the Nets, Prokhorov’s success in Europe could help lure international players to the Nets.

Already, Andrei Kirilenko has twice suggested that a fellow member of the Russian National Team, Timofey Mozgov, would be ideal player for Prokhorov to take a risk on. Indeed, there are worse risks than the 23-year-old Mozgov, an athletic 7’1" center who AK-47 notes has improved dramatically since not being drafted in 2009. He reportedly has a contract through 2010-11. Somehow, we think that if Prokhorov wanted him in a Nets uniform, ways could be found to make it happen.

But more importantly, Prokhorov hired a lot of Europe’s top players for CSKA Moscow, among them the Greek point guard, Theo Papaloukas, known as the Jason Kidd of Europe. Same with Ramunas Siskauskas, a sharp-shooting swingman from Lithuania who some believe is the most NBA-ready player in Europe. They liked playing for him…and a lot of European players wanted to play for him. And remember, Prokhorov is not only the first Russian to own an NBA team, he is also the first European.

Two young players CSKA developed on his watch are seen as NBA draft prospects: Artem Zabelin, a 7-footer troubled by knee problems, and Alexey Shved, a 6’5" point guard. It’s conceivable the Nets could either take one in the second round. The Nets, in fact, worked out Zabelin in 2007 before he dropped out of the draft.

And of course, Prokhorov also hired some of Europe’s top coaches and front office professionals, most notably Ettore Messina who was rumored as a possible Lawrence Frank replacement last April, long before any Prokhorov rumors began.

Conclusion

There are downsides, of course. Allen, Dolan and Cuban have overspent. So did Kroneke, with Vandeweghe's help. Some would suggest they got taken because of their willingness to spend so freely and because the GM on the other end of the phone knew it. Allen in particular made bad bets on players who turned out to be high risks. When the owner has big bucks, GM’s are more likely to take bigger risks. In Portland, those risks became known as the "Jailblazers".

And all of this is abstract until a deal is done, which it should be next month. Assuming all goes well--these are the Nets after all, this wouldn't be some clichéd "worst-to-first", "rags-to-riches", "change-of-fortune" thing. It would be miraculous…going from an owner who's cut staff and forced out assistant coaches and scouts to an owner who's among the world’s richest men and has both knowledge of the game and a track record of getting what he wants.

It’s all about hope.

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