NetsDaily Off-Season Report #13

Okay, now it's becoming addiction and probably not a healthy one. Even though PNY Center is shuttered and top executives have taken their families on vacation, the Off-Season Report continues. Why? Because it's the Nets and unlike any other team in the New York area, there's real news to analyze.  We look this week, of course, at Deron Williams' decision to go cold Turkey on the NBA; examine the Net effect of Yao Ming's decision to retire; analyze the prospects for a lost season; discuss Mikhail Prokhorov's other labor problem; reveal Travis Outlaw's contribution and point to one fan's existential crisis and ultimate redemption.

Every Sunday, we’ll be updating the Nets’ off-season with bits and pieces of information, gossip, etc. to help take the edge off missing the playoffs, and now the lockout. We will relyi on the Nets’ beat reporters and others who slip interesting stuff into larger stories, blogs, tweets...plus our own reporting and analysis.

Cold Turkey

No one has heard more about the Nets globalization plans --and first hand from the boss-- than Deron Williams.  Remember what Prokhorov said last February, that he would make Williams a "global star"? One has to think that promise resonated, maybe a bit ironically, with Williams when he decided to do a deal with Besiktas' Black Eagles and take his talents to Istanbul.  Who needs a Russian oligarch to make you a global star when you have an aggressive agent and a willing team owner 5,000 miles away?

Do we think he will ever play in Istanbul? Don't know. We do think the lockout will last into August and September but we wonder if there's some progress then, will D-Will start to think "maybe I should wait a while before packing up the wife and the kids for Turkey". We also find it interesting the press conference to announce the deal will be held somewhere in the United States, not Turkey. Nothing says commitment to a team like waiting till the last minute to join them. Or maybe Williams remembers the madhouse when Besiktas introduced Allen Iverson last year and would like to put it off until the last minute.

But for the sake of argument, let's assume he does...and ask a series of questions.

First question:  Is there any indication that his relationship with the Nets front office is problematic?  No, he didn't tell the Nets he was about to sign with Besiktas, but that may have to do with the lockout rules, which look increasingly silly. He, Billy King and Avery Johnson did have dinner and a golf date in San Diego two days before the lockout began.  King tweeted that the threesome had a "good time." (Did D-Will's new agent, Jeff Schwartz, make it a golf foursome? He lives and works in Southern California.) More importantly, Williams arranged for those teammates still under contract and the team's rookies to spend time together in two separate sessions at Peak Performance Project in Santa Barbara. It was about building chemistry and providing each of the nine with a personalized regimen to work on during the lockout. Both the veteran and rookie sessions took place just before the lockout and lasted several days. It was all D-Wiill's idea. So let's be optimistic (and realistic) and think Williams is still happy with the Nets, with Prokhorov and with their plans for the future, noting that he wants to see a better roster whenever the season begins. Of course, we don't know that.

Second question: Whats' the upside for the Nets? Well, he'll be able to play and rehab his wrist and we'll be able to follow his progress. After losing so much time over the past TWO seasons to his wrist injury, it's going to take some playing time to get him up to speed. So that's to the Nets advantage, considering any training camp will be short. There'll be no worry about him being in shape when the lockout is over. It will help the Nets' global plans assuming everything goes well. Who knows, maybe Prokhorov will drop by Istanbul to watch a game or two.  He vacations every summer at the Turkish resort of Cetesi, near Izmir, 350 miles away. It's one of his favorite wind-surfing venues. He's also building a huge resort complex there. The boss can't talk to Williams or have any contact, but showing up at a game would show commitment. The arrangement also puts more than subtle pressure on Prokhorov to push for an end to the lockout. He can't be happy seeing his star player, the cornerstone of the franchise's future, playing in, as Henry Abbott wrote, a "chippy league" with chippy facilities and chippy players.

Third question: What's the downside for the Nets? Injury is the first thing that pops into fans' collective head. Is there some player in the Turkish League who wants to make a name for himself and decides to take Williams down?  He will be the No. 1 target of players and fans of the opposition. It is not uncommon for fans in some of Europe's outlying venues to toss heated coins and batteries at the opponents' star players. Another concern is the lack of NBA qualify facilities at Besiktas. Team USA used their facilities as a practice court last summer during the World Championships. Those who've been there didn't think much of them, at least compared to NBA and top-flight college programs . The arena holds 3,200. That's about the size of a decent Division III college arena and quarters are tight.  Fenerbahce, where Bojan Bogdanovic plays, is also in Istanbul but there are big differences. Fenerbahce's operation in near-NBA in quality.  Are there are other downsides?  Of course, there are. We just don't know what they are...yet.

Bottom line: do we like the idea? On balance, nope. There are worse things that can happen during a lockout than your star player putting on a few pounds. It all just makes us nervous.

Net Effect: Yao Retires

The news Friday that Yao Ming will retire has short and long-term effects for the Nets. Short-term, the Nets hold the rights to the Rockets' first round pick, 1-14 protected, in the 2012 Draft. Everyone believes 2012 is going to be one of the best ever. What that means is that if there is a season and the Rockets make the playoffs, the Nets get the pick.  If not, the pick becomes lottery protected in 2013. That scenario continues through the 2016 draft, after which the pick becomes a second rounder.  The Rockets, without Yao, made a playoff run last season and it's possible in a shortened season they could make it this year. (Anything is possible in a shortened season. The Knicks made it to the Finals in the last one.) They've added Jonny Flynn and had a very good draft with Marcus Morris, Donatas Motiejunas and Chandler Parsons. But the only center on their roster is Hasheem Thabeet.

Long term, the Nets' plan for globalization will be hurt by the lack of any Chinese players in the NBA next season. Yi Jianlian might get an offer because of what he offers from a marketing perspective, but there are no great young Chinese players who are NBA-ready.  Are we saying the Nets should grab Yi?  Not at all. Been there, done that. So, if Yi returns to China, which is increasingly likely, there won't be a single Chinese player in the NBA for the first time in a decade, since before Wang Zhi Zhi joined the Clippers in 2000. Without a Chinese presence in the entire league, any NBA globalization plan becomes more difficult.

Sobering Whisper

K.C. Johnson covers the Bulls for the Chicago Tribune. He wrote on Tuesday: "Here's a sobering whisper: Twelve teams (reportedly) have told Commissioner David Stern they will lose less money sitting out a whole season than playing a shortened one. The owners are in for the long haul, with a hard salary cap the goal."

What that means is almost half the NBA owners have no economic incentive to make a deal, no economic incentive to make a compromise...and every economic incentive to wait the players out, even if it means a lost season. And as the economy shows signs of weakening, things are not likely to get better soon. But is it all about economics?

Maybe not. Presumably one of those 12 teams is the Nets. Has to be. Does that mean Mikhail Porkhorov is a lockout hardliner?  Economic interests would suggest he is, but as Matt Moore of CBS Sports notes, "Mikhail Prokhorov did not get into this business to lose an entire season, the last he has Deron Williams under contract." Besides, the economics are not likely to affect him that much either way. Under his agreement with Forest City Enterprises and Bruce Ratner, he agreed to eat up to $60 million in team losses while the Nets remained in New Jersey. That money ran out a year ahead of schedule, FCE reported last month.  So any relief from the losses will accrue to Ratner's people...and they no longer have a vote on the Board of Governors.

We have to think as well that other owners in that dirty dozen aren't all about the money. Not that any of this makes us much more optimistic. There are still no scheduled talks between the two parties.

Prokhorov's Other Labor Problem

Mikhail Prokhorov's biggest Russian problem, electorally speaking, is something he proposed a few months back. To reverse the lagging Russian productivity rate, Prokhorov proposed, or at least seemed to propose, a 60-hour work week.  You can imagine the reaction among unions. 

Prokhorov, who heads the Russian Union of Industrialists and Entrepreneurs, aka the "Oligarch's Union", told Komsomolskaya Pravda that the 60-hour plan had come from hard-up employees looking to boost their earnings. He  said extended hours would be voluntary, and no worker could be forced to do more than 60 hours in a week.

Not a good idea, retorted the leader of Russia's biggest union, who also noted that Prokhorov wants other changes in the law, in essence, to make Russian labor laws more like American labor laws. Under Prokhorov's plan, laws would permit greater latitude in firing people and greater use of temporary workers. The union leader called it, "a new kind of slavery".

Prokhorov is now being hammered for his plan as election season gets going. Parliamentary elections are in December. And for those who don't think Prokhorov is in it to win it, and willing to take the risks, there's this: this week, he said he's in favor of privatizing one of the three state television networks so it could criticize the government.  The men who run Russia went to great and often extreme lengths to secure governmental control of the media, particularly television.  Hearing a candidate, and one with resources, make this a campaign issue cannot be comforting to Vladimir Putin.

Fun Facts from the Financials

CNBC's Darren Rovell got ahold of the Nets latest financial statements this week and did his analysis of them both online and on television.  He also provided a link to the underlying document.  Here are some of the details buried in the legalese...

--The arena developer, Forest City Ratner, "will plan, develop and oversee construction of the Arena for a fee not to exceed the lesser of $7,000,000 per year or 5% of the total project cost at completion". Through June 30, 2010, $35 million in development fees have been incurred and presumably paid out to Forest City Ratner. With a projected cost of $1 billion, the development fee could reach $50 million. That's in addition to a guaranteed rate of return.

--In June 2010, Mikhail Prokhorov provided Brooklyn Arena Co., which is building Barclays Center with a $75.8 million loan at 11% interest over three years, meaning it expires in June 2013. The loan proceeds are being used to finance infrastructure at the arena. If the loan is not paid in full, "the loan converts into an equity position in Brooklyn Arena based on a stipulated formula."  As we have noted before, various Nets insiders tell us if that happens, Prokhorov's interest in Barclays Center will jump from the current 45% to between 75% and 80%, the same percentage he owns in the team. The same insiders believe that it will happen, that by the beginning of its second year of operation, Barclays Center will be controlled by Prokhorov. And even if that doesn't happen, Prokhorov (or his successors) have the right to buy out Ratner's interest during a four-month period following the 10-year anniversary of the arena's completion...so late in 2022.  Similarly, Ratner (or his successors) have the right to buy out Prokhorov's interest in the team during that same timeframe, late  2022. 

--Under the sale agreement, Prokhorov actually paid $223 million for his interest in the Nets and the arena, including a $40 million "down payment" in December 2009, two months after he agreed to buy the team and six months before he took control. As reported here and elsewhere, Prokhorov also agreed to fund team losses while they remain in New Jersey up to $60 million. That includes operating losses; debt service; cash considerations to sweeten trades ($7.5 million by our count); the buyout of the IZOD Center lease ($4 million); front office additions etc. Also coming out of that "Jersey Fund" as we like to call it, was $15 million to reimburse an advance to keep the team running between March 1, 2010 and May 12, the day he took over. The advance apparently came from Forest City Enterprises, Ratner's parent company. The "Jersey Fund" was supposed to last two years. It ran out last month. So now Ratner's interests have to finance "100% of the operating needs, as defined, until the Arena is complete and open."

--The team's debt as of June 30, 2010 was $207 million, an extraordinary number, in that it equals nearly the full value of the franchise.  No professional sports team, at least in the United States, carried that level of debt.

--Contracts for naming rights, suite licenses, sponsorships and concession agreements, as of June 30 of last year, totaled $190 million over the first five years of arena operations. There's no breakout of what Barclays is paying for naming rights.

Bottom line after reading through the financials: This team was in even more desperate shape than we had previously  thought.

Outlaw's Contribution

Hasn't been a great week for Travis Outlaw, who's been ridiculed here and elsewhere for two stories coming out of Starkville, MS. The first was on how his "entourage" of family members thought he was too "stressed out" about his $35 million contract and didn't perform at the highest level. It was followed quickly by another on how his father thought he overheard Avery Johnson say he wanted Travis to put up 17 shots a game. Probably didn't help that he shot a career low last season.

Now, there's a report that Outlaw is the biggest single campaign contributor to Hattiesburg Mayor Johnny DuPree's run for governor of Mississippi.  The state's leading newspaper reports he has given $4,600 to DuPree's campaign, its largest cash contribution. DuPree, a Democrat, doesn't have much of a chance of winning.  Nothing wrong with that.  In fact, it's good to see players exercising civic responsibility and truth be told, Outlaw does a lot of positive things for his community, which is poor.  In fact, both the stories discussed above were the result of the Outlaws opening up on Travis Outlaw Day in Starkville. Sometimes, you can't win.

Final Note: A Fan Speaks

Mike Lucas is a long-time Nets fan who set up a new blog, "Nets Pride", this week (the more the merrier!) In his inaugural post, Mike wrote about the trials of being a Nets fan, particularly the despair he felt last February when the Nets failed to trade for Carmelo Anthony, how he considered switching sides and becoming a Knicks fan in those 36 hours before the Nets grabbed Deron Williams...when the consolation prize looked ominously like Devin Harris for Caron Butler's good knee. 

He wrote his post before the spate of bad news at the end of this week, but what he wrote has a lot of relevance to where we, as Nets fans, are now.

It seemed the proverbial planets had aligned and the only thing I could do was sit back and think to myself, "was I meant to be a Knicks fan?" Disgracefully I logged onto their website, read their blogs, tested the waters to see if I could really betray my team without withering up and dying of shame. But that is when I realized that I couldn’t do it. That’s when I realized that I had Nets pride. I couldn’t explain it.

There’s a bond that we develop with our teams that I believe doesn’t need to make sense or be relevant to anyone but ourselves. Sports mean something different to everybody who watches them, whether it’s just a way to relax and think about something other than your stress, or feeling accepted into a fan base bigger than anything you’ve ever been a part of. And in some form of Karma for putting up with these past few years, we were blessed with a blockbuster trade bringing in resident All-Star Deron Williams.

So hang in there.