Forest City Enterprises, Bruce Ratner's parent company, released its annual report this week and in it were new details about the relationship between Ratner and Mikhail Prokhorov ... and further evidence Prokhorov is still spending money on the Nets.
According to the report, called a 10-K, Prokhorov has agreed to eat Ratner's share of the losses on the Nets, which are in the millions, through the end of next season ... and not dilute Ratner's 20 percent stake in the team.
Prokhorov has also agreed not to purchase up to 20 percent of Atlantic Yards, the 22-acre complex surrounding Barclays Center, permitting Ratner to sell 70 percent of the project to a Chinese company. Prokhorov acquired the option when he bought 80 percent of the Nets and 45 percent of Barclays Center in 2010. The report does not detail what Prokhorov may have received in return for the two concessions nor whether the two moves are connected.
According to the report, filed with the US Securities and Exchange Commission, the "Mikhail Prokhorov Entities" has agreed to fund Ratner's share of the losses to the team through 2015 "in exchange for a fee." The Nets annual losses have been estimated to be as high as $50 million.
As part of the original deal between Ratner and Prokhorov, the Russian oligarch's companies agreed to pay $223 million for the shares in the team and arena --plus the option-- and fund the Nets operating costs in New Jersey up to $60 million. Originally, that amount was expected to cover operating costs incurred in the Nets' final two seasons in New Jersey. Then, as costs and losses mounted, the $60 million was exhausted by the summer of 2011. As a result, Forest City, on behalf of Ratner's partnership, Nets Sports & Entertainment, was required to fund 100 percent of the operating needs of the Nets' final year in New Jersey and through the opening of Barclays Center on September 28, 2012.
After that, funds to cover the losses were divided according to the 80/20 split. But Forest City did not fund a "capital call" to cover the team's operating losses for the 2013-14 season...
"Under the terms of the operating agreement, the MP Entities had the right to dilute NS&E's ownership interests in The Nets upon NS&E not funding capital calls," according to the annual report. "During the three months ended July 31, 2013, the Company entered into an agreement with the MP Entities, in which the MP Entities agreed to fund NS&E's portion of the July 2013 and future capital calls through July 2015 and not exercise the right to dilute NS&E's ownership interests for a period of two years in exchange for a fee."
The "fee," which is likely to be a loan, was not disclosed. Prokhorov and Ratner have had a generally happy relationship, and Prokhorov agreed to join with Ratner in the $200+ million rehab of Nassau Coliseum, although the amount of the investment and percentage of the completed project have not been disclosed.
- Forest City Enterprises - 10-K - Forest City Enterprises