An agreement to lend the Nets $13 million to cover continuing losses is one of several references to the Nets in the annual report, filed with the Securities and Exchange Commission at the end of March.
Specifically, Forest City states:
"The team is expected to operate at a loss in 2007 and will require additional capital to fund the loss. We have agreed to advance up to $13,000,000, in the form of a member loan, which is
senior to both common and preferred equity of the partnership that owns an interest in the Nets, but subordinated to third party debt."
The company previously had assumed losses as part of its agreement to invest in the franchise. The Nets and their new arena are the centerpiece of Forest City's $6 billion dollar plan to redevelop the Atlantic Yards railyards and surrounding area. Here is what it says about its previous history of dealing with team operating losses:
"On August 16, 2004 the Company purchased an ownership interest in the Nets, a franchise of the National Basketball Association ("NBA"). The Company accounts for its investment on the equity method of accounting. Although the Company has an ownership interest of approximately 21% in the Nets, the Company currently recognized approximately 17%, 31% and 38% of the net loss for the years ended January 31, 2007, 2006 and 2005, respectively, because profits and losses are allocated to each member based on an analysis of the respective member’s claim on the net book equity...
"The purchase of the interest in the Nets is the first step in the Company’s efforts to pursue development projects, which include a new entertainment arena complex and adjacent urban developments combining housing, offices, shops and public open space."
As for the franchise's continuing losses, FCE states:
"The Nets are currently operating at a loss and are projected to continue to operate at a loss at least as long as they remain in New Jersey. Even if we are able to relocate the Nets to Brooklyn, there can be no assurance that the Nets will be profitable in the future."
Still, the company remains optimistic that in spite of various delays--some the result of critics' legal moves, Forest City expects the Nets to be in their new arena in two years. In its quarterly report, issued the same day, FCE adds:
"The arena, which is expected to become home to the NBA's Nets, in which Forest City is an investor, is anticipated to open in time for the 2009-2010 NBA season."