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NetsDaily Off-Season Report #10

By Net Income
USA TODAY Sports

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 second round of the playoffs, relying on the Nets’ beat reporters and others who have slipped interesting stuff into larger stories, blogs and tweets...plus our own reporting.

Yeah, we're out of control, totally. How can we not be? We are not delirious with joy. We are dead drunk with it. If the off-season had a Finals, the Nets just won it. Break out the Martinelli's! No need to remind us that they have to play the games, or that we have to take it one game at a time, or that there are lots of things that can go wrong. We devoted most of last week's Off-Season Report to that subject.

This week, we are all about going after those who are trying to steal our joy, the pundits who are shocked, awed and appalled at the basketball ATM that is Mikhail Prokhorov and the cranky GMs who want an investigation now, goddamnit, of the Andrei Kirilenko contract. We ain't backing down. As Billy King says, these are not your old Nets.

We want to be smooth like Jason Terry who tweeted on Friday but they won't let us.

We also look at the possibility that Kirilenko could one day joint the BASKETBALL Hall of Fame. It's not the NBA Hall of Fame, but the BASKETBALL Hall of Fame and how KIng's Plan B's are so much more fun than his Plan A's.

The Haul as investment

On the day of the Draft in 2001, the Nets re-made themselves. In the afternoon, Rod Thorn and Jerry Colangelo agreed to swap Jason Kidd for Stephon Marbury, a trade that wasn't announced for a few days. That night, they drafted Richard Jefferson and Jason Collins, who became critical components in their championship runs.

Friday may yet prove to be as great or greater a day in franchise history. The Nets finalized their trade with the Celtics, bringing in Paul Pierce, Kevin Garnett and Jason Terry and then later signed Andrei Kirilenko. It was the end (?) of two weeks that saw Mikhail Prokhorov, Dmitry Razumov and Billy King remake the Nets roster.

Since June 27, the Nets have added Pierce, Garnett, Terry, Kirilenko, Shaun Livingston, Mason Plumlee, even D.J. White (for now) and retained Andray Blatche, their most important free agent. They dumped Gerald Wallace, Kris Humphries, MarShon Brooks, Keith Bogans, and Kris Joseph while letting Jerry Stackhouse's contract expire. Not one of them averaged eight points a game last year. They also dumped three first round picks in 2014, 2016 and 2018 and agreed to swap the 2017 pick, as pundits keep reminding us. There are no protections on any of them.

They also hired Jason Kidd and added four new assistant coaches in Lawrence Frank, Roy Rogers, John Welch and Eric Hughes while retaining Doug Overton and strength and conditioning guru, Dr. Jeremy Bettle. Frank may be the highest paid NBA assistant coach...ever. They upgraded their stats guy from consultant to full-time employee and rewarded some of the 20-something gym rats with promotions.

In doing so, they spent a lot of money, mostly in luxury taxes: Last year, they added a third of a billion dollars to the payroll. This year, they took in a bit more than they sent out, about $58.9 million in new salaries, not including Kirilenko or Blatche's team options in year two, and Plumlee's rookie contract. They sent out $50.4 million, including Wallace's big nut, $30.3 million, and Bogans' S&T, at $5.1 million. The big difference of course is that this is the first year of the progressive luxury tax. No more simple-to-calculate dollar-for-dollar tax payments above the tax theshold. Now, the higher you go, the more you pay. How high? If the Nets wanted to keep White, it would cost them nearly $4 million.

Total cost of the new Nets roster, as is? $101 million with a luxury tax of $80 million. This has outraged pundits and apparently other owners. These are of course the same pundits who prior to the beginning of the off-season regaled us with warnings that the Nets had no flexibility. Voila! Pierce, Garnett, Kirilenko, Terry, Livingston, Blatche, Plumlee. Now, they're saying next year will be different!! It will be worse!! Oh the humanity!!

So once again, we offer math for scribes and pundits, who seem to think that the Mad Russians are doing this for fun, for sport, as a hobby. No, its an investment.

Back in 2010, Mikhail Prokhorov disclosed two five year plans: 1) to win a championship, a prediction that got widespread attention and derision and 2) to drive his investment in the Nets to a billion dollar valuation, a prediction he only made in Russian to a Russian business magazine.

BOTH seemed to have been enhanced by what he and the Nets accomplished this week. Lets' focus on the latter because it's more subjective and lesser known.

When Prokhorov agreed to buy the Nets in September 2009, he laid out $223 million in cash for 80 percent of the Nets, 45 percent of the Barclays Center holding company and an option to purchase up to 20 percent of Bruce Ratner's $5 billion, 16-tower Atlantic Yards project at a later date. He also agreed to service 80 percent of the team's $220+ million in debt and finance up to $60 million in operating losses while the team was in New Jersey, a kitty that was exhausted in one year. So the losses in the second year were eaten mostly by Bruce Ratner's parent company. Later, he agreed to finance some arena infrastructure with a $76 million loan at 11 percent, below market rate for junk bonds at the time.

The Nets valuation has skyrocketed, in large part because of the franchise's success. With the small market Sacramento Kings having been sold at $525 million valuation this summer, what must the Nets, who play in the biggest market in the world, be worth? Guessing starts at around $750 million to $800 million. That's the internal number, as laid out by Irina Pavlova in a recent Russian language magazine. That number is not likely to include the value of the two other investments: the arena holding company and the option on Atlantic Yards, where the first of those 16 towers is just getting underway. (Also, that $76 million loan gets repaid later this year, unless something has changed in its terms.)

The Nets success also impacts the success --and valuation-- of the arena. The Brooklyn brand, pushed by the Nets, helped Barclays Center become more attractive to the Islanders. And the traffic drawn to the arena and surrounding area can't help but affect Ratner's ability to get financing for his apartment towers. And that helps increase the value of Prokhorov's option to buy. Very synergistic.

This isn't high finance. It's just good investment strategy. In 2008, as the world economy collapsed, Prokhorov had between $5 and $7 billion in cash. He used a lot of it to buy distressed assets: a Russian investment banking firm, a Russian television channel, Russian energy and mining assets ... and the New Jersey Nets. Cash-starved, all of these companies made deals that were favorable to Prokhorov. Prokhorov then did what smart businessmen do around the world: he proceeded to put money in them.

In the case of the Nets, his cash helped get Barclays Center built and his reputation made selling $511 million in arena bonds a lot easier. Everyone but ownership was shocked that they sold out all the bonds in a matter of hours. Would that have happened without Prokhorov on board? No. He also paid out $4 million to get the Nets released from their lease at the IZOD Center, voted the worst pro sports venue in North America in poll after poll. He did little things as well. Dmitry Razumov, his righthand man, was at a Laker game at Staples Center and loved the black box lighting. It wasn't in the original plans for Brooklyn, but Razumov felt it greatly enhanced the fan experience. So they spent $3 million to add it. Same thing with the player amenities at the arena. The "basketball campus," aka the home locker room, cost more than $10 million. Even the visitors locker room has gotten raves from players who are after all future free agents.

Then, once the Nets moved to Brooklyn, ownership started spending money on players ... or should we say investing money. Yeah, it's been expensive and yeah, it's sometimes been inefficient and yeah, they probably overpaid at times (although getting Kirilenko, Blatche and Livingston for a total of $6 million this week was quite efficient.) But that's all at the margins. If the Nets are worth $1 billion in 2015, wasting a few tens of millions on underperforming assets is a cost of doing business. Did they like spending $12 million dollars on Kris Humphries last year ... and paying out an equal amount in luxury taxes. They will tell you, they did not. Did it result in the Nets getting Paul Pierce? Yes it did.

The criticism of the Nets seems to be based on conventional wisdom, that Prokhorov can't spend as wildly as he did with CSKA in the Euroleague or as his fellow oligarchs have in the English Premier League. You can't buy championships under the new CBA, we are told. Yes, you can. The Lakers and Heat have. (The Knicks didn't but the Isiah Thomas era was bad management worthy of a Harvard Business Review study., maybe two.) The same conventional wisdom claims the Thunder had to trade James Harden. No, they didn't, Their billionaire owner chose not to suck it up and pay a large luxury tax bill. Not to mention self-proclaimed genius Mark Cuban, who has jumped the shark(tank). He dissed Prokhorov's spending, saying he, Cuban, would be judicious and smart. Now, he's begging Sameul Dalembert to join the Mavericks. Samuel Dalembert! Really? Not Dwight Howard? Not Andrew Bynum?

More importantly, what Prokhorov is doing is good business. He understood going into Brooklyn that the New York market would require him to spend. So he did. It's worked. His investment tripled in three years. (And why, despite what pundits keep telling me, should I care that he is spending wildly? I am a fan! I want the owner to spend wildly! How about the players? Are they sitting around the 40-40 Club lamenting Prokhorov's spending spree? Hardly.)

People compare Prokhorov to George Steinbrenner. Wild man! Spendthrift! That's nice for the tabloid back pages, but it's in the business pages that the comparison makes the most sense. Steinbrenner and his partners bought the Yankees in 1973 for $8.8 million. When "The Boss" died in 2010, seven World Series rings and a lot of controversy later, the Yankees were worth of $1.7 billion. We're not predicting a 20,000 percent jump in the Nets value over the next forty years, but things are moving in the right direction.

We hope Prokhorov is on stage Thursday when the Nets introduce their newest players. He deserves their accolades and ours. We survived 12-70, IZOD Center, and a lot of crap from Knicks fans before he took over. No more!

The Kirilenko Affair

Which brings us to the case of Andrei Gennadyevich Kirilenko. He is native of Izhevsk, capital of Udmurt Republic in Siberia. It's where the AK-47 assault rifle is manufactured. Got it? He is a very good basketball player, perhaps the best Russia has ever produced.

There is great outrage and gnashing of teeth around the league that Prokhorov, known to be a Russian, must have worked a side deal with Kirilenko, also Russian.Cranky GM's who work for cheap owners are particularly outraged. They have spoken to Woj! Perhaps Kirilenko is the proud owner of a gold mine somewhere deep in SIberia (even though Prokhorov smartly sold out of gold a few months back.) Perhaps there's a secret bank account with his name on it, buried the vaults in Cyprus or the Maldives. Maybe there's a job waiting for him at 13/1 Tverskoy Boulevard, Moscow, when he retires. It's a dark and foreboding place, that ONEXIM! Something, has to be! Russian businessmen are corrupt! It's their culture! Prokhorov admitted on 60 Minutes that he once paid a bribe! My God, man, can't you see!!! Let's investigate!!

Oh, shut up. You got nothin'.

Basically, here's where we stand: If a player demands the max, he can get from team: He's all about money. If a player takes less to go with a team that can win: START THE INVESTIGATION!!

Here's the facts as we know them ... we are so naive, but let's try to figure this out anyway. Kirilenko opted out of a $10 million players option with the Minnesota Timberwolves (NBA Siberia) at the end of June. Word was that he wanted a longer term deal, which the T-Wolves weren't prepared to give him. He was supposed to benefit from a sign-and-trade between Minnesota and San Antonio that would have paid him $7 million . But Flip Sanders is pissed at Kirilenko so nothing got done. Then he was bound for Cleveland, a bit of a step down. But Andrew Bynum sucked up most of Cavaliers cap space.

As Tim Bontemps wrote of Kirilenko's dilemma, "The Nets also were helped by the fact Kirilenko’s market began to disappear after a potential sign-and-trade with the Spurs fell through and the Cavaliers, who also had been linked to him, chose to use their cap space to sign Andrew Bynum instead."

The Nets were also the beneficiary of Bogan Bogdanovic's decision to stay in Turkey. He would have received $2.4 million of the $3.2 million mini-MLE. Now that money was freed up. King initially didn't think the Nets had a chance at Kirilenko. He had tried to get him on the cheap last season, but AK-47 signed the deal with Minnesota. King said he had a Plan B, but it wasn't Bogdanovic. He won't (actually can't) disclose who the player might be. But he says he figured, why not see if Kirilenko might be interested. Here's what happened, he told reporters Friday

"It was someone else we were targeting, and I said, ‘What the heck? Let me make one more phone call before I get down the road and agree to something,’ I made that call and got, ‘No, I don’t think so,’ and then made another call and they said, ‘I’ll think about it.’ "

"I just said, ‘You want an opportunity, here’s what we have, and if you want to be able to go back on the market next year you can,’ " King said. " ‘I think we’ll have a great chance for you to showcase your talents on a great team and give yourself a chance to play within that environment, play for Mikhail, and then you have a chance to go back on the market next year with a great showcase.’ That was my pitch.

"I was surprised, but looking where the marketplace had turned, I mean, you’ve got guys still out there on the market that are trying to get money that opted out of big deals."

What's missing from all the outrage is that no one is saying there was a better deal out there that Kirilenko turned down for the Nets deal. Marc Fleisher told David Aldridge that was one of several factors that helped the Nets land Kirilenko.

"At this point of his career, he's fortunate to have made a lot of money," Fleischer told Aldridge. "And while money is important, I think they convinced him that signing with a team that had a chance win--and that had Russian ownership--was too good to pass up."

According to baskeball-reference.com, Kirilenko has made more than $100 million in NBA salaries alone. CSKA Moscow paid him $6 million during the lockout season when he dominated the Euroleague. And that doesn't count endorsements.

So what about Prokhorov's relationship with Kirilenko? Nefarious? Hardly.

Prokhorov and Kirilenko have been close for years. AK-47 played for CSKA Moscow between 1998 and 2001, when Prokhorov owned it. Prokhorov and his GM at CSKA, Sergei Kushchenko, now on the Nets board of directors, gave him his start! Prokhorov tried to buy out Kirilenko's Jazz contract in 2007 after he led Team Russia to the European championship. Last year, the Nets made a last-minute and admittedly half-hearted attempt to sign Kirilenko. As we reported, they have helped each other's charities. Kirilenko gave him some advice before he bought the Nets. He endorsed him for President. They trust each other.

Then, there's his connection with Deron Williams. As we also reported, the two have been close since Williams joined the NBA and as recently as this May they got together in New York, posting an image of the two couples at a trendy West Village restaurant. The Kirilenko's had hosted the Williams in Moscow in 2011. The two faced off as competitors in the London Olympics in 2012, with D-WIll wining the gold in mens basketball and AK the bronze. . Following opening ceremonies, they found each other on the infield of London's Olympic Stadium and posed for pictures. They too trust each other.

We find all these claims xenophobic and hypocritical. Xenophobic because it's all about the Russian connection. He must be corrupt. He's Russian, perhaps a gangster. Well, the NBA vetted Prokhorov extensively before he was approved as an owner and found nothing. (We made a phone call or two as well: nothing.) Hypocritical because NBA owners were only too happy to approve Prokhorov's bid for the Nets. It opened up a whole new set of deep pockets to buy their shitty franchises at a profit. Now, however, Prokhorov is out there, stealing their first born and pillaging their villages. Deal with it.

Barry Petchesky had the best commentary on this of any we've seen. Writing in Deadspin, he noted...

Maybe Kirilenko chose Brooklyn over Minneapolis because he wants to live somewhere with a decent amount of Russian speakers. Maybe he wanted to play with Deron Williams again. There are all sorts of plausible explanations that don't require Prokhorov to take a page from Karla. The fact that Prokhorov can't sign a 32-year-old backup without bringing down the wrath of the other owners indicates less about his methods than it does about how threatened they're feeling these days.

My favorite part of all this is the call for the Commissioner to investigate. Now, let's see: there is NO evidence out there to suggest that anything untoward took place. The allegations, if you can call them that impugn not only an owner but one of the game's great players. (Not we said game, not league...more on that below.)

David Stern or Adam Silver is going to run a witch hunt on the NBA's only European owner, based on someone's concerns? Want to scare off other investments much? And who will do this investigation? Normally, it would fall under the purview of the league's office of basketball operations. Problem is president of NBA basketball operations is Rod Thorn. Executive vice-president of NBA basketball operations is Kiki Vandeweghe. Both were Prokhorov employees (although Kiki for only teeny tiny little bit). Yeah, maybe the office of Legal Counsel could handle it. We just don't see it unless there is something out there we don't know about.

And not every GM believes Prokhorov is screwing around with the league's integrity. Pat Riley said Friday that Prokhorov is “playing within the rules. He’s taking on contracts and star players and, so, obviously they’re doing a job and they’re committed to winning.” Riley would know!

So, we will enjoy the comedic value of the conspiracy theories and hope that this pisses off Prokhorov and Kirilenko. An angry Prokhorov? Oh boy. Last time that we know someone pissed him off was back in 2008 when two guys interrupted a speech by his sister Irina. Prokhorov responded...

"If the two gentlemen, who financed this PR campaign, do not apologize to my sister in the next two weeks, I will do what every man should: I will personally beat the shit out of them. You know that I will." Asked if he was serious, The Most Interesting Man in the World replied, "Do you have any doubts?" They apologized. Maybe some anonymous GM will apologize, although we think we'd prefer that Prokhorov "personally beat the shit out of them."

Moving on...

Andrei Kirilenko ... the other Hall of Famer?

Not a bad resume...

Now before you get all whipped into a frenzy, remember two things: it's the BASKETBALL Hall of Fame, not the NBA Hall of Fame, and Andrei Kirilenko is arguably the finest player ever produced by a major hoops-playing nation. He has to be considered a candidate.

Outside that resume', there's his remarkable breadth of talent. On Saturday, Brad Rock of the Deseret News described his game at Utah his game this way, "He turned in box scores that looked like an international phone number, with double digits in points, rebounds, blocks, assists or steals — often in several categories at once."

In fact, Kirilenko is one of only two players in the history of the game to record multiple 5x5 games, that is a boxscore of five of more points, rebounds, assists, steals and blocks. He has done it three times to Hakeem Olajuwon's six.

He is also the last person to have recorded a 5X5, having accomplished his third in February 2006.. The other players that have had a 5X5 are David Robinson of the Spurs in 1993, Derek Coleman of the Nets in 1993, Vlade Divac of the Lakers in 1995, Jamaal Tinsley of the Pacers in 2001, and Marcus Camby of the Nuggets in 2004.

Probably the biggest stain on his record is the 2012 loss to Olympiacos in the Euroleague Final. He had dominated early in game, then in the second half, he and CSKA couldn't put it away. Up by 19 in the third CSKA lost by one, with D-Will and Prokhorov in the stands cheering him on, Williams at courtside, Prokhorov in a suite with a bevy of beautiful women.

We have always loved his game. His defense, his interior passing, his ability to run the pick and roll with Deron Williams. It's going to be fun. And if the Nets do get a ring, book AK-47 for Springfield. That's the way it works. In the meantime, we will have to wait for Alyonka Larionov's multi-lingual interviews with him. You know they're coming.

Moving on without Boy-on

We don't know what the status of Bojan Bogdanovic's contract with Fenerbahce is, but it hasn't been the highest priority since we saw Vecsey's tweet about Kirilenko, being momentarily stunned, then uttering the words --out loud, at work, "Wow, wow, they got him."

Word was that he would sign a three-year deal with the Turkish club, who recently signed Zeljko Obradovic, Europe's version of Phil Jackson. Fener is trying to pump up its basketball fortunes after a match-fixing scandal devastated its soccer program and led to a European ban.

No doubt, they will want big NBA buyouts. The question is what will Bogdanovic want? If he accepts big buyouts, his chances of coming to the NBA are minimal. So we wait. We will cover his FIBA Europe games, as well as Mirza Teletovic's and Tornike Shengelia's, this summer, but with less enthusiasm than before. We suspect the same will be true of the Nets.

Plan B

Andrei Kirilenko is just the latest of Billy King's Plan B's to work out after Plan A collapsed. As we noted in a tweet, and an email to King, his Plan B's are so much more fun than his Plan A's.

--In February 2011, a day after Plan A, getting Carmelo Anthony collapsed, old friend Kevin O'Connor calls to offer his condolences. They start talking deals, ironically beginning with Kirilenko and slowly evolving to Deron Williams.

--in July 2012, hours after offering the Magic Brook Lopez, Kris Humphries, MarShon Brooks and three picks for Dwight Howard, the Dwightmare effectively ends when the Nets finally abandon Plan A and move on to signing Lopez. No trade, but Lopez becomes Plan B and he has a great season. The other assets are used to acquire Kevin Garnett and Paul Pierce.

--In June 2013, hours after he secures an agreement on the off-season's Plan A, trading Hump and the Nets 2016 first rounder for Pierce, he decides, with ownership encouragement, to got for Plan B, expanding the trade to include Kevin Garnett. He not only secures KG, but is able to dump Gerald Wallace's contract on Boston.

--July 2013, days after first Kyle Korver and then Bojan Bogdanovic say no, Kirilenko says yes to the mini-MLE, giving the Nets a better all-around player. We talk enough about the Kirilenko contract above.

Of course, not all Plan B's work out. The Wallace trade was a Plan B and although his contract now sits squarely on Boston's cap, many thought the deal was desperation. Still, at the end of the day, the Nets who would have selected a big man if they had kept the pick were able to flip Wallace's huge contract, plus two picks, for Garnett. All's well that ends well, we always say.

Final Note

Kevin Garnett in New York City. That is all. Think about it. While you do, we offer this reprise of last week. Can't get enough of it.

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