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"The Jay-Z rule" -- NBA raises bar for team ownership

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Joe Nicholson-USA TODAY Sports

The Nets at one point earlier this decade had around 100 people and partnerships who could claim to owners.  As a result of various financial issues in the years prior to Mikhail Prokhorov's purchase, the ownership structure of Nets Sports and Entertainment, Bruce Ratner's investment vehicle, was fractured with many investors holding tiny pieces. Everyone from Willis Reed to Jay-Z had pieces at one time or another.

The NBA no longer wants that as a model for its teams. Zach Lowe reports...

Call it the Jay Z rule. At its last major meeting, the NBA’s Board of Governors quietly passed a rule mandating that teams have 25 or fewer individual owners — and that every such owner must own at least 1 percent of the team, per a half-dozen league sources.

Although it's now a rule, Nets investors have told NetsDaily the NBA has discouraged small stakes for a while now, particularly with the Nets because of its myriad tiny investors.

Why call it the Jay-Z rule?  The Brooklyn-born entertainer and entrepreneur held a miniscule share in the Nets and Barclays Center starting in 2003, then saw it dwindle as he reportedly failed to meet cash calls --requests to cover team losses-- and Prokhorov bought 80 percent of the team, diluting it further.  Then, when the NBA players union asked that he drop his stake altogether, he split his share into two smaller stakes, one sold to Jason Kidd, the other to another investor who already owned a small stake in the team and arena.

In general, the league prefers bigger investors...

Dealing with so many voices is unwieldy. The NBA uses a thorough vetting process for any owner, even someone with a Jay Z–level stake. Requests for tickets and other perks can pile up fast; controlling owners and those with large stakes became irritated in some cases when minority partners with skimpy equity agitated for big-time perks, sources say.

But there's a downside to the rule. It will limit the pool of investors who prospective buyers can approach. With rising valuations, that one percent rule means investors will likely have to fork over at least $5 million for even a tiny piece of an NBA club, Lowe notes.  And yes, Jason Kidd still owns 2/5ths of one percent of the Nets and a slightly larger stake of Barclays Center.