In the last two weeks, the Nets or Brooklyn Sports and Entertainment, the overarching partnership dominated by Mikhail Prokhorov, have announced a series of moves further expanding the Russian oligarch's impact in New York's sports and entertainment business. Prokhorov is not selling right now. He is buying ... a lot. And the string of announcements and news is nowhere near an end.
The man who once (okay, more than once) made fun of James Dolan is now emulating him.
The question is, will all these real estate moves diminish interest in the Nets, who have already undergone significant cost-cutting both off and on the court over the past year, and are now viewed as the worst team in the NBA ... its brand in trouble?
From the buyout of Deron Williams --and the reduction in salary and luxury taxes-- to the loss of highly paid staff, the Nets have quietly cut their operating costs by tens of millions of dollars this year. There was even some hope of the team making a profit, although that now seems unlikely. The Nets have finally given more than lip service to the concept of fiscal responsibility after years of wild spending. Is that a reason for their demise? It didn't help.
Dmitry Razumov, Prokhorov's CEO and chairman of the Nets, disputes any notion that ownership is losing interest in the team or the NBA.
"Without doubt ownership is focused on team performance," said Razumov, responding to questions from NetsDaily. "Our new projects will contribute to the team’s ultimate success by providing a best-in-class practice facility and a D-League team as a resource for players and coaching staff."
But the big investments are not limited to basketball-related projects.
The announcements and news stories about the plunge into real estate have been delivered piecemeal since the end of October. So much so that the overall picture of Prokhorov's investment strategy has been lost. Prokhorov is expanding well beyond basketball. Like a mini-MSG, with its multiple venues and multiple teams, Brooklyn Sports & Entertainment is growing... with Nets CEO Brett Yormark and Razumov. running the show, pushing the strategy.
Take a look at what we've already seen and what's to come.. It cuts across a wide variety of entertainment businesses.
--ONEXIM Sports & Entertainment, Prokhorov's main investment vehicle, bought 85 percent of Nassau Events Center, which controls the renovation of Nassau Coliseum and its lease with Nassau County. Once ONEXIM completes its acquisition of the 55 percent stake Bruce Ratner holds in Barclays Center, expected before the end of December, and finishes up the renovation of Nassau in December 2016, Prokhorov will control the two big New York sports and entertainment venues outside Madison Square Garden. In both cases, the leases run 30+ years.
--The Nets purchased a D-League team, dubbed the Long Island Nets, which will play in Barclays in 2016-17, then at Nassau in the following years. The expansion team cost the Nets --and therefore Prokhorov-- $6 million, according to one league source. Considering that the last D-League team to hit the open market, the Fort Wayne Mad Ants, went for a reported $10 million, it was a good deal.
--YES agreed to pay the Nets upwards of $40 million, probably a lot more, for local TV rights, starting in 2017-18. With the increase in national TV rights next season, the Nets are likely to reap an $80 million increase in national and local TV rights within two years. In return, the Nets didn't have to do much of anything, just own an NBA team in New York. The infusion of TV rights --and the cost-cutting-- virtually assures the Nets will be a profit center going forward.
--The Islanders moved into Barclays Center, giving the arena another gate attraction despite the handicap of its dimensions. The addition of 41 dates --plus the playoffs-- will help make Barclays Center a profit center as well The Nets are now co-tenants in their own building. MSG much?
--Yormark told a sports business conference in London that Brooklyn Sports and Entertainment is looking more and more into "getting into the real estate market in Long Island, furthering our footprint in Brooklyn and you'll hear in the coming weeks, our first foray into Manhattan." The "Brooklyn footprint" includes the renovation of the Brooklyn Paramount Theater in conjunction with LIU, now an ONEXIM project, while the "first foray in Manhattan" is also likely to be a threater renovation. Moreover, Yormark said the organization is "pursuing" an "equity position" in an E-Sports business.
It won't end there. By late December, ONEXIM should have completed its purchase of the final 20 percent of the Nets --and that 55 percent share of Barclays. By February, the team will open its $50 million HSS Training Center in Industry City. The Nets have a 25-year-lease on the top two floors of Building 19. Sometime in the next few weeks, Nassau Coliseum and its new retail and theater components will be rebranded "The Long Island Sports and Entertainment Village" ... and a naming rights sponsor will be identified for the "village." That deal is done, Yormark has said, declining to name the company or the rights fee.
While some of those investments directly affect and help the team --the D-League team and practice facility obviously-- the others indicate a branching out for Prokhorov into entertainment in the form of arenas, theaters and investments in things like ESports. And it's not just happening in New York. ONEXIM is also renovating a venerable soccer stadium in Moscow, which like Barclays and Nassau, is surrounded by valuable real estate.
Does all this big money talk suggest interest in the Nets is less than what it has been? Prokhorov has said that he will continue to invest in what the Nets need to win, telling NetsDaily a few weeks ago, "the only thing I care about is building a winning team." He has repeatedly said the same thing in various comments over the past year, emphasizing he would spend to win. But since the Nets declined to re-sign Paul Pierce in July 2014, every transaction has ultimately led to a reduction in salary commitments.
Razumov suggests it is not just about money and that fans should give things a chance.
"We also understand that a team of largely new, younger players needs time to come together and we have to give the coach and the players a chance to do their work without breathing down their necks," he told NetsDaily. "The many devoted fans who have been with us through thick and thin will recall we have been through this before, and have managed to get to the playoffs three times in the last three seasons. We have every hope that the same thing is possible this season."
There's no doubt, however, that Nets will need their previously spendthrift owner to help them out of this mess if things don't turn around. The mortgage has come due. Will he? It's difficult to imagine the billionaire letting his most prized investment fall very far. The Nets and Barclays are seen internally as "the mother ship" of the enterprise and continued losses and associated embarrassments will hurt his "brand" worldwide.
There is of course an irony here. Early on, the Nets were seen as a real estate play by many in Brooklyn but, truth be told, it wasn't. It was about basketball, at least back then, at least with Prokhorov Now, it is about real estate as much as it is about basketball. While the real estate thrives, basketball declines. On the balance sheets, that's fine, but in the realm of perception, that's not going to cut it.