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Will Mikhail Prokhorov have to sell arena share as well as the Nets?

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Brooklyn Nets

In their "summer scoop" on the Nets Tuesday, Marc Stein and Mike Mazzeo reported on "rumbles" that

"...the real reason the Nets aren't being actively shopped to potential bidders is the structure of the deal (Mikhail) Prokhorov struck to buy the team mandates he sell Barclays Center in conjunction with his basketball team. Word is the entities can't be sold separately, which is said to have chilled the market due to the complexities involved in such a transaction and the significant price tag it would carry."

The next day, Stein reiterated the reporting in a tweet linked to the "summer scoop."

So what's the story?

Sports Business Journal reported back in February that the NBA told Prokhorov that if he's going to sell his majority interest in the Nets, he must also sell his minority interest in Barclays Center. The league's rationale is that the arena lease is so one-sided it would create a burden for any investor buying the team.

Quoting multiple sources and noting they had part of the letter read to them, the SBJ reporters wrote then ...

The NBA’s instruction stems from a league rule on sales that would require the same ratio of team and arena ownership the Russian billionaire assumed in 2010 be replicated if he sells. He owns 80 percent of the Nets and 45 percent of the arena. It is possible that the league could issue a waiver on that rule, but it could not be determined the likelihood of such a move...

(T)he lease is onerous for the team and a significant element of the team’s expenses.

The 37-year lease has long been viewed as one-sided, and thus favorable to Bruce Ratner who owns 55 percent of the arena as well as 20 percent of the team.  It was negotiated as part of the 2009 agreement that led to Prokhorov acquiring his interests in the two Brooklyn properties.  It has helped the arena make a profit --although less than projected-- and added to the team's losses, which are more than projected, in part because of the lease  If the team were owned by others and the arena left in Ratner and Prokhorov's hands, new owners would be at a disadvantage.

Indeed, SBJ's Daniel Kaplan and John Lombardo quote a "source close to the owner" as saying, "the NBA directive is one that will complicate his sale of the team."

However, there are ways around the issue, but none appear likely. The league could issue a waiver --and a big sale price for the team might make the league more amenable-- or the lease could be reworked.  However,  Prokhorov and Ratner would have to go to the arena's bondholders before that could happen and with half a billion in arena debt,  they're unlikely to want to devalue one of the "key pieces of their collateral: the Nets’ lease," SPJ notes.

It's not known how the sale of a minority interest -- with Prokhorov still in control -- would be affected by the lease. There's still little indication that the Russian oligarch is interested in selling anything but a 49 percent share of the team and no recent reports of any success in that effort.