Two years ago, the Nets lost a staggering $144 million, most of it because of a $91 million luxury tax bill Mikhail Prokhorov paid the NBA. Now, as the team's Russian ownership moves closer to gaining complete control of the franchise --and Barclays Center, there's a possibility that for the first time, the Nets could be a profitable venture ... this year. And even if they don't get into the black this season, they will certainly make a profit next season, with the national TV rights money flooding in.
According to one team insider, the key difference between profit and loss is the Nets decision to buyout and stretch Deron Williams contract, something with business and basketball implications. By dumping D-Will, the Nets didn't just get under the luxury tax threshold, they also avoided paying the repeater tax. Total savings may reach $60 million when both salary and taxes are factored in.
But the cost-cutting didn't end there this summer as the Nets sought "fiscal responsibility," as a second team insider called it. By not retaining Bobby Marks as assistant GM and finding internal replacements for assistant coach John Welch and strength and conditioning coach Jeremy Bettle --among others-- the team saved hundreds of thousands of dollars in salary. Now, with Prokhorov about to gain complete control of the team and arena, the chances the team will become profitable are more enhanced. A cleaner. leaner management, less duplication.
The team is still spending money on capital improvements, like the $45 million HSS Training Center, but operating costs, those that recur year after year, have shrunk dramatically after the wild spending spree that accompanied the team's move to Brooklyn. Prokhorov paid out $123.4 million in luxury taxes alone over three years. Of course, the value of investment has skyrocketed --- and will go even higher if the deal, as reported by the Post, goes through.
The value in becoming a profitable venture has a number of implications...
--The Nets become a more attractive asset if ONEXIM Sports and Entertainment, Prokhorov's investment vehicle, wants to sell out, or just sell a significant minority share to investors. At this point, word is that ONEXIM is not interested in selling out but would like to cash out the profit it's already made on its investment by selling up to 49 percent.
--The Nets become a better partner for another sports venture. Ownership discussed such a partnership with Guggenheim Partners, the Dodgers owner, last year. One reason the Guggenheim deal reportedly fell through was the amount of debt that the combined entity would have taken on. Internationally, there are other potential partners with big assets already in hand. A clean balance sheet is better than one with a lot of red throughout.
--Presumably financing costs will be less onerous. Big investments are most often done with other people's money, that is loans from banks or other financial institutions. Huge losses will add points to interest rates ... and more zeros to the costs.
There are other issues that get resolved with the buyout of the Ratner stake in Barclays Center. For one, It clears up a league concern that the arena lease is so one-sided in favor of the arena owners, that is Ratner, that any new team ownership, majority or minority, would face higher expenses than the league thinks are justified. As Sports Business Journal reported last February, the league told the Nets that issue would have to be resolved before any deal would be approved. With Prokhorov in charge of both, that issue should be moot.
The Nets still have operational issues. For one, their local TV ratings are the lowest in the NBA, a continuing problem that has impacted their local TV rights money.
And of course, there's the issue of basketball operations, that is, the team on the court. Can the Nets break out of their mediocrity of the past two years? A lot of pundits say the worst is yet to come. Profit or not, that will not sit well with fans, who after all only care about wins and losses, not profits and and losses.