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Analysis: Why Tsai deal is such good one for Prokhorov ... and the Nets

Oklahoma City Thunder v Brooklyn Nets Photo by Alex Goodlett/Getty Images

There was little surprise in the NBA community when word came Friday that Mikhail Prokhorov was selling a minority stake in the Nets to Joseph Tsai, co-founder of Alibaba. Prokhorov had announced his intentions a year ago and despite denials, Tsai’s name kept popping up as the lead candidate. But as details began to unfold, it became clear than Prokhorov had made a great deal for himself ... and probably the Nets.

Let us count the ways. There’s lots to count, starting with the money...

— First and foremost, there’s the valuation of the team. The deal, as reported, values the Nets at $2.3 billion, the highest valuation in the history of the league. It beat the $2.2 billion Tilman Fertita, the casino mogul, paid for the Houston Rockets only last month ... and Fertita also acquired the lease on Houston’s Toyota Center. Prokhorov is holding on to the Barclays Center. The $2.3 billion is for the team alone (and things like the Long Island Nets of the G-League and the HSS Training Center in Industry City.)

That valuation represents about a 1,000 percent profit for the Russian oligarch. In 2009, he agreed to pay out $233 million in cash, assume $160 million in team debt, and cover $60 million in basketball operations while the team played in New Jersey. For that, he acquired 80 percent of the Nets and 45 percent of Barclays Center, then two years away from opening. Prokhorov also bought $76 million in corporate bonds to help build the arena. At the time, Prokhorov had a great advantage, about $5 billion in cash, mostly from the sale of Norilsk Nickel, Russia’s biggest nickel and palladium mining operation. He has that much again now.

—Prokhorov now has four more years to fulfill his promise to bring a championship to Brooklyn. The norm in deals like this is three years. He wanted more and got it. He may feel he needs it to build on his legacy. His signature achievement so far has been moving the team to Brooklyn, getting Barclays built, putting down roots in Industry City. No Prokhorov and who knows where the Nets would be playing now.

—Retaining the Barclays Center helps Prokhorov going forward. First is its value. The arena is worth, conservatively, $1.8 billion and Prokhorov owns 100 percent of it, having closed the deal to buy out former partner Bruce Ratner at the end of December 2015. Second is that Barclays remains the “mother ship” of Prokhorov’s growing Brooklyn Sports & Entertainment venue business. The business also includes the newly renovated Nassau Coliseum, aka NYCB Live, and two smaller venues, the Paramount Theatre in Brooklyn and Webster Hall in Manhattan. Both are undergoing extensive renovation Nassau. Brett Yormark, CEO of the Nets and BS&E, told a venue magazine this week that BS&E could be interested in expanding to London. And of course, the Nets will pay Prokhorov rent once Tsai takes over.

—Prokhorov also will get to keep a piece of the Nets. According to Bloomberg’s Scott Soshnick, the terms of the deal permit Tsai to acquire a “controlling” interest in the team, NOT total ownership, starting in 2021. Soshnick writes that Prokhorov can retain as much as 20 percent of the team. With team valuations rising so rapidly —the Nets are the third team to have a $2 billion valuation, NBA teams are increasingly a good investment for the billionaire class ... particularly if the team’s rebuilding program delivers a perennial contender.

—Tsai is an ideal partner for Prokhorov in the rebuilding efforts. He has deep pockets, deeper apparently than Prokhorov’s. Depending on which estimate you believe, Tsai is worth either $8.8 billion, about the same as Prokhorov, or $11.9 billion. The two can split costs, whether it’s to re-sign Sean Marks and Kenny Atkinson or sign a first rank free agent. Tsai is also very familar with New York. He arrived at the Lawrenceville School, the tony Ivy League incubator outside Trenton in 1977, graduating in 1982. From there, he went on to Yale in New Haven, first for a bachelor’s degree in economics, then a J.D. from Yale Law. He worked initially on Wall Street as an associate at Sullivan and Cromwell, one of the city’s top law firms. He moved to Hong Kong in 1995 and four years later, co-founded Alibaba, the giant Asian e-commerce company whose scale approaches Wal-Mart and Amazon.

Tsai is a fan as well. He played lacrosse and football in high school and in college, enjoyed pick-up basketball. He needs no introduction to the game, as Bruce Ratner did, receiving instruction from Lawrence Frank. Prokhorov regularly updated Marks and Atkinson on the progress of his negotiations to sell and introduced Tsai to the GM and head coach in recent weeks. Tsai is reportedly happy with the progress of the Nets rebuild.

—Finally, the acquisition by Tsai should help the popularity of the Nets in Asia and China and Taiwan in particular. The Nets are already popular there because of Jeremy Lin, but now are likely to be even more so. Tsai is the third international owner of a NBA franchise (not counting the Toronto Raptors or the defunct Vancouver Grizzlies.) He’s also the first owner of Chinese heritage. The Nets already have a Chinese language website and a big presence on Chinese language social media. Tsai no doubt will want more. There are months when NBA revenue from China is greater than NBA revenue from North America.


Prokhorov has made some mistakes, including some whoppers like the Boston trade, and has yet to make a penny in operating profit off the Nets. They are annually among the league’s big financial losers, going $40 million in the red last year and $144 million in 2014, the year they had to pay out $90.6 million in luxury taxes to accommodate Paul Pierce and Kevin Garnett.

There’s no date set for a formal announcement and there are indications that the final agreement hasn’t been hammered out yet. One thing, however, is for certain. If the deal goes through as advertised, Mikhail Prokhorov has made a killing.