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After Joe Tsai buys Nets for record price, Forbes drops them from sixth to seventh in ‘valuation’

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Toronto Raptors v Brooklyn Nets Photo by Jim McIsaac/Getty Images

A year ago, Forbes ranked the Nets as the sixth most valuable NBA franchise, worth an estimated $2.23 billion. Now, after Joe Tsai actually shelled out that much —and more for the team and Barclays Center— and after they signed two of the best players in the NBA, the Nets are ranked seventh, behind the Clippers at $2.5 billion.

How does that work? Forbes explained in a footnote to their annual ranking of team valuations...

Our appraisals are what we think the team would sell for. So while Tsai paid $3.3 billion for the Nets, we think the team is worth more like $2.5 billion because he paid around $1 billion for a money-losing arena business.

So the value of the arena is separate since not every team owns an arena. (In fact, Tsai doesn’t own Barclays Center, but rather the operating license. The State of New York owns the arena.)

The Nets ranking is also hurt by a relatively limited revenue stream. The Nets had only $42 million in operating income last season, which ranked them No. 25 in the league. Only the Suns, Thunder, Cavaliers, Hornets and Grizzlies had less revenue.

Also, despite relatively high ticket prices, the Nets were near the bottom of the league in revenue per fan. Forbes marks the Nets at $19 per fan, ahead of only lowly Atlanta.

Overall, Forbes paints a positive picture going forward as the team moves into a superstar era, albeit slowed by injuries to KD and Kyrie, with stable leadership and the end of the Islanders residency at Barclays, which has been a big drain in a number of ways...

Joseph Tsai bought 49.9% of the Nets from Mikhail Prokhorov in April 2018 with the idea of buying the rest of the team in three years. He accelerated the timeline to buy the team in September 2019. Tsai and also acquired the operating company for the Barclays Center as part of the deal. The total enterprise value for the team and arena business was $3.3 billion. Our valuation for the Nets includes the economics of the Barclays Center, but not the value of the real estate, which is owned by the state of New York.

In conjunction with his acquisition, Tsai signed an operating support agreement, whereby he unconditionally and irrevocably agreed to provide the arena with all amounts necessary for the arena to meet its expenses and payment obligations, which includes PILOT bond payments ($37 million for the fiscal year ending June 2019). In addition, Tsai signed an operating support agreement with the NBA whereby he is obligated to provide the Nets with all amounts necessary for the team to meet its expenses and payment obligations.

The Nets fortunes should improve after the 2020-21 season when the NHL’s New York Islanders, who currently play 20 games at the Barclays Center, move into their own arena. The Nets current deal with the Islanders has been a money-losing proposition for the basketball team because hockey-related revenue at the arena has been less than the $55 million payment the Islanders are guaranteed from the Nets.

Breaking down the team’s valuation Forbes attributes $929 million of the Nets value to the sport, $743 million to the market, $607 million to the arena, and $221 million to the brand.

As Norman Oder, critic and chronicler of the Atlantic Yards/Pacific Park project, writes Thursday, last year, Forbes attributed $830 million of the Nets value to the sport, $732 million to the market, $577 million to the arena, and $211 million to the brand. So the biggest jump, he notes, is in the value of the sport.

The Knicks, despite all their woes, remain at the top of the list with a valuation of $4.6 billion, followed by the Lakers and Warriors, both of whom also top $4 billion.