Photo by Nathaniel S. Butler/NBAE via Getty Images
He was a terrible NBA franchise owner that still made an incredible profit on his investment. Must be nice.
In retrospect, it was the deal of the century. In 2009, Mikhail Prokhorov, a swaggering Russian minerals oligarch out of favor with the Vladimir Putin regime, spent less than $400 million buying control of the moribund New Jersey Nets and a large share of Barclays Center, the new arena in the heart of Brooklyn that would be home to the NBA franchise. Based on the cost and value of the arena, we can probably consider Prokhorov’s purchase price for the Nets to be south of $200 million, maybe even cheaper.
Almost exactly a decade out from that purchase, the New York Post reports that Prokhorov is completing his sale of the Nets franchise to junior partner Joseph Tsai for a total price of $2.35 billion.
We don’t know how much money Prokhorov invested in annual losses along the way, but the oligarch flipped an NBA franchise over the course of a decade for a net profit of more than $2 billion. Even if you assume he lost $100 million a year running the team — which is absurdly high, there’s basically no way he lost that much even with famously high player payrolls — he’d still be sitting on better than $1 billion in profit from the sale.
Tsai, a Taiwanese tech mogul, had bought 49 percent of the team a couple years ago for $1 billion with an option to buy the remaining 51 percent by 2021 for $1.35 billion. He pulled the trigger on that option early. The governor’s suite in Barclays must be real nice.
This sale now qualifies as the richest in NBA history, beating Tilman Fertitta’s $2.2 billion purchase of the Houston Rockets and Steve Ballmer’s $2 billion purchase of the Los Angeles Clippers. The Nets!
Even in a world where sports franchises have become some of the most valuable properties in the nation, that price for the Nets is unbelievable. It’s especially so considering the abject destruction Prokhorov wrought on the team during the most active years of his reign. Prokhorov’s story shows how there is no penalty for poor leadership for NBA franchisees, not at this point in the NBA’s history. Prokhorov’s story shows how timing and luck matter much more than competence. Prokhorov’s story shows how the NBA’s landmark labor deal in 2011 — following a short, but brutally efficient lockout — immediately vaulted franchise values and put the league in a whole new capital arena.
Prokhorov got into the NBA at the perfect time: right before the 2011 NBA lockout. Team values were still rising, but not skyrocketing. It was also, obviously, a critical moment for the Barclays Center and its associated Atlantic Yards project: costs were rising, investors had been crushed by the financial crisis, and delays were straining everything. Prokhorov was a knight (a BrooklyKnight, if you will) for outgoing Nets honcho Bruce Ratner.
Ratner technically and reportedly became one of two NBA franchise owners to lose money on a team, joining Bob Johnson, who paid $300 million to bring the Charlotte Bobcats into the NBA and sold the team for less than that to Michael Jordan less than a decade later.
Prokhorov landed the cheapest NBA franchise available at the best time available, both in terms of the amount of leverage on then-owners and in terms of the proximity to a fortune-changing relocation and labor cost shift. Really, this was like buying Mars for a song two years before NASA deems it habitable.
To be clear, Prokhorov was an atrocious NBA governor. In the decade sign Prokhorov reached a deal in principle to buy the team, the Nets have the league’s third-worst record at 300-504 (.373), ahead of only the Sacramento Kings and Minnesota Timberwolves.
Prokhorov left an indelible mark on the NBA in a few different ways, mostly for negative reasons. His push for superstar talent resulted in some of the worst trades of all-time (a draft pick that became Damian Lillard for the opportunity to pay an aging Gerald Wallace, all those picks for Joe Johnson, all those picks and the fully aged Wallace for Kevin Garnett and Paul Pierce). Prokhorov talked about wanting to win a championship within a few years of taking over the team. Instead, the Nets won exactly one playoff series in the decade he had the franchise. One! Prokhorov’s Nets built the biggest payrolls ever seen and did nothing with them.
There was the “Blueprint for Greatness” billboard with Jay Z, the Knicks trash talk battle (both sides lost in the end), the absolutely bonkers 60 Minutes piece, and the distinct whiff of scandal that followed him. (It always seemed like David Stern was uncomfortable approving Prokhorov’s purchase, not because he was foreign-born, but because really, really bad headlines always seemed a moment away. In related news, David Stern would have adored Joe Tsai.)
Prokhorov was a blast for bloggers, especially in the early days when he was really selling himself to the North American public. But he was a nightmare for the Nets.
Enough can’t be said about the 2011 NBA labor deal’s impact on team values. No team had gone for so much as $500 million before the lockout. Eight years later, we have three teams that have sold for at least $2 billion. The labor deal — which shrunk the players’ cut from 57 percent of league revenue to 50 percent and instituted a harsher luxury tax system to tamp down high payrolls for all but the most lunatic franchises (again, have you met Mikhail Prokhorov?) — is the biggest reason for that.
The rising global prominence of the NBA and the broadcast boom for live sports help, too. But keep in mind that if the old revenue split were still in place, a bigger cut of the increasingly growing pie would be going to players. That revised revenue split is the biggest gain franchise owners have made since the turn of the millennium.
Prokhorov entered the NBA as one of a cadre of a few billionaires. He leaves an NBA filled with them. It’s impossible to buy into majority ownership of franchise now without being a billionaire. (As Henry Abbott has been reporting at TrueHoop, that presents its own share of problems for the league.) Prokhorov looked like the second or third “maverick” billionaire owner in the NBA when he arrived a decade ago, joining Mark Cuban and perhaps Paul Allen. With Fertitta, Ballmer, the Sixers’ Josh Harris, the Grizzlies’ Robert Pera, and a couple others who might qualify, those figures are no longer a novelty. This is the NBA now.
Prokhorov was exotic and new when he arrived in Secaucus 10 years ago. Now, he’s just another weird billionaire NBA governor who doesn’t know enough to know he doesn’t know enough.
Well, he was. Now Joe Tsai takes his place, probably to the benefit of the Nets if the last decade is any indication. Goodbye, Mikhail Prokhorov. You were an awful NBA franchise owner but at least you gave us some memories. Happy trails.
Read more at SB Nation.