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July 26, 2009
It Came from the Blogosphere
Nets Daily, NetsDaily Off-Season Report #15
NetIncome has his analysis of a possible sale of the New Jersey Nets.
The Nets are for sale, either in whole or in part. Bruce Ratner’s been listening to offers for months and he didn’t go to Moscow last week for the sun. No matter how rainy New York has been, Moscow is more so. It’s not in Ratner’s interest to say the team is for sale. He doesn’t need any more bad publicity on his financial condition. The proper spin, as authored by Brett Yormark, is that Brooklyn is just sooo close that investors are starting to beat down Ratner’s doors!
There are indeed impediments. The Nets have a huge debt-to-equity problem. With rising debt and sinking value, the ratio has been estimated at around 80%. Somehow those debt holders have to be paid off. The team also has a very fragmented ownership structure, with more than 100 individuals–including Jay-Z and author Mary Higgins Clark, corporations, partnerships, who want to be made whole.
So what happens if and when a deal gets done? The NBA Board of Governors has to approve not just a sale but any significant new investors. The process has taken four months in recent years. During that time, financial statements are reviewed to make certain the new owners have the wherewithal and league security checks on the rectitude of the investors. A simple majority of the 29 other teams is all the new players would need.
We have to assume the approval process for Mikhail Prokhorov would be lengthier than one for Vincent Viola.
Sports Biz, Who Loses More With Sales of NJ Nets: Ratner or Team?
Senno also analyzes a sale of the Nets.
To no surprise, at least in this camp, reports surfaced late in the week that Bruce Ratner plans to sell the New Jersey Nets. Though the team indicates ownership is “as committed to ever” on moving to Brooklyn, that’s a tough statement to make when you don’t know who exactly ownership is. Brooklyn is Ratner’s project, without it he has no interest in the Nets, without the Nets he’ll probably pull the plug on the project since he’ll lose most of his upside. It appears the Nets face an uncertain future – Brooklyn, Newark, new ownership, possible move out of the area, free agent players or dumping more salary. These questions always lingered now they are reality. Across town the Islanders and owner Charles Wang face a similar predicament. Before criticizing the owner, and rightfully so, is it possible the owners end up losing more than the team and its fans?
For anyone who ever doubted Ratner’s intentions with buying the Nets, here is a statement directly from Forest City Ratner’s most recent 10-K, right up front in the business description:
“The purchase of the interest in The Nets was the first step in the Company’s efforts to pursue development projects, which include a new entertainment arena complex and adjacent urban developments combining housing, offices, shops and public open space. The Nets segment is primarily comprised of and reports on the sports operations of the basketball team.”
A few other tidbits from the 10-K analysis. The company views this project as the top business risk it faces given the economy and other uncertainties. Further, media coverage has focused on the $42mm loss Forest City suffered on the Nets investment. In fact, Nets Sports & Entertainment incurred a $77mm loss in fiscal 2009, the same as the previous year, and only slightly more than 2007. However, as a partial owner with less than 50% ownership, Forest City assumes a percentage of the loss. Due to its investment in the Brooklyn project and the financing it needed to make those investments, which it listed under the Nets subsidiary, Forest City recognized a larger portion of the teams loss on its financial statements. Without further analysis of the Annual Report it’s difficult to accurately uncover the entire financial situation, but it appears revenue dropped slightly, as did player expenses, though neither enough to create a financial disaster, and Operations remained a stable loss as I mentioned. The difference this year, Ratner was unable to use as much debt to finance the losses. His company had another poor financial year, and is already financing much of its losses, leaving highly overlevered. Forbes team valuations report the Nets have by far the highest Debt/Value ratio in the NBA. My thought is Ratner can no longer fund this project as expenses mount and revenue gets pushed further into the future, so needs to pull the plug and regain some liquidity. In fact, he probably held on too long.
Cap'n Transit Rides Again, "Atlantic Yards" project will shrink the yards themselves
This blog entry is catching up with a State Senate hearing held in May, and wonders if an upgrade for the Vanderbilt rail yards by Bruce Ratner isn't really a downgrade.
Since we're on the subject of central rail terminals and track capacity...
Bruce Ratner's Atlantic Yards project was supposed to benefit everybody: he would renovate and expand the Long Island Railroad's Vanderbilt Yard, build the tallest building in Brooklyn (designed by Frank Gehry!), bring pro sports back to the borough, build condos for the rich and affordable housing for the poor, and provide millions for the MTA.
Some people were skeptical, and it turns out that almost all of those promises have been broken. If you needed another reason to oppose this stinking heap of corruption, the Atlantic Yards Report tells us that the latest iteration of the plan would not actually enlarge the Yards so that they could store 76 cars instead of 72; instead, it would shrink them down to 70 cars or less.
Posted by steve at July 26, 2009 7:35 AM