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September 3, 2009
The Nets’ Future - An FAQ
Nets Daily
Uber Nets' fan and Atlantic Yards-booster NetIncome posts an interesting and lengthy analysis of the team's dire predicament situation.
Are the Nets for sale?
In spite of denials and protestations, Bruce Ratner has been trying to sell the Nets for the past nine months, hoping to find a buyer who’ll be willing to pay $400 million for the team, a $100 million premium on what he paid for it five years ago, according to Nets insiders.
Who are the likely buyers?
So far, three investment groups have shown interest in the team, all of whom have been identified previously: those led by Vincent Viola, the former chairman of NYMEX and the team’s second largest investor after Ratner; Terry Semel, the former CEO of Warner Brothers and Yahoo!; and Mikhail Prokhorov, a Russian oligarch who is among the world’s richest men with a fortune between $10 billion and $15 billion. (In addition, a fourth investor, Marc Lasry, a hedge fund manager, has shown some interest, but it has waned recently, according to published reports confirmed by a team insider.)
What the prospects for a sale?
No better than 50-50, according to insiders. Ratner does not want to give up control of the Barclays Center in any sale or recapitalization. Instead he hopes the team’s new owners will be a tenant only in the new arena, pay him a large annual lease in addition to the substantial premium for the team. The insiders say new buyers are unlikely to pay the premium or the large lease, which is significantly greater than the $2.02 million the Nets now pay the New Jersey Sports and Exposition Authority for the IZOD Center.
“In that scenario,” said one team insider, “Ratner sells the team, you get control of the team and the right to lose $20 - $35 million a year on the team. Key to the franchise success is the arena, not the team.”
...Why does Ratner want to sell now?
Ratner’s desire to sell is tied to the team’s increasingly desperate finances—the Nets have lost $70+ million the past two years, according to filings made by Ratner’s parent company, Forest City Enterprises, with the Securities and Exchange Commission. Forest City owns 23% of the team and has increasingly funded team losses, going from 38% to 100% over the past four years, as the filings have noted. It has agreed to fund this year’s losses as well, but reportedly has told Ratner after this year “we’re done”.
Overall, Forest City has lost $119.1 million and all investors $353 million, according to a New York Times analysis of team finances.
There’s also the urgent need to find a significant amount of capital to construct the $774 million Barclays Center in downtown Brooklyn. Ratner or whoever owns the team must put up at least $200 million in cash and show prospective financiers they have substantial revenue streams—like the lease—in order to obtain tax-exempt financing. And he must do that by year’s end, if not sooner.
...What about debt? Aren’t the Nets heavily in debt?
According to one insider, half the $400 million would go towards the down payment on the Barclays Center and half towards reducing team debt.
The team’s debt is more than $200 million, says Forbes Magazine. That, reports Forbes, makes the Nets’ debt-to-value ratio the highest in the NBA, if not professional sports, at 71%.
...How critical was the critics’ legal strategy?
Two insiders offered begrudging praise for the critics’ legal plan, noting that they first took it to federal court, then state court. Even without a victory, that sequencing slowed the legal process to a crawl. It was “brilliant”, said one insider.
...Suppose it doesn’t work. What happens then?
“The team will be sold to whoever can pay for it,” said an insider. “They could wind up in Seattle or St. Louis.” A sports marketing expert agreed, suggesting that Brooklyn gets less and less likely every day.
NoLandGrab: While we frequently find ourselves at odds with Mr. Income, he does seem to have good information, though he remains anonymous, as do his sources. If he's on-target, however, Bruce Ratner appears to be suffering from delusions — and a desperate need for cash.
Posted by eric at September 3, 2009 11:13 AM