Brooklyn Nets Sale Proves Owners Are Largely Irrelevant To NBA’s Success

Brooklyn Nets owner Mikhail Prokhorov CREDIT: (AP PHOTO/KATHY KMONICEK)
Brooklyn Nets owner Mikhail Prokhorov CREDIT: (AP PHOTO/KATHY KMONICEK)

After months of rumors, Brooklyn Nets owner Mikhail Prokhorov is ready to sell his stake in the franchise he bought in 2010, Bloomgberg News’ Scott Soshnick reported Tuesday.

And if he does so, he could put another dent in the underpinning of the 2011 NBA lockout, and the basic argument NBA owners have made before and since about the finances of their league.

During the 2011 NBA lockout, NBA owners cried poverty as the main reason they needed players to hand over a sizable percentage of league revenues. They claimed that as many as 22 of the league’s 30 teams were losing money (the NBPA disputed several of those claims).

The Nets were one of those teams — the NBA held them up at the time, Malcolm Gladwell wrote, “as a case study of basketball’s impoverishment” — and Brooklyn has continued losing money since. During the 2013–2014 season, in fact, the Nets lost $144 million, according to Grantland’s Zach Lowe. That made Brooklyn one of just nine teams to lose money on an operating basis, but their losses were astounding: they lost at least $100 million more than any other NBA team (worth noting: pro franchises have a number of balance sheet tricks they can use to make it look like they are losing more money than they are).

The Nets sale, though, will go a long way toward proving that none of that really mattered. If Prokhorov elects to sell the team — the franchise issued a non-denial denial Tuesday — he could fetch even more than the record $2 billion that ex-Microsoft executive Steve Ballmer paid for the Clippers last year, according to valuation experts who talked to Bloomberg. If not quite a record price, he’s still going to win a huge profit, since both conservative estimates of the Nets value (Forbes values the team at $780 million) and bigger guesses (Bloomberg’s expert pegged the team at $1.3 billion) far exceed the $220 million Prokhorov paid for his 80 percent stake in the franchise in 2010.

Such a price wouldn’t be due to anything Prokhorov has done since taking the helm (he’s not even responsible for the move to Brooklyn, which happened under previous owner Bruce Ratner and was done largely on taxpayers’ dime). The Nets aren’t just mess in operating terms, they aren’t particularly well-suited for the future either. Brooklyn is currently 16–22, with a roster saddled with bad contracts. They’ve traded away several future draft picks and could be subject to the NBA’s luxury tax, adding another expense to the balance sheet. They’re in a bad cap situation with little to look forward to. Prokhorov, in short, didn’t run this franchise well.

And yet, when he sells, whether “imminently” or not, he’s going to make a killing. Because contrary to what NBA owners argued during the lockout, owning an NBA team is a really good financial deal, even if some of them are losing money on an operating basis.

This was true before the lockout, when franchise values were already mostly rising. The labor stoppage, in which players made huge salary concessions, made it even better. As a result, NBA teams have sold at previously unseen rates, and a new TV deal that starts in 2017 will only continue to improve the plight of the NBA franchise owner (the Clips and Nets, based in huge markets, may be an aberration price-wise, but even small-market teams have sold at record prices since the lockout. The Atlanta Hawks, now for sale, will likely exceed the pre-Clippers record).

NBA players have taken note of all of this, but it doesn’t just matter for the last lockout. It matters for the future of NBA labor negotiations too. New NBPA head Michele Roberts has taken note, arguing in a recent ESPN The Magazine interview that players shouldn’t have given up so much money, and indicating that they won’t in the future.

“Why don’t we have owners play half the games?” she asked. “There would be no money if not for the players.”

Beyond that, she added another point: it matters more who is playing the game than who is owning the teams.

“Let’s call it what it is. There. Would. Be. No. Money,” she continued. “Thirty more owners can come in, and nothing will change. These guys [the players] go? The game will change. So let’s stop pretending.”

That seems obvious, but it’s a point that often gets lost in talking about how these leagues operate. As Deadspin’s Kyle Wagner argued at the time, though, the ease with which the NBA discarded Clippers owner Donald Sterling and Hawks owner Bruce Levenson has made that even more obvious. The NBA can find new billionaires. Replacing LeBron James, Kevin Durant, and the generation of young stars emerging now — the main reasons people are tuning in — isn’t so easy. So while the NBA has become a better money-printer for owners, it’s almost everything but the owners — the league’s closed structure, its players, and taxpayers and the public — that have made that true.

Prokhorov’s sale will add further evidence to that. He’ll not only make a tremendous profit despite running his franchise poorly, he’ll be replaced by another billionaire owner who may fix the franchise or may not and will almost surely see his team’s value rise either way. People keep buying into this league because it’s essentially a can’t-miss bet, no matter the owner and no matter the operating losses.

The NBA doesn’t want that idea to fester, so commissioner Adam Silver was quick to push back on Roberts’ comments when she made them.

“The NBA’s success is based on the collective efforts and investments of all of the team owners, the thousands of employees at our teams and arenas, and our extraordinarily talented players,” Silver said then.

But every time an owner sells at a massive profit just a couple years after claiming poverty, and every time another owner is cast aside for a replacement billionaire who can step right in, it becomes clearer that owning an NBA team is an extremely lucrative deal and that, when it comes to the NBA’s success, it doesn’t really matter who that owner is. No one, after all, is showing up to see the Mikhail Prokhorovs of the world own. And with another potential labor battle over TV revenues and maybe even the league’s bargaining agreement on the horizon, that’s something Roberts and her players aren’t going to forget.

Update:

The original version of this piece said that NBA owners refused to open their books during the lockout. That was based on an outdated claim. It has been corrected and removed.