Crains New York - August 6, 2012 - (Page 12)

REPORT BUSINESS OF SPORTS Nuts for the Nets Continued from Page 1 worth as much as $25 billion and ran for president; the other rose from Bedford-Stuyvesant’s Marcy Houses to become a global hip-hop icon worth an estimated $460 million. Buoyed by the basketball team’s move to Brooklyn from New Jersey, the duo have turned the Nets from a laughingstock that played to empty arenas and hemorrhaged cash into a franchise expected to sell out nightly and increase revenue by more than $50 million this season. Sponsorships are soaring, merchandise is flying off the shelves and the onceshunned Nets have become a desired destination for NBA stars. Mr. Prokhorov’s free spending— he committed about $340 million to player salaries last month alone— and his move to tap Jay-Z’s star power have made the Nets the talk of the league. If that chatter translates to wins, the Nets could become the NBA’s hottest story of the year. “The Nets were the Sacramento Kings of the East Coast,” said Marc Ganis, president of SportsCorp Ltd. “They had no reputation,they had no credibility, they had no brand. What Prokhorov is doing along with Jay-Z is building a brand. That brand is going to have significant value as time goes on. They’re now on a very steep trajectory upwards.” When Mr.Prokhorov,47,bought a majority stake in the Nets in 2010, he predicted that the team, which had lost nearly $300 million in the previous four years, would win a title and be worth $1 billion by 2015. Banking on Jay-Z On his first trip to the U.S. after taking over a team that ranked among the league’s lowest revenue producers and attracted among the fewest fans, he swung by Jay-Z’s 40/40 Club in Manhattan. He met with Jay-Z, whose given name is Shawn Carter, for more than an hour, according to the blog NetsDaily. “We discussed the vision for the Brooklyn Nets and how he is really the face and the heart of Brooklyn,” the owner said. “His understanding is essential to what we’re doing.” Mr.Prokhorov added that he and Jay-Z, 42, are “both guys who have had to work their way up, him from the projects, me from the Soviet system, and we do relate on that level.” Jay-Z declined to comment. Under the Russian owner, the music star has become more than the Nets’ fan in chief. Ever since Mr. Prokhorov spent $260 million (including $60 million to cover operating losses while the Nets finished up in New Jersey) for an 80% share of the team, 45% of the Barclays Center and an option to buy 20% of the overall Atlantic Yards project,he has made Jay-Z the centerpiece of his plan to turn the Nets into a global property. Brooklyn, with its diverse population, is the “natural place for a global team to be based,” he said. “Jay-Z, of course, is an extraordinarily powerful calling card for Brooklyn and for our brand,” Mr. Prokhorov said. “He has that international name that we want.” Of late, Jay-Z has done everything short of taking tickets.He tried to recruit superstars LeBron James and Carmelo Anthony to the team; he became a director of the company that owns the Barclays Center; his 40/40 Club will have a location at the arena; he created the team’s new logo and helped design high-end arena suites; an ad firm he co-owns devised the inaugural Brooklyn Nets campaign, which features the phrase “Hello Brooklyn,” the title of a Jay-Z song; his choreographer is working with the Nets dance team; and the bodyguard for his wife, Beyoncé, was named the Nets’ director of security. The hometown star’s megapresence belies the fact that his stake in the team was likely diluted to less Turn Your Passion Into a Profession Learn from the Leaders in Sports Business The Tisch Center for Hospitality, Tourism, and Sports Management at the NYU School of Continuing and Professional Studies (NYU-SCPS) offers the M.S. in Sports Business. Learn from sports business professionals who are at the top of their game. Explore professional sports, collegiate athletics, and a broad array of timely topics including sports broadcasting, mega-events, professional franchises, labor relations, sports contracts, and leagues. To learn more visit: scps.nyu.edu/mssb1e To request information and to apply visit: scps.nyu.edu/gradinfo9e or call 212-998-7100 This fall, noncredit course offerings include the Certiﬁcate in Sports Business Operations, a one-semester program that provides an overview of the business, management, marketing, PR, and logistical aspects of the industry for those already in the ﬁeld, as well as for those considering a career change. than a third of 1% with Mr. Prokhorov’s arrival, NetsDaily said. “When [former majority owner] Bruce Ratner approached Jay-Z about being an investor in the team and arena, it was to provide us street credibility in Brooklyn, but obviously over the years it’s grown well beyond that,” said Nets Chief Executive Brett Yormark.“We look at Jay as an incredible icon, a tastemaker in many respects, and we’re tapping into that resource on a daily basis.” The Nets are also tapping into Mr. Prokhorov’s wallet. He’s handing out money like the Yankees, hoping the Nets start with a bang. The owner said he is “willing to spend the money to build a championship team. Not a playoff team, but a championship team.” He professes no concern that his team must pay a luxury tax, estimated at $12 million by ShamSports.com, after his summertime shopping spree pushed payroll to nearly $82 million. “I am only interested in what will bring us a championship team,” he said. “That is the sole criterion.” He approved a trade with the Atlanta Hawks for Joe Johnson and his hitherto untradable contract, which still has $89 million on it. That deal—and a $98 million offer— helped persuade star point guard Deron Williams to re-sign for seven years. Mr. Prokhorov’s No. 2, Dmitry Razumov, worked 24 straight hours to help seal the Williams deal, NetsDaily reported. Center Brook Lopez got a $60 million, four-year extension. Forwards Gerald Wallace and Kris Humphries signed for a combined $64 million, by many accounts more than they were worth. “There are going to be celebrities sitting courtside, and the Nets are going to be talked about on Page Six of the New York Post,” consultant Mr. Ganis said. “But most impressive to people around the NBA was that the only team [Orlando Magic center] Dwight Howard wanted to be traded to was the Nets. Nobody could have predicted that a couple of years ago. It speaks volumes to the perception players have about the Nets, from a graveyard of a team to now the most attractive of any team in the league.” Does that “most attractive”status mean Mr. Prokhorov’s idea that the Nets would be worth $1 billion by 2015 might not be so far-fetched? It’s a stretch to think the Nets could become more valuable than the Knicks, worth $780 million at last count, according to Forbes (see chart, Page 13). But Mr. Prokhorov believes his investment is “worth at least double already.” To register for fall visit: scps.nyu.edu/x566 Type in Sports Business in the Certiﬁcate Search or call 212-998-7150 12 | Crain’s New York Business | August 6, 2012 Soaring value It could increase next month. Mr. Prokhorov lent the partnership that runs the Barclays Center,which is led by Forest City Ratner, $77 million to cover arena infrastructure costs. According to NetsDaily, if the loan isn’t repaid in September—$103 million, including interest—Mr. Prokhorov can exercise an option to take control of 80% of the arena.A spokesman for Forest City and its CEO, Bruce Ratner, said “the intention is to repay the loan by maturity.” Mr. Prokhorov said no decision on how to handle that has been made, but Mr. Ratner will keep the arena. “Bruce has invested tons of money and energy into this. We are certain he will continue to be a major shareholder and managing partner for the arena,” Mr. Prokhorov said. “We truly enjoyed the partnership and are happy with our current role.” Even if he doesn’t get a bigger piece of Barclays, Mr. Prokhorov appears to have made a sound investment. The New Orleans Hornets were sold in June for $338 million, and the Memphis Grizzlies are reportedly under contract to be sold for about $350 million. Both teams are in tiny markets, and neither sale included a stake in an arena. Forbes had the Nets valued at $357 million before the Brooklyn move. “Certainly a number north of $600 million is very doable by 2015, if they haven’t achieved it already,” Mr. Ganis said. The Nets are locked into their television contract with the YES Network through the 2031-32 season, so there won’t be a TV bonanza like the one that pushed Forbes’ estimate of the Los Angeles Lakers’value up to $900 million. But the buzz surrounding the move to Brooklyn has led to soaring sponsorship deals and ticket sales. The Nets have sold nearly 10,000 full-season tickets, considered a benchmark for getting to a sellout every night, Mr. Yormark said. About 80% of the arena’s 100 luxury suites have been sold, including most of the premium ones, which go for $550,000. Three months before the season begins, the team has already booked twice the sponsorship revenue of last season, snagging Calvin Klein, Stolichnaya, American Express and Ticketmaster, among others.While the New Jersey Nets sold barely any merchandise, Brooklyn Nets gear is hot. Since launching the new branding on April 30, the Nets have surged to seventh from 24th on the list of top-selling teams at the NBA Store in Manhattan and on NBAStore.com. The first two days that Brooklyn Nets merchandise was available, total sales from the NBA Store, NBAStore.com and BrooklynNets.com were 10 times that of a typical year when the team was in New Jersey. And that was without any sales of jerseys, which have yet to be rolled out (an unveiling at one of the Jay-Z concerts in late September is likely). But now comes the hard part for a team that has bumbled through five straight losing seasons: winning. “Nothing makes you grow faster than success on the field of play,” said Chris Lencheski, president of Philadelphia-based Front Row Marketing Services. “They have a new arena, a new brand. Now let’s see what they do on the court.” All of Jay-Z’s pizzazz and Mr. Prokhorov’s money won’t mean much if the team doesn’t improve markedly on its 22-44 record last year. “We’ve become relevant,” Mr. Yormark said. “We need to sustain that. That, to me, is the goal.” LISTEN to a discussion at CrainsNewYork.com/podcasts http://www.ShamSports.com http://www.NBAStore.com http://www.NBAStore.com http://www.NBAStore.com http://www.BrooklynNets.com http://www.BrooklynNets.com http://scps.nyu.edu/mssb1e http://scps.nyu.edu/gradinfo9e http://scps.nyu.edu/x566 http://scps.nyu.edu/x566 http://www.CrainsNewYork.com/podcasts

Table of Contents for the Digital Edition of Crains New York - August 6, 2012

Crains New York - August 6, 2012
Contents
In the Boroughs
In the Markets
The Insider
Business People
Opinion
Greg David
From Around the City
Report: Business of Sports
Classifieds
Small Business
Real Estate Deals
Helluva Town
Source Lunch
Out and About

Crains New York - August 6, 2012