Last week, the Brooklyn Nets became the second NBA team to be agreed to be sold in as many months when Taiwanese billionaire Joseph Tsai agreed to buy 49 percent of the franchise, with the option to assume majority control four years later at a locked-in valuation of $2.3 billion.
Between the complicated deal to sell the Nets and the Houston Rockets being sold by Leslie Alexander to Tilman Fertitta for $2.2 billion in September, the league has now seen two teams shatter the record $2 billion Steve Ballmer paid to purchase the Los Angeles Clippers in 2014.
Here’s how the Nets sale could have wide-ranging impacts not just for Brooklyn, but for the rest of the NBA and beyond:
1. Mikhail Prokhorov gets everything he wants
This is the most stunning development — even more than the official price tag, which passes the one Fertitta paid for the entire team as the highest sale valuation in league history. Russian billionaire Mikhail Prokhorov, the sole owner of the Nets, has been open to selling the team for over a year, and the expectation among most outside observers was that his demands — from keeping control of the team for a number of years, to keeping Barclays Center, the team’s five-year-old arena in Brooklyn — were unrealistic. If someone was willing to pay $2 billion or more for the Nets — what it was going to take for him to sell — most expected the buyer to get concessions from Prokhorov on one or both of those points.
Remarkably, that didn’t happen. Prokhorov managed to get everything he wanted, not only keeping control of the team through 2021 (he will remain a minority owner even after Tsai opts in to assume majority control in 2021) but also keeping complete ownership of the arena. It’s the second point that is particularly important, given that the Nets are a significant money loser — they still remain virtually irrelevant in New York, a city completely dominated by the Knicks — and the arena is profitable. Prokhorov owning all of both entities made that irrelevant. How will that relationship continue — and potentially impact the team — once Tsai takes over?
2. NBA franchises aren’t getting cheaper
Tsai was willing to hold off four years to gain control of the team despite paying a $2.3 billion valuation for the franchise, but why wait? The most logical reason is that he wanted to get into the game, and that by locking in a price now, he’ll save money in the long run. That’s a hefty bet that sports teams — in particular, NBA teams — are only going to get more expensive.
That is music to the NBA’s ears, as the league continues to see interest grow both domestically and abroad. And unlike the NFL, the NBA doesn’t have to worry about any long-term structural issues (specifically, when it comes to player health) that could undermine the sport. If the Nets, a money-losing team that plays second fiddle in its own market, can sell for a record number, how much could teams such as the Knicks, Chicago Bulls, Los Angeles Lakers and Golden State Warriors get? Twice as much? Three times?
To that point …
3. The Phoenix Suns could be the next team to be sold
There are already rumblings around the league that Robert Sarver, who bought the team from Jerry Colangelo for $401 million in 2004, is looking to cash out. While the NBA would never publicly admit it, the league would likely be quite happy if Sarver chose to move on, given the complete collapse of the franchise under his watch.
Despite never winning a championship, the Suns were long one of the league’s top franchises, making the playoffs in 24 of their first 36 seasons. Since Sarver took over, the Suns have missed the playoffs eight times in 13 seasons — a number that’s almost certain to grow this year to nine whiffs in 14 seasons, given Phoenix has already fired its coach, Earl Watson, and appears destined for yet another high draft pick.
Given the recent sales of the Rockets and Nets, it wouldn’t be surprising to see Sarver get somewhere close to $2 billion for the team — five times what he initially paid, enough return on investment to make anyone think long and hard about moving on.
The Suns aren’t the only team potentially in play …
4. Further intrigue in the Memphis Grizzlies ownership group
One of the more important but underreported stories in the NBA today is the impending battle for control of the Grizzlies. There was an option this month for two of the team’s many minority owners — Steve Kaplan and Daniel Straus — to begin exploring a bid to buy the team from the current controlling owner, Robert Pera. It is expected that Kaplan will attempt to make a bid for Pera’s stake; it’s unclear if Straus will, as well.
This could lead to a fascinating dance. Kaplan must come up with a valuation of the franchise, leading one of two things to happen: Either Pera will choose to sell his stake in the team to Kaplan, who will then become the controlling owner, or Pera will buy Kaplan’s share, increasing his controlling stake. One of them, however, will wind up cashing out. Kaplan would want to set a valuation that Pera wouldn’t be willing to pay, but Kaplan also wouldn’t want to set too steep of a price, which could make potential future purchases of other minority stakes far more expensive.
Regardless of who winds up having control of the team at the end of this process, significant questions about the franchise’s future in Memphis will remain. Specifically, with the Grizzlies struggling to generate significant revenue in a small market, despite a well-regarded business side of the franchise, would a move — potentially to Seattle, the most obvious available open market — be in the cards down the road?
5. The NBA makes further inroads in the Chinese market
Now, to bring things full circle, the sale of the team to Tsai accomplishes something the NBA is clearly interested in: continuing the league’s expansion into the highly lucrative Chinese market. It’s not a coincidence the league goes out of its way to play two preseason games there every year, or that many of its stars go there every summer for promotional tours.
To be clear, Tsai is Taiwanese — a significant distinction — and he not only went to high school in New Jersey, but also to Yale University as an undergrad and then Yale Law School. Still, he’s the executive vice chairman of Alibaba, a massive Chinese company, and just as the NBA was thrilled to have Vivek Ranadive purchase the Sacramento Kings to try to establish more of a presence in India, there’s no doubt any avenue to further the league’s growth in China will be embraced.
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