Finance Uncategorized

What’s in a number: Did the Nets really lose $144 million?

The Nets basketball operations lost $144 million this season, more than all the other teams with financial losses combined.

Credit: Debby Wong-USA TODAY Sports
Credit: Debby Wong-USA TODAY Sports

The dead period for the NBA sure has turned lively. The start of free agency, the recruitment of Carmelo Anthony, and the Jason Kidd/Brooklyn Nets saga are just a few events grabbing headlines from the World Cup. And that is a good thing. Leagues continually fight to stay relevant during the offseason to keep fans engaged.

One of the more shocking stories came out a few days ago when Grantland’s Zach Lowe reported that the Nets’ basketball operations was $144 million in the red for the 2013-2014 season. That is an astronomical number; the next closest team lost $13 million. Sure, everyone knew the Nets would take a hit due to their luxury tax number. They paid almost $190 million between the roster and luxury tax penalties, but not a $144 million loss. Owner Mikhail Prokhorov must have sticker shock from his aging team that exited in the second round of the playoffs.

But the $144 million number should probably be taken with an entire shaker of salt. The loss just takes into account basketball operations. The Nets paid into the luxury-tax pool, and didn’t receive any money back from revenue sharing. Lawrence Frank was the highest-paid assistant in the NBA, and he wasn’t even on the staff by December. Basketball operations overspent, but that does not mean Prokhorov lost money.

Credit: Debby Wong-USA TODAY Sports
Credit: Debby Wong-USA TODAY Sports

Prokhorov has an ownership stake in the Barclays Center, as well as potential land deals around the stadium. Barclays is booked year round with NBA games, college games and concerts. Next year, it will also be home to the NHL’s Islanders. Having ownership in the arena can help make up for that loss. The arena also helps land development in the surrounding areas. Since Prokhorov has an ownership stake in that land, he stands to benefit as Brooklyn continues to gentrify and the area around the stadium develops into shops, businesses and condos.

We haven’t even discussed the skyrocketing values of NBA franchises. Prokhorov bought the New Jersey Nets in 2010 for $200 million. It is safe to estimate the Nets are worth more than that now. We’ve already seen the Bucks sell for $550 million, but a better proxy could be the Los Angeles Clippers’ sale for a proposed $2.15 billion. Both are in major markets and both are the second-most popular team in their city (Knicks and Lakers). The Clippers have the benefit of a new local TV deal (the Nets do not), but Prokhorov owns the building the team plays in (the Clippers do not). Could the Nets sell for $2 billion? There are rumors Prokhorov may be interested in selling, so we might know soon.

Obviously, losing $144 million dollars is not sustainable, and there have been rumors of Nets belt tightening, but the Nets ownership are not the Sisters of the Poor. This is similar to one business unit losing money while the overall corporation turns a profit. Now the question is whether Prokhorov will cash out or stick around.

Michael Colangelo is Assistant Director at the USC Sports Business Institute and Senior Editor of The Fields of Green.

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