But for an oligarch, it can buy a lot. Part 2 of a series.
|Feb 26||Public post|| 15|
By Henry Abbott
“Floral Print Playboy”/Ian Kelewae
In the late 2000s, after Lehman Brothers collapsed, Wall Street entered freefall. The essential problem: a lack of cash. This was true for families with adjustable rate mortgages and high-flying Manhattan real estate developers alike. Donald Trump filed for his fourth corporate bankruptcy. Harry Macklowe, a Trump contemporary, made headlines by forfeiting seven New York City buildings in 2008, when he couldn’t come up with enough cash to keep up payments.
It was also true for at least one NBA owner, Bruce Ratner, also a major New York City developer. By 2009, the owner of the New Jersey Nets was six years into crowning the jewel of his dreams: a massive and controversial mixed-use development in the heart of Brooklyn. When it finally opened, they hung a plaque outside the Nets’ new locker room in Brooklyn, dubbing it the “Bruce Ratner Nets Campus” and thanking the developer “for bringing sports back to Brooklyn after 55 years.” But there’s little evidence Ratner was ever much into sports. Malcolm Gladwell wrote on Grantland that the law states a project with a stadium can seize private property using eminent domain, which is what Ratner’s vision required:
Bruce Ratner’s original plan for the Atlantic Yards site called for 16 separate commercial and residential towers and a basketball arena, all designed by the superstar architect Frank Gehry. The development would be home to roughly 15,000 people, cost in excess of $4 billion, total more than eight million square feet, and make his company — by some calculations — as much as $1 billion in profit. To put that in perspective, the original Rockefeller Center — one of the grandest urban developments in American history — was seven million square feet. Ratner wanted to out-Rockefeller the Rockefellers.
Ratner knew this would not be easy. The 14 acres he wanted to raze was a perfectly functional neighborhood, inhabited by taxpaying businesses and homeowners. He needed a political halo, and Ratner’s genius was in understanding how beautifully the Nets could serve that purpose.
The project encountered headwinds. By the end of the decade lawsuits, delays, street protests, and the dismal state of the market conspired such that Ratner’s firm couldn’t come up with a required $100 million lump sum payment. After several twists and turns, the entire project, according to The New York Times, “appeared to be close to collapse in 2009.”
The cash is in Moscow
Mikhail Prokhorov, who declined (through a Moscow-based press representative and a New York-based attorney) to participate in this story, told Russian Forbes that he sniffed around purchasing the Knicks in 2003. He reportedly financed trips for his trusted friend, sports executive Sergey Kushchenko, to explore options to buy a team. Nets Daily says that in 2006, another attempt to purchase an NBA team fell apart at the last minute “for unknown reasons.”
What the NBA must have known: In Prokhorov, they had a willing buyer with deep pockets, should the right opportunity arise. But billionaires who want to own NBA teams aren’t so rare, and on the face of things, 2007 didn’t help the oligarch’s chances. Prokhorov’s big annual party for Russian New Year was busted by French police looking into sex trafficking. Prokhorov was among many arrested, as were his typical companions: many young Russian women. Prokhorov’s spokesman called the police action absurd. (“Naturally,” explained Sergey Chernitsyn, “he likes girls, and treats them in a natural way.”) Before long an animated commercial played on Russian TV, selling orange juice. An oligarch in a bathrobe trailed a group of young women onto a plane as the police held back crowds. “Some enjoy fantasies of the good life,” says the voiceover. “Others drink juice.” Everyone understood it was about Prokhorov, and that he was in a moment of political vulnerability, even if the French sex trafficking case fell apart when nobody would testify. Eventually the French government apologized, and even gave Prokhorov an award.
But things happen in funny ways, and in some ways the arrest put Prokhorov on a path to NBA ownership. First, Prokhorov’s longtime business partner, Vladimir Potanin, demanded a split, which now even Prokhorov describes as “the divorce.” It took a couple of years to divide the assets. But after this sloppy political routine, Prokhorov stuck the landing, and completed those sales just before the market crash that nearly wiped out his contemporaries. It was a stroke of luck that briefly made him Russia’s richest man.
Prokhorov’s paper billions had become liquid ones -- the magical elixir of Ratner’s dreams. As Ratner and Prokhorov have themselves described it, Ratner got on a plane to Moscow for dinner at Prokhorov’s house. The essentials were agreed to at the very first meeting, with Prokhorov dumping cash all over Ratner’s efforts. The oligarch took positions in Ratner’s team, as well as Ratner’s principal project: the massive Brooklyn real estate development that includes Barclay’s Center, where the Nets now play, and which opened a few years later.
“Without Mikhail,” Ratner later said on Charlie Rose, “I don’t think we could have done that.”
The Commissioner does a job
The NBA’s Board of Governors — the 30 owners or their designees — meet a few times a year, in some of the world’s most exclusive hotels, and legislate the league behind closed doors. At the conclusion, the commissioner typically addresses a hand-picked group of journalists. April 2010 was typical. In the basement conference room of one of the most expensive hotels on Fifth Avenue, then-Commissioner David Stern ticked off a few housekeeping issues. A Caesar salad in the restaurant upstairs cost $27, but that didn’t stop Stern (with labor talks approaching) from decrying the worrisome state of the league’s finances.
Then the big news: the owners, many still in the building, had all-but approved the NBA’s newest, richest, and first foreign-born owner: Prokhorov. The official announcement wouldn’t come for another month, after the resolution of some paperwork. But oligarchs are tough to vet, and in the ensuing discussion, a reporter referenced “the congressman from New Jersey.” That congressman was Bill Pascrell, who had press releases noting that one of Prokhorov’s businesses, Renaissance Capital, did business in Zimbabwe, evidently in defiance of U.S. sanctions against Robert Mugabe’s regime. Pascrell also published a letter he had sent Stern, noting that the then-U.S. Attorney for the Southern District New York, Preet Bharara, was investigating Renaissance’s role in a violent criminal scheme to steal Russian tax funds, reading:
I would assume that a business relationship between a potential owner and a country subject to U.S. sanctions and links to organized crime would raise red flags in your vetting process. However, according to press reports, a Renaissance Capital spokesman has stated that the company was not even contacted by the NBA’s investigators. Your most recent letter brushes off these accusations as if they are of little importance or merit, as if the only qualification to be an owner of an NBA franchise is to not be found guilty of violating our sanctions laws. I expect the NBA to hold its business partners to a higher standard.
I have to imagine that when Stern was a little boy, he practiced facial expressions in the mirror. He has so many great ones! He rolls his eyes in bewilderment, jabs accusing fingers, and claps ‘em on the back. Upbeat salesmanship doesn’t come naturally to him, but he has honed a beatific smile for occasional deployment. At heart, though, he’s a wartime consigliere. His most comfortable public mood is combat. And here, he flashed one of his best, most natural, and polished expressions: the smile of a lion spotting the limp of a wildebeest. Dinner soon!
“We hire firms that have people like the former head of global operations for the CIA; they, in turn, deal with governmental agencies on and off the record, both in Russia and here,” he began. Sitting a few feet away, I got the sense he found it amusing that he should waste time on such a concern. “They do other investigations, and then they share their risk assessment with us, and then we collectively make a decision. And our decision was, there was nothing that we had learned from any of these relatively detailed investigations that would preclude Mr. Prokhorov from being approved as an owner in the NBA.”
Gauntlet thrown. And, plenty more. The transcript of the press conference on the NBA’s media site still shows his meandering included saying that if someone said the sky was orange, it might be worth walking outside and looking up. The implication seemed to be that Mr. Prokhorov’s finances were simple for a journalist to assess, or Congressman Pascrell’s assertions easy to dismiss. “You know what I would like you to do?” he concluded, “I would like you to investigate both of our positions. That’s what journalists should do.”
The precise cause and effect is tough to pin down, but evidently Stern generally scared sportswriters away. In the sports pages, Prokhorov was introduced as a harmless goofball, and the words “Renaissance Capital” almost never came up. (TrueHoop was no better; some time before Stern’s press conference I had written a post lauding Prokhorov’s business skills. Stern loved it: Leaving his press conference that day, he found me in the hallway -- no typical thing -- to praise that story as perhaps the best I had ever written.) And as far as I can tell, after that day no NBA reporter ever asked again about the Congressman from New Jersey, who himself did not respond to a request for comment for this story.
In Russia, Prokhorov’s name might be wrapped in intrigue. Prokhorov may have first made international news for popping up in a French sex trafficking investigation, and his key business accomplishment may have been insiderish dealings with a government that a respected scholar calls a “kleptocracy.” When asked if he participated in corrupt Russian activities, he may have famously answered “Yes, of course I participated in them. What, don’t I live in this country?” Nevertheless, NBA stories about Prokhorov tended to focus largely on his ability to flip a jet ski, his 6-8 height, and his passions for women, Tibetan martial arts, and three-hour workouts. And that wacky guy says he doesn’t even use a computer!
Prokhorov followed Stern’s lead, presenting himself as a mashup of Horatio Alger and Jay-Z. In 2012, Prokhorov told journalist Carl Shreck that “what Jay-Z and I share is that we're both self-made. We both achieved a certain level of success, thanks to our own talent and hard work. We definitely have that bond.”
Why buy an NBA team anyway?
When Prokhorov was flush with cash, and the global markets were starved for it, he could have bought anything. Why an NBA team?
Profit, for one. Although Prokhorov spent record-setting amounts operating the team in exciting, money-losing fashion, he has since agreed to sell the team for what appears to be a handsome profit. But the value to Prokhorov has been more than financial, and largely to his global reputation.
In his book Moneyland, author Oliver Bullough explores the things oligarchs do with their money. A recurring theme is spending large amounts on public relations. In England, where Bullough and many oligarchs live, that tends to mean making donations and befriending royals and other aristocrats, to establish a reputable name. Consider what an anonymous London-based PR consultant tells Bullough is the top reason to do that:
“The first is to make him too famous to kill. He’s probably from somewhere pretty ropey, right? Somewhere violent, perhaps the government will come after him. It’s happened. But if he’s a ‘famous philanthropist’” -- here he made air quotes around the word ‘philanthropist’ (he was on his third pint) -- “then it adds an air of protection around him, a shield. There aren’t many dictators who want to knock off someone who hangs out with the British Government, right? That’s aim one, to make him un-killable.”
Bullough does not write about Prokhorov specifically, but when we spoke by phone, he wonders if Prokhorov followed in the footsteps of Roman Abramovich, who bought one of the UK’s top soccer teams, Chelsea, in 2003. Famous Western sports brands achieve many goals for an oligarch. “Part of the reason,” explains Bullough, “is to get your money outside Putin’s control. Another reason is to make yourself partly a foreigner, sort of outside. And incrementally more difficult to kill.”
It sounds crazy, but the idea has long swirled around Abramovich here and there in the British media. As the thinking goes: Once you buy Chelsea you can’t die quietly of a purported suicide in the bathroom of your English country house like Abramovich’s one-time mentor, Boris Berezovsky.
And once you buy the Nets, you are unlikely to disappear leaving only some blood spatters on the floor of your vacation house, like a longtime colleague of Mikhail Prokhorov’s.