A year and a half ago, I predicted that moreforeign ownership was coming to American sports leagues. I told you how you’ll soon see an NBA team owned by a Chinese businessman and a Russian owning an NHL team.
At the time, the biggest reason to think this was the premium that foreign interests were willing to pay for teams. But that was before we knew we were really in a recession.
The biggest reason why foreign interests now will own more teams in the future is simply because there’s not enough rich Americans to buy the vast amount of sports teams that are available. Because of the decline of the primary business of most sports owners, more teams are for sale now, some quietly, than any time in recent history.
To get the price where some of these owners can accept it, they have to open it up to a worldwide pool. It’s why the Cavaliers will soon have a Chinese businessman owning a piece of their team and why it looks like the New Jersey Nets will finally become the Brooklyn Nets thanks in part to an upcoming investment by Russian billionaire Mikhail Prokhorov.
Fans haven’t liked the idea of out-of-town owners, so there might be some pushback if people from other countries begin swooping up teams. But for the current owners and the leagues –- especially in this economy -- it’s actually a good thing. For one, it makes the sport that much more international. Secondly, as I mentioned before, the trophy value is more. That means that a foreign owner is willing to pay more than other Americans because it is worth more to him, and his other business, to be called an owner in one of the major sports leagues.
Leagues like this because any time a team is sold, franchise values - often speculated in Forbes - are confirmed. It’s hard to compare one team to the other, especially considering the final price includes taking care of debt obligations and could include other non-core assets, but insiders know that when a team sells for under what it was believed to be worth it’s a disaster.
That brings us to Prokhorov, who - if all goes through - will be the first person to buy a majority stake in an NBA team since the economic fallout. On Wednesday afternoon, the Nets’ majority ownership, Forest City Ratner Companies, announced that they had signed a letter of intent with Prokhorov’s Onexim Group. The deal is not a straight-up play to the buy the Nets for a certain amount of money. It’s a $200 million investment, plus contributing the necessary funding to own 45 percent of their new arena in Brooklyn and the option to buy up to 20 percent of the Atlantic Yards Development Company, which controls the non-arena real estate.
All this has to get approved by the league, but put it this way: NBA commissioner David Stern has a quote in the letter of intent press release so this isn’t exactly Jim Balsillie coming in under the cover of darkness.
What’s great about the deal from the NBA’s perspective is that this is one of the most complex transactions in sports ownership history. That’s because the funding isn’t being delivered in a lump sum and the deal is more about funding the development than buying the team itself. In the end, no one will ever figure out how much Prokhorov paid for this deal unless the man spills the beans himself.
Ears perked up when a Chinese investor signed an agreement to buy a piece of the Cavaliers. But the letter of intent for Prokhorov to be the majority owner of the Nets truly signals that a new era of foreign ownership of American sports teams has arrived.
Home games for fans will now be away games for owners. After all, it’s more than 9,000 miles from Prokhorov’s home town of Eruda, Siberia to Brooklyn.
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