Tuesday, October 12, 2010

From Russia with basketball -- Mikhail Prokhorov and the New Jersey Nets

The New Jersey Nets dropped into visit the teams new owner, Mikhail Prokhorov, Sunday for what is been called a “Pep Talk”. Where the spirited debate took place is part of the story – the team met their new owner in Moscow.

Prokhorov met with his New Jersey Nets for the first time on his old home basketball court in Moscow, where the players got a taste of life under the NBA’s first non-American owner.

The billionaire introduced himself to the National Basketball Association team yesterday at his former club CSKA Moscow, the Russian champions and 2008 Euro League winners. Prokhorov pledged to turn the Nets, who had the NBA’s worst record last season, into champions within five years and make them the first basketball club with a global fan base.

“The support he’s shown us thus far, especially after the way we performed last season, and the confidence he has in us” has buoyed the mood at the club, Nets center Brook Lopez said in an interview after the meeting. “He can help us spread the game globally. And he’ll be happy with the product we put on the floor this season.”

Who is Mikhail Prokhorov? To begin with he is one very rich man. According to Forbes Magazine Prokhorov is one of the richest men in Russia and the 39th richest man in the world with a net worth estimated at $13.4 billion,

According to his Forbes profile: Last fall, Onexim (the company Prokhorov owns) signed an agreement to buy 45% of the Atlantic Yards development project, a stadium and apartment complex in Brooklyn, New York, for $200 million. He also has an 80% ownership stake in the New Jersey Nets basketball team and he is planning to produce a completely new and inexpensive "people's" car for Russia.

He is able to do so because he cashed out his 25% stake in Norilsk Nickel, the world's largest producer of nickel and palladium in the spring of 2008 before the financial crisis, unloading the holding to fellow billionaire Oleg Deripaska in exchange for cash and a stake in UC Rusal.

With fellow billionaire Vladimir Potanin, he built holding company Interros by winning over the corporate customers of two huge Soviet-era banks in 1992. The group had interests in metals, engineering, agriculture and media. Soon after his highly publicized arrest (and release without charges) in the French ski town of Courchevel in early 2007, he and Potanin announced they were dividing up their holdings in Interros. Prokhorov recently lost a case against billionaire Lily Safra to get back his $53 million down payment on $525 million bid for her French Riveria villa; the deal collapsed but Safra kept the down payment, promising to donate it to charity.

His business interests’ aside, a profile in the current edition of Men’s Journal titled "Is American Sports Ready for a Real Gangster?" is capturing attention and not the attention NBA commissioner David Stern wants for his league.

Matt Taibbi who worked and lived in Russia for ten years returned to the United States only to discover that Mikhail Prokhorov, a man who Taibbi seemingly has little if any respect for, had emerged as the owner of the New Jersey Nets.

Among the issues Taibbi raised in his report, “The auctions, at least by American standards, were shamelessly, transparently, hilariously rigged. The essence of the scam was the transfer of the state-controlled industrial jewels of the Soviet empire into the hands of a very small group of politically connected individuals. And the best example of them involved Norilsk Nickel... Prokhorov's bank, Oneximbank, helped run the auction, then got itself declared the winner after bidding $170 million to manage a 38 percent stake in a company then worth $1.2 billion. Irrelevant was the fact that another firm had bid twice as much.”

As for his ownership of the Nets, Taibbi claims “The chain of events that led to Prokhorov winding up on our shores is both hilarious and totally representative of the Russian oligarch class. In Russia a key part of becoming stinking rich is shipping your profits overseas and buying a high-profile entree into Western society, so that you can show the suckers back home how much you've podnyalsya, or "risen up." The same way practically all NBA stars eventually buy tricked-out Escalades and gated mansions with swimming pools and home theaters. Russian oligarchs almost always end up buying Western vanity projects. That's why fellow Siberian billionaire Roman Abramovich bought the Chelsea soccer team.”

And this gem from Taibbi regarding the “vetting” the NBA claims to have done on Prokhorov “"Who did the checking? Stevie Wonder?”

60 Minutes produced a feature on Prokhorov in March as the NBA was about to approve the rich Russian as their newest team owner.

"For me, life and business, in particular is a big game," Prokhorov told "60 Minutes" correspondent Steve Kroft.

He is also quite tall, 6'8" to be exact as CBS pointed out. He trains with his personal kickboxing partner, who is also the coach of the Russian national team.

"I am addicted to sport. Without sport, I feel bad. In this case it's some kind of drug," he explained.

Twenty years ago as 60 Minutes reported, a Russian would never have been allowed to buy an American sports franchise, but NBA Commissioner David Stern says it's just one more sign that the world is changing.

"America is really the only place where the question gets asked, 'What about the foreigners?' This is a global sport; our games are televised in 215 countries and in 43 languages. So it was really a natural import of globalization," Stern explained.

The CBS report similar to The Men’s Journal piece looked at how Prokhorov made his fortune and while not as critical as Taibbi’s is, suggested Prokhorov had friends in all the right places at the right time.

Like most Russian billionaires, Prokhorov's fortune was molded from the ashes of the former Soviet Union, with a little bit of luck and the help of a powerful political connection.

He was raised among the Soviet elite and studied at the prestigious Moscow International Financial Institute where he majored in international finance.

So when communism and the Soviet Union finally collapsed, he was one of the few people who knew anything about world markets and free enterprise.

"We made a crazy transformation, just crazy. I can't imagine 20 years ago, we know nothing about capitalism, nothing," he remembered.

His expertise drew the attention of Vladimir Potanin, a future deputy prime minister of Russia with close ties to the Kremlin who had just been given the right to open two private banks.

He asked Prokhorov to run them as his partner; the downside was the job might get him killed. During the 1990s, hundreds of Russian businessmen were gunned down by contract killers hired to resolve disputes or by gangsters trying to muscle in on someone else's turf.

"It was Wild West. It was a territory with no sheriff," Prokhorov recalled. "No rules, you need to survive."

And he did survive and with no blood on his hands. By the time he reached 30, he was already a multimillionaire, but a much bigger payday was just around the corner.

In 1995, Prokhorov and Potanin's bank won the equivalent of the Russian lottery: Kremlin leaders gave them what amounted to an insider's opportunity to buy one of the state's most valuable assets - a huge mining and metal operation called Norilsk Nickel, which is among the world's largest producers of nickel, copper and platinum.

They acquired it from the Kremlin in a so-called auction for the measly sum of a few hundred million dollars; in a process that even Prokhorov's business partner admitted wasn't perfect and probably not even legal under western standards. But it was legal in Russia.

Yulia Latynina, one of Russia's top business journalists, says it was sort of like a slam dunk. No one was shocked or surprised. "Everybody would have would have been surprised if they didn't win it," she explained.

Asked if the process was rigged, Latynina said, "Yes, it was rigged. But it cannot be explained in normal economic terms to an outsider, especially an American."

Does that make Mikhail Prokhorov a criminal or a good businessman? Is this “business as usual in Russia?

Prokhorov’s reputation took at interesting turn in January 2007. Prokhorov flew a planeload of friends to the French ski resort of Courchevel, and brought along eight Russian models to help entertain them. While this is not an unusual custom in the upper echelons of the Russian business world, it is apparently unknown to French constables who took Prokhorov into custody on the suspicion of promoting prostitution.

According to Prokhorov, the French thought he was bringing prostitutes into the country. "It was absolutely police misunderstanding," he said.

He was there for three days and couldn't leave. "It sounds strange, but it was real fun for me. It's a good experience. I like even such challenges," he told Kroft.

It created a minor international incident with French President Nicolas Sarkozy giving Prokhorov a shout out as a "man who obviously wants to please his friends."

Prokhorov thought it was a "good joke."

And he responded in kind.

"You said, 'The French elite is envious because they're lagging behind in fashion, in life and in sex drive,” Prokhorov told 60 Minutes.

Nets players and officials had some interesting opinions as they landed in Moscow.

Nets point guard Devin Harris said he wants to learn more about the owner and how he earned his fortune early on in life, Harris said.

“It’s not just that he’s Russian,” Harris said in an interview. “He’s proven to be the best in pretty much anything that he’s touched and he has a feel for the game. Those things are recipes for success.”

Since buying the Nets, Prokhorov has hired Avery Johnson as coach and revamped its 16-man roster with 12 new players. He could not lure NBA Most Valuable Player LeBron James, who joined the Miami Heat as a free agent instead. Then a four-way trade that would have landed All-Star Carmelo Anthony from the Denver Nuggets was called off.

“The Nets will be much better this season than last,” TNT basketball analyst David Aldridge said in an e-mail. “No one thought they had a realistic chance of getting LeBron, but Prokhorov likes to make a splash.”

The Nets’ pre-season tally of three wins and one loss, after last season’s 12-70 record, isn’t enough to judge the team’s potential, Aldridge said. Still, the club can challenge for the championship in a five-year timeframe should Prokhorov commit resources to lure top players, he said.

Success on the Nets balance sheet will show in 2012, when the team moves from its suburban New Jersey home to the Barclays Center in Brooklyn, Prokhorov told reporters yesterday before meeting the players.

The planned arena in the heart of Brooklyn is less than 10 miles from Brighton Beach, known as “Little Odessa” for its high concentration of Russian immigrants. The center is next to a public transportation hub and could help the Nets set up a rivalry with the Knicks, currently the NBA’s only New York-based team.

Barclays Plc signed a 20-year, $400 million naming-rights agreement for the arena, which is part of the $4.9 billion Atlantic Yards Project residential and commercial property development started by Ratner. Prokhorov has an option to buy a stake in Atlantic Yards.

“Brooklyn was the heart of U.S. immigration,” Prokhorov said. “A lot of people from other countries passed through Brooklyn. They have a lot of relatives in China, in Africa, in Russia, in Europe.”

So far, the Nets’ international appeal is likely to be limited to Russia, said Brett Yormark, head of Brooklyn Sports & Entertainment, the sales and marketing arm of the Barclays Center. Yormark said he is in talks with several Russian and U.S. companies to sponsor the Nets. Among those are mobile-telephone companies seeking greater visibility in New York, he said.

“The first step in globalizing our team is in Russia because of the direct connection to ownership,” Yormark said in an interview. “As this team becomes more visible, more high- profile, we can expand into other markets.”

Last week, Stolichnaya vodka, owned by the Moscow-based SPI Group, signed a five-year accord to sponsor the Barclays Center that will give it exclusive branding at the facility and in the arena’s six bars. The deal is worth more than $2 million a year.

Prokhorov is also in talks with the NBA to allow the Nets to play some games in Moscow. As part of the marketing drive in Russia, Nets players including Lopez yesterday opened Adidas AG’s first basketball-focused store in Moscow. The store has a subsection devoted to Nets merchandise, compared with three racks for the other NBA teams.

“Russia has its own team, it’s the New Jersey Nets,” Prokhorov said, dismissing that his home country can set up a rival basketball league within the next 20 years. “I hope and I’m sure Russians will support the Nets, watch games, visit matches in the U.S. and also buy t-shirts.”

The presence of the Nets in Moscow is already a “major” boost for the sport, said Deputy Prime Minister Sergei Ivanov, who attended the player meeting and clinic. The event was also broadcast on Russian state television.

“If New Jersey Nets are advertised as well as the London soccer club Chelsea in Russia, it will ultimately be” a popular team with the Russians, Ivanov said, referring to billionaire Roman Abramovich’s purchase of Chelsea in 2004.

Prokhorov’s approach to business and marketing drive could help the Nets players as much off-court and in their game, said Nets guard Harris.

“We’re all trying to put together our own private entities as well as put together a global icon,” Harris said. “And I’m just curious about how his mind works.”

With Mikhail Prokhorov owning the Nets there will not be many dull moments, on and off the basketball court. Is Mikhail Prokhorov the NBA’s new Mark Cuban – no. Is he the new Dr. Jerry Buss – no. What he is, is an owner that will command a great deal of attention who at least at the start of his ownership should be looked at as the owner of a professional sports team. That said – this will be an interesting ride sports fans.

For SportsBusinessNews.com this is Howard Bloom. Sources cited in this report: CBS News, http://mprokhorov.com, Forbes Magazine and http://atlanticyardsreport.blogspot.com/

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