Thursday, September 24, 2009

Will US Homeland Security Net Prokhorov?

Will US Homeland Security Net Prokhorov?

By Evan Weiner

September 24, 2009

12:00 PM EDT

(New York, N. Y.) -- Mikail Prokhorov has decided that buying the New Jersey Nets and putting up money to help fund Bruce Ratner's arena in Brooklyn is too good a deal to pass over. He wants in and is ready to show that he what it takes to compete in American sports. Prokhorov is said to be Russia's wealthiest man and likes to invest some of his money in athletic endeavors. But before Prokhorov's New Jersey soon to be Brooklyn Nets play on a court set up in Red Square with Vladimir Putin and Dmirtri Medvedev acting like Spike Lee and Jack Nicholson there is one little matter that has to be settled and it is not getting National Basketball Association Commissioner David Stern's approval to join the NBA fraternity of owners nor is it getting Ratner's 29 partners, the other NBA owners, to sign off on the deal.

Prokhorov's transaction will have to be reviewed by the United States Department of Homeland Security. Money transfers from Russian banks to America need to be reviewed.

If Prokhorov is an upstanding businessman without any blemishes on his record, there should be no problems getting the initial approval which would come from Washington. But if there are any questions about Prokhorov, there could be a delay in getting the agency's approval and that is the most significant hurdle facing the planned Prokhorov purchase of the Nets franchise.

Right now there is a Middle Eastern group of investors who allegedly are looking to sink hundreds of millions of dollars into an American sports entity. The story goes that the said entity has been waiting for the Department of Homeland security to approval the transaction and that someone has been dragging their heels since last winter. This sports entity has a United States bank of record waiting for the money and approval but so far, no money has been transferred.

If all is well with the Prokhorov application, the money transfer should take no more than a week to approve. Money from China pours into America daily, money from the Middle East comes into the United States; foreigners own chunks of real estate in Manhattan and in Miami and, of course, non American money enters the various stock exchanges on a minute-to-minute basis. America will welcome Prokhorov's money but his bid for the Nets will have to pass Department of Homeland Security eyes.

Prokhorov's deal with Ratner is simple enough. Prokhorov is putting up $200 million to buy into the franchise and then investing in Ratner's Brooklyn real estate complex which includes the construction of a multi purpose arena for the Nets (Ratner has always wanted a hockey team in the building as well from day one although that has not been publicized) along with commercial and residential properties. It is more of a real estate deal than a sports transaction. Prokhorov is the first Russian to express an interest in an NBA team but not the first foreigner this year to offer to put money in an NBA franchise. Chinese investors are looking to buy a piece of the Cleveland Cavaliers.

Another Russian, Alexander Medvedev, openly spoke about buying a National Hockey League franchise last May with the hope of moving an unnamed team to Quebec City.

Ratner is no stranger to doing business internationally. He has a deal with the British bank Barclays (a banking business that has no American branches) to put up $400 million over 20 years for the naming rights to his proposed arena and has smaller deals with other businesses for various in arena naming rights. But he was still significantly short of the cash needed to build a venue that might cost $750 million to a billion dollars. That is where Prokhorov's rubles will come in handy.

For Prokhorov, this could be a major real estate deal as he could end up controlling 45 percent of the arena and 20 percent of the real estate development of 22 acres of Brooklyn real estate. Brooklyn has a large Russian population in Brooklyn in Brighton Beach which is on the subway line that would serve the Ratner-Prokhorov arena.

Ratner has finally gotten a go ahead to build the arena from the New York State Economic Development Corporation and with Prokhorov's money could have the final piece of the puzzle to break ground on the building. Ratner has been attempting to develop the Brooklyn real estate he owns for four years. Ratner is hoping to get his team or maybe Prokhorov's team into Brooklyn sometime in the next three years.

Prokhorov won't be the first Russian billionaire to own a sports franchise outside of Russia. In 2003, Roman Abramovich purchased controlling interest in Chelsea of the English Premier League, rather the Barclay Premier League as the same Barclay bank that is hoping the Brooklyn building will materialize is the naming rights holder for what might be the best known sports league in the world. Abramovich is not the only "foreigner" who has a controlling interest of a Premiership team. Americans Stan Kroenke (Arsenal), the Glazier family (Manchester United), Thomas O. Hicks and George Gillett (Liverpool), Randy Lerner (Aston Villa),Andrew Appleby (Derby), Ellis Short (Sunderland) are well represented. In 2008, Manchester City was purchased by Abu Dhabi’s Sheikh Mansour bin Zayed al Nahyan. Portsmouth is now run by a group of Middle Eastern and Asian businessmen fronted by Dr. Sulaiman Al-Farim. West Ham may be for sale after Iceland's Björgólfur Gudmundsson saw a lot of his fortune disappear in the global meltdown. Fulham is owned by Mohamed Al-Fayed who also has Harrods store in London.

Los Angeles Kings owner Phil Anschutz and his AEG company own the major London arena. The company has built a North American style arena in Berlin, Germany and owns sports franchises in Europe. If Americans can invest in sports in Europe and Asia, why can’t non-Americans sink money into American sports? Other than America’s myopia and the thought other someone other than an American owning “their team” there should not be a problem unless Homeland Security finds one.

There is no suggestion that there will be a run of foreigners who will take over 40 to 45 to 50 percent of American teams in Major League Baseball, the National Football League, the National Basketball Association, the National Hockey League or Major League Soccer as what has happened in the English Premiership. American sports leagues have accepted foreign money throughout history. The National Hockey League's main offices are in New York but the league started in Canada and there has always been "foreigner" ownership depending on a person's viewpoint either by Americans or Canadians. Japanese ownership launched the Tampa Bay Lightning.

The NBA has "foreigner" ownership in Toronto with Maple Leaf Sports and Entertainment running the Raptors. Jack Kent Cooke, a Canadian, had the Los Angeles Kings and Lakers of the NBA in the 1960s and 1970s, sold those teams and bought the Washington Redskins of the National Football League. A Canadian, Pat Bowlen, owns the NFL's Denver Broncos. A Belgium company, Interbrew, ran Major League Baseball's Toronto Blue Jays from 1995-2000.

Major League Baseball would not allow Ninento's president Hiroshi Yamaguchi of Japan to buy the Seattle Mariners in 1992 at first. But relented after pressure and accusations of racism from Seattle and Washington elected officials along with the Seattle business community and accepted Yamaguchi's money as long as he had under a 50 percent share of the club and did not run the team. American sports leagues also received a lot of funding for loans from France's Société Générale bank which has gone under the radar in the day to day reporting of sports news in the United States.

National Basketball Association Commissioner David Stern seems ready to embrace his potential Russian partner and there will be the due diligence of checking out Prokhorov by league security and then Prokhorov's bid to buy into the New Jersey Nets will be given to NBA owners for approval. That is the normal selection process for American investors but Prokhorov is a Russia so the first and probably the most important test for him as a potential owner will come from United States Department of Homeland Security Secretary Janet Napolitano and her staff. If they approve Prokhorov's money transfer plans, then there should be no problem for Stern and his owners to approve the Russian's bid to buy into an NBA team. Stern will be a major step closer to his goal of globalizing the NBA. The Nets could be playing CKSA Moscow in a pre-season game in Red Square with the band in the background playing Midnight in Moscow.

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