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September 17, 2009

Russian rescue for Ratner's Nets arena?

New Jersey Nets owner Bruce Ratner's $200 million financing gap might be resolved soon, if Reuters is to be believed:

Russia's richest man Mikhail Prokhorov is preparing an offer to help the New Jersey Nets build a new arena and sources close to him say he could own a large stake in the NBA club as part of the $700 million deal.

This would, needless to say, solve Ratner's biggest problem, which is how to raise enough money to get his $900 million arena built, when he's only eligible for $700 million in tax-exempt bonds (or maybe not even that). The big question is: What would Prokhorov be getting in exchange for his $700 million? The entire Nets franchise is worth less than $300 million, so even a "large stake" wouldn't get him his investment back. (While a move to Brooklyn would increase the team value somewhat, even the Knicks aren't worth $700 million.) If the $700 million is mostly a loan, Prokhorov would get annual payments as well — but then we're back to asking where Ratner would get the money to pay off the annual cost, regardless of where he borrowed it.

And then there's this:

Prokhorov is considering issuing a bond worth $700 million through Onexim to help fund the project, one source close to the deal said.
The source said the bond must be issued before the end of 2009 so it is exempt from government taxes, adding: "This is a pure business story. The value potential of the club and arena are very high."

Exempt from U.S. government taxes? Private financiers don't have the ability to issue tax-exempt bonds, so that doesn't make sense — in fact, it sounds as if Reuters mangled the facts about Ratner's planned $700 million in bonds to be issued by the state Empire State Development Corporation.

Of course, it's also entirely possible that the entire story has been concocted to make the Nets project seem more viable, as notes has been the case in other instances where teams have dropped Prokhorov's name. Though Prokhorov and Ratner would seem to have one bond between them: They're both losing money hand over fist.

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