Mikhail D. Prokhorov + Bruce Ratner :: BFFs (and we all pay for their fun)
A Russian Billionaire, the Nets and Sweetheart Deals
Prokhorov ... did not get rich without working the system
By NORMAN ODER
June 21, 2010
The Russian billionaire Mikhail D. Prokhorov, the Nets’ new majority owner and the N.B.A.’s first overseas owner, magnetized members of the news media during his recent whirlwind tour of New York.
Prokhorov, a 6-foot-8 kick boxer, international playboy and shrewd businessman, did his best to make people forget the team’s performance last year at the dreary Izod Center in East Rutherford, N.J. He was droll (“America, I come in peace”), playfully evasive about changing the team’s name and confident of a championship in five years “maximum.”
As Prokhorov, Russia’s second-richest man, dangles cash for a coach, free agents and first-class facilities, let’s not forget the money that he and his business partner Bruce C. Ratner saved because of taxpayer help for the arena under construction in Brooklyn. The help includes eminent domain, major subsidies, a naming-rights giveaway and bad, undemocratic urban planning.
The larger-than-life Prokhorov contrasts greatly with James L. Dolan, the media-averse owner of the Knicks, and the reticent Ratner. A Brooklyn real estate developer, Ratner bought the Nets to leverage the Atlantic Yards project and stripped the team for the move.
Last year, ESPN the Magazine rated Ratner — a neophyte to basketball, unlike Prokhorov — the second-worst owner in team sports. But they are teammates. Prokhorov will own 80 percent of the team and 45 percent of the arena operating company, which Ratner’s company will control. Prokhorov has an option to buy 20 percent of the Atlantic Yards development.
And Prokhorov, whom the ESPN columnist Bill Simmons called Mutant Russian Mark Cuban in a nod to the colorful Dallas Mavericks owner, did not get rich without working the system.
Prokhorov considers himself a “self-made man.” But his purchase of the metals firm Norilsk Nickel came about because of a process that was probably not even legal under Western standards, a business partner told “60 Minutes.”
In Brooklyn, the arena process passed legal muster, as courts generally defer to state agencies. Still, as I’ve written for more than four years in my blog, Atlantic Yards Report, it was an insider’s game.
Ratner, whose company spends a lot on lobbying, needed a key piece of public property, the Metropolitan Transportation Authority’s Vanderbilt Yard; city and state officials signed on without putting the site up for bid.
When the M.T.A. belatedly sought bids, the sole rival developer offered three times more cash than did Ratner’s firm. Yes, Ratner’s overall bid was seen as more valuable, but the agency chose to negotiate solely with Ratner. Last year, when Ratner’s firm hit cash-flow problems, the M.T.A. agreed to sweeten the rail yard deal even as it cut services.
The arena could not be built without eminent domain, the power of the state to take private property for public use — or “public purpose,” as it has evolved — with just compensation. The problem? The justification in Brooklyn was the removal of blight, which the state describes vaguely as “substandard and insanitary” conditions that bring a neighborhood down. There were luxury condominiums inside the Atlantic Yards site. Many remain nearby. State claims of high crime at the site? Actually, the high crime nearby is at Ratner’s malls.
“Sports entertainment corporations” (an apt term from Bettina Damiani of Good Jobs New York) have been quite successful at getting the public to pay for sports facilities. The financing for the nearly $1 billion Barclays Center is more subtle, but the public still pays significantly.
Consider that the state and the city each allotted $100 million, ostensibly for infrastructure like utilities. The city’s subsidy, part of which could be used for land, went solely to reimburse Ratner for property he bought from residents and businesses.
Later, Mayor Michael R. Bloomberg allotted $105 million for infrastructure. That was not enough; Bloomberg agreed last year to shift $31 million from that sum to land, making it likely that future mayors will be asked to pay more for infrastructure. The New York City Independent Budget Office calls the arena a net loss for taxpayers.
A more direct gift involved arena naming rights, once reported at $400 million, now at least $200 million.
Why do the arena operators keep the naming-rights revenue for what the state calls a publicly owned arena?
“It’s part of the financing for the project,” according to a representative of the Empire State Development Corporation, whose unelected board approved the project, overriding local zoning.
The fig leaf of public ownership allows Ratner and Prokhorov to benefit from $511 million in tax-free bonds for the arena, saving them perhaps $150 million in a type of financing structure the Treasury Department now disallows.
The arena relies on the site’s proximity to Brooklyn’s largest transit hub, with 10 subway lines and the Brooklyn terminus of the Long Island Rail Road. Indeed, a new subway entrance is likely to connect to the arena plaza.
If city and state officials had been committed to transit-oriented development, they would have invested in the subways while limiting arena traffic. But a 1,100-space surface parking lot is also planned one long block east of the arena.
Some people will want to drive there, but the Atlantic Yards site is a tight fit. On the west and north, it borders two major avenues and the transit hub; on the east and south, it encroaches on the thriving residential neighborhood of Prospect Heights.
The parking lot is flanked by a historic district; after leaving their cars, arena-goers will navigate a residential block’s narrow sidewalk.
Given that the state relaxed deadlines for the Atlantic Yards project, the surface parking lot could linger for a decade or more.
Prokhorov’s strategy, off to a flying start, is to build a dynasty, become a household name in North America and open investment opportunities.
But the arena process should have been fair, and he should have paid full freight. Surely he can afford it.
Copyright 2010 The New York Times Company