The Brooklyn Nets’ ownership shake-up, explained

Joseph Tsai, the billionaire Taiwanese-Canadian co-founder of the world’s largest retailer, Alibaba, will purchase 49 percent of the Brooklyn Nets with an option to take over majority ownership of the franchise in four years, according to a report from ESPN’s Adrian Wojnarowski and Zach Lowe.

This signals that Mikhail Prokhorov, the Russian billionaire who bought the Nets in 2010 and later moved them from New Jersey to Brooklyn, is getting out of the NBA. ESPN reports that Prokhorov will maintain his stake in Barclays Center, where the Nets play.

Perhaps the most interesting news is the reported valuation for the Nets in this transaction: $2.3 billion. That breaks the NBA record for team valuation in sale, recently set by the Houston Rockets at $2.2 billion.

The Nets have been rumored to be for sale regularly since Prokhorov’s attempt to buy success with a record-breaking payroll failed in 2015. Those rumors became louder in the run-up to this season.

So, wait. What’s happening?

Prokhorov, the team’s principal and operating owner, is selling 49 percent of the Nets to Tsai right now for something like $1.1 billion. That deal reportedly includes an option for Tsai to buy the rest of Prokhorov’s stake in the team in four years. At that point, if Tsai exercises his option, he would become the majority stakeholder — effectively, the franchise owner — of the Nets.

Why is there a four-year delay?

We do not yet know.

Is Prokhorov out of our lives?

He’s been out of our lives for a couple of years already. Perhaps he will allow himself a proper send-off. If not, we’ll always have that bonkers 60 Minutes segment.

The Nets? $2.3 billion? WHAT?

Right? The Nets have perennially lost money, though much of that has involved Prokhorov’s bid to run up the payroll in a Sisyphean quest to buy a championship.

Now, the Nets are rebuilding without high-end draft picks. Things are looking brighter this season, however.

Is this the biggest NBA team sale ever?

Yes, sort of. Since a majority stake isn’t changing hands right now, it may not exactly qualify. Tilman Ferttita bought the Houston Rockets for $2.2 billion earlier this year, breaking the old record of $2 billion Steve Ballmer spent to purchase the L.A. Clippers from Donald and Shelly Sterling.

It isn’t clear whether Tsai has locked in the price for the additional shares in the Nets now, or if he’ll have to pay market value in four years. That detail bears watching.

Who is Joseph Tsai? What is Alibaba?

Tsai was born in Taiwan, raised in Canada, and educated in the United States, completing studies at Yale. Bloomberg places his net worth at $10.7 billion. That puts him in rather elite company within NBA ownership circles. Prokhorov had been among the top-three wealthiest NBA franchise owners. (Estimating net worth for billionaires is a tricky exercise.)

Perhaps most importantly, Tsai played lacrosse at Yale and is a major lax booster. He owns an expansion team — the San Diego Seals — in the National Lacrosse League. The Nets will soon truly be Long Island’s team.

Alibaba, the Chinese company Tsai co-founded with Jack Ma, is the world’s largest retailer, overtaking Walmart in 2016. It turns out China is a huge market! Tsai continues to serve as Alibaba’s executive chairman.

If Tsai fully takes over, he will be the third non-white majority stakeholder in the NBA, joining Michael Jordan and Vivek Ranadive. This presumes another person of color does not purchase a team by that point.

So is Tsai the Nets’ new owner, for all intents and purposes?

He’s a minority stakeholder, and minority stakeholders have few rights in running the team. Lowe and Woj report that he will not be involved in team management at this point. However, as we move closer to 2021 and Tsai prepares to assume a majority stake, the team’s executives would be fools to ignore his preferences. There may be a good deal of soft power established by Tsai over time.

Did Prokhorov make out like a bandit here?

Untangling all of Prokhorov’s expenses — those already made and those to come over the next four years — will be difficult. But on paper, Prokhorov bought the Nets at a valuation of around $800 million in 2010 and flipped it for almost three times that amount in seven years. That’s pretty incredible and speaks to how fast NBA team valuations are rising.

The Hawks almost sold for $1 billion. The Rockets and Nets sold for more than $2 billion. Is this a trend?

Yes. And it’s a trend we saw coming. There are a bunch of owners seeing those dollar signs and looking for an exit.

So, who’s next?

Watch the Grizzlies. Young tech entrepreneur Robert Pera bought the team for a song five years ago. His minority stakeholders have an opportunity to bid on his stake over the next couple of months. For the high bid, Pera has to either sell his stake at that price ... or buy that minority owner’s stake at that valuation. Steve Kaplan is the guy to watch.

The Timberwolves, Pelicans, and Pacers are also worth keeping an eye on.