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NetsDaily Off-Season Report – No. 16

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The Transformative Summer, Chapter II

Where to begin?? Mikhail Prokhorov and Dmitry Razumov out! Brett Yormark out! Joe Tsai in! Maybe David Levy, too! The Nets, once seen as the woeful little brother in New York, are sold in the biggest transaction in U.S. pro sports history, with a price tag more than one billion dollars higher than the next biggest deal! The league’s first Russian owner has sold out to its first Chinese owner!

Why it’s the most momentous week in Nets history since, well, the first week in July when the Nets acquired two of the league’s 10 best players, including perhaps its best player! Yes, Kevin Durant and Kyrie Irving are Brooklyn Nets. (Please keep that in mind.)

There already has been a lot written about the sale and there will be a lot more. So, let us add some verbiage ourselves.

Farewell, Mikhail!

Whenever we’re asked our opinion of Mikhail Prokhorov’s tenure as Nets owner, we hark back to the 2009-10 season. On September 23, 2009, in a bit of a surprise, Bruce Ratner agreed to sell control of the team and a piece of the yet unbuilt Barclays Center to the Russian oligarch who was then the richest man in Russia and the richest owner in sports.

Nets fans patience had been tested under Ratner, who in typical New York real estate fashion, had overextended himself. With the Great Recession still ongoing, the Nets were in a bad, bad place … and we’re not talking about New Jersey. To recount: they were virtually broke, with a debt load nearly equal to their valuation, a little more than $200 million. A quarter of the team’s non-basketball staff had been laid off and the rest were forced to take “Friday furloughs,” an unpaid day off each week. Assistant coaches had to pool their salaries so that one of their number wouldn’t be laid off. They had three full-time scouts. There was a strict prohibition against going into luxury tax territory. Ratner’s penny-pinching had forced the team to restructure deals or avoid them all together. The team had even downgraded player accommodations on the road.

Moreover, the team played in the worst venue in professional sports, voted so annually in Sports Business Journal’s survey, and the vaunted move to Brooklyn was stuck in the courts. Prokhorov, in fact, declined to close the deal for eight months until the issue was finally resolved. In the meantime, the Nets challenged league records for futility, losing the first 18 games of the 2009-10 season and barely escaping the record for most losses in a season, going 12-70.

Good will was shot. It’s not an exaggeration to say Yormark and Ratner were hated by New Jersey fans. They had removed all mention of “New Jersey” from the franchise as they pushed —often it seemed futility— the move to Brooklyn. Uniforms were stripped of “New Jersey,” as was team stationery and the end lines on the home court. Yormark tried marketing reversible jerseys. In return for purchasing a 10-game plan, you got five reversible jerseys: a Nets player on one side, a hated rival’s on the other. Jay-Z, the legend who Ratner had recruited to help the move, stopped going to games, his courtside seats empty or filled by lesser lights.

Enter Prokhorov, who was very much the un-Ratner. He was young, then in his late 40’s, and had a rogue past that included being detained by French police for bringing 20 young women to his Alpine retreat by charter jet from Russia. French police believed he was engaged in human trafficking, but he was never charged and was released. (In a strange turnabout, he later received the French Legion of Honor!)

Prokhorov’s introduction to Nets fans was a YouTube video of him jet-skiing in the Maldives. He was a daredevil. Things would be different … indeed.

The mining mogul agreed to buy 80 percent of the team and 45 percent of the arena for $223 million in cash (the first tranche of “good faith” money —$40 million— arriving in October 2009) plus agreements to cover $160 million in team debt and provide $60 million to cover basketball operations. He used $4 million of that amount to buy out the Nets lease at IZOD and move the team to a more modern, if hockey-centric, Prudential Center.

He hired a new GM, a new head coach, made peace with Jay-Z. He had no compunction about predicting an NBA championship in Brooklyn within five years. The bachelor billionaire (whose fortune at that point was estimated at between $18 billion and $25 billion) even promised to get married if he didn’t succeed. Just his presence —and personality— encouraged fans who were used to the drab indignities of the Ratner era.

People also tend to forget this was an era of good feelings between Russian and the U.S. The day of the agreement in September 2009, then Russian President Dmitry Medvedev was in New York for the UN General Assembly and took U.S. President Barack Obama aside at a function to let him in on the deal, asking for assurances that things would go well.

Prokhorov immediately began the pursuit of superstars, pushing his new GM Billy King to do the deals needed. When the MeloDrama failed, King traded for Deron Williams. Then, came the Dwightmare, which also failed … and there was no DWill-like deal to compensate for that loss. Along the way, Prokhorov wooed fans with a series of P.R. moves that were Hall of Fame worthy.

On “60 Minutes,” he claimed he didn’t know the whereabouts of his $50 million yacht Solemar, showed off an AK-47 that he said had been presented him by the Spetnaz, Russia’s version of the SEALS, for an unspecified favor. He was shown dancing with scantily clad young women at a Moscow nightclub. He said he didn’t know how rich he was, suggesting it was up to journalists to let him know. He even graced the front cover of the New York Times Magazine with a headline, “An Oligarch of Our Own” (as if it was good thing.)

He didn’t travel much to New York, but when he did, it was an event. Once, when his Gulfstream 5 was delayed on landing, he and his entourage took NJ Transit from Penn Station to Newark, standing the whole way. The trip was recorded and distributed to the media. Russian oligarch as common man! Fans tracked the Gulfstream as it made its way across the Atlantic. He was fun. He was “The Most Interesting Man in the World.”

He even ran for President of Russia against Vladimir Putin and got 8.8 percent of the vote (25 percent in his hometown of Moscow.) Many saw the presidential foray as a farce, that he was set up as a phony liberal alternative to Putin … an ideal way for Putin to have his opponents let off steam without jeopardizing his own status. There was some truth to that.

His quotes were legendary, his press conferences filled with one-liners delivered with bravado and a sly grin. He rented a nine-story billboard showing him and Jay-Z staring, unsmiling, intently, at James Dolan’s offices across the street at the Garden. It was entitled, “The Blueprint for Greatness.” Dolan called then commissioner David Stern —twice— to complain it was distracting his employees. Later, he called the Knicks owner “the little man.”

When his GM couldn’t get a deal done on Carmelo Anthony, he referred to Melo as “Carmela” and ordered Billy King to “hereby” stop negotiating with the Nuggets.

“I never met Carmela and I never spoke with him,” Prokhorov said the day he told King to stop trade talks. “Maybe he sent me an email, but I didn’t see it. Or maybe the carrier pigeon got lost.”

He warred with owners other than Dolan, too. When Mark Cuban called him a “pussy,” fellow billionaire Prokhorov said he did not like cats. He later told Cuban that if he signed DWill, he would challenge him to “a kick-boxing throwdown.”

And he was not above warring with former employees either. After he dumped Jason Kidd as coach following a power struggle with King, Prokhorov said, “There is an old English proverb. Don’t let the door hit you where the good lord split you.” It was so crude that even some of his closest advisers took him to task for it.

More importantly, he spent a lot of his vast fortune on the team as it transitioned to Brooklyn, financing part of the arena construction, re-signing Williams to a $100 million deal (that he would later regret), trading for Joe Johnson and his massive contract, then finally greenlighting what ultimately was perceived as the worst trade in NBA history, trading for three long past their prime stars in Paul Pierce, Kevin Garnett and Jason Terry for a king’s ransom (pun intended) of draft picks and swaps.

Then, the fun stopped and the bills came due at home and abroad.

In Russia, he tried to parlay his now high profile into running for mayor of Moscow but Putin’s allies changed the law to prohibit those with foreign investments from running. He tried to form a political party called “Civic Platform,” but Putin slapped him down again. When his media outlet, the Russian Business Channel, began investigating how Russian trolls were involved in US election meddling and how Putin’s daughter was engaged in money-laundering, his Moscow offices were raided … while he and Razumov were in Brooklyn. He was forced to sell RBC and his crusading editor wound up with a fellowship at Stanford.

In Brooklyn, he paid out $123 million in luxury taxes, a record and all he had to show for it was one playoffs series win. Losses mounted. The Draft cupboard was bare. After finally firing Lionel Hollins (who he had not spoken to before hiring him) and “reassigning” King, he held a press conference that turned into a mea culpa. He sat alone behind a simple table, It looked staged. It was. He promised a renewed drive for a title and a comprehensive search for a new GM and head coach. The room was filled with doubters.

The bravado was gone, replaced it seemed by uncertainty. He instructed his players in Tibetan martial arts, but now it was seen more as a quirk, not fun. In February 2016, he botched what should have been a great moment for the franchise. He attended the opening of the HSS Training Center, a $52 million facility that would become the envy of the league. The very same day, there were reports Prokhorov had offered Sean Marks the GM job. Marks reportedly thought he was being low-balled and the talks stalemated. It looked like Marks had passed on the offer. To make matters worse … and more confused, Prokhorov claimed he had not offered Marks the job, jokingly (?) telling reporters, “I have never heard this name before.”

The very next day, after 36 draining hours of offers and rumors and feigned ignorance, Marks had the job and the rest is history. However, Mikhail Prokhorov never spoke with the New York media again, other than brief Q-and-A’s with an intrepid reporter or two outside his suite at Barclays.

To Prokhorov’s great credit, he learned his lesson and let Marks do his job. He took his lumps as the team struggled. He didn’t pass blame on to his underlings, not Razumov, who had played a big role in the Boston trade, not Yormark who despite his marketing genius never delivered him a profit on the team. No one ever accused Mikhail Prokhorov of not being a stand-up guy.

As US-Russian relations soured, his role as an oligarch was no longer something mysterious, vaguely dangerous. It was nefarious. There were increasing concerns that he might be sanctioned by the U.S. government, leaving the Nets and Barclays Center with uncertain ownership.

He did not win a championship (and he didn’t get married either). He did have one last P.R. foray, with Stephen Colbert in July 2017. It was a throwback to the old Mikhail, “How to be an oligarch.” It was hysterical, but Colbert seemed to hit on something about Prokhorov’s personality. Watch.

Now, as Prokhorov prepares to depart the scene, he is different. He is 54 years old, with grey hair. In his last few years as owner, he came to New York less and less. He did take Marks up on his invitation to attend the NBA Draft in 2018.

Still, if the measure of a manager —or owner or “governor”— is leaving an organization better than when you found it, Prokhorov’s tenure was a huge success. The Nets play in one of the NBA’s iconic arenas in Brooklyn, New York. They practice in what is, at worst, a top three training facility in the NBA. Marks and Atkinson have won plaudits for the job they have done rebuilding the team. The staff, which was skeleton when he took over, is now among the most robust in the NBA. The medical and performance teams are the envy of the league … and oh, yeah, two of the best players in the NBA will wear black-and-white this season. Hard to top that!

Bottom line, Mikhail Prokhorov, Dmitry Razumov and before she left, Irina Pavlova, were the Brooklyn Bridge for the Nets franchise. Compared to the other owners of New York pro sports teams, who are universally bland or worse, they were young, with a love of risk, quick wits and yes, a commitment to excellence. Pavlova engaged with fans, Razumov with the media.

In the statement announcing the sale, Prokhorov recalled the “honor and joy” of owning the Nets. “The team is in a better place today than ever before and I know that Joe will build on that success,” he added.

You will not see Mikhail Prokhorov’s like again in New York for a long, long time. It was fun while it lasted. Good Luck, Mikhail.

Hello Joe!

Joe Tsai is as different from Mikhail Prokhorov as Prokhorov was from Bruce Ratner. And he bears no resemblance to Ratner either. Prokhorov famously doesn’t use a computer or cell phone, preferring long-hand notes and face-to-face meetings. Tsai is deeply into artificial intelligence! Ratner was about real estate. Tsai is about cyber space!

Tsai is also married with three children and highly educated, with an undergraduate degree in economics and East Asian Studies as well as a law degree, both from Yale. Born in Taiwan, he has lived at both ends of the New York metropolitan area, attending high school at the Lawrenceville School outside Trenton before heading to New Haven and Yale. After graduation, he moved to Manhattan.

But the thing he shares with Ratner and Prokhorov (as well as the league’s other owners) is risk-taking. He dumped a job in New York that paid $700,000 a year for one that paid $50 a month working on a start-up in Hong Kong. That start-up became Alibaba, the Chinese e-commerce giant and the primary source of his net worth (which is now rivaled by his investment in sports.)

There’s no personal scandal, no jet-skiing videos. The best you’ll get in a search of YouTube is grainy video of him playing lacrosse at Yale in 1986…

For Tsai, the biggest moment of his professional life came in 1999 when he met English teacher Jack Ma in Huangzhou, a Chinese city just up river from Shanghai. Tsai, who had moved to Hong Kong four years earlier, was looking for something beyond investment banking. He wanted in on China’s dramatic expansion. Ma, who’s known for his charisma, convinced Tsai to join him and 16 other investors in forming Alibaba. Ma’s dream was a business-to-business online marketplace. It started in his apartment.

Tsai, with his U.S. education and experience in law and finance, became indispensable for Ma and Alibaba. As the only western-educated member of the original group of investors, he had valuable experience in both the law and venture capital. He served as Alibaba’s chief operating officer, chief financial officer, and founding board member. He single-handedly established Alibaba’s financial and legal structure.

Alibaba, named for the character in the Middle Eastern folk tale collection One Thousand and One Nights because of its universal appeal, ultimately won investments from Yahoo! as well as Goldman Sachs and Softbank, the big Japanese investment company.

By 2002, it was making a profit and by 2003, it had moved from business-to-business to retail. From there, it exploded, fending off U.S. and other western challengers. It expanded into consumer-to-consumer, business-to-consumer, and business-to-business sales services via web portals. With Tsai in the lead, Alibaba created its own electronic payment services, shopping search engines and cloud computing services.

Since 2015, its online sales and profits have surpassed all U.S. retailers including Amazon, Walmart and EBay. Not content with e-commerce, Alibaba expandedinto media and in recent years, applying artificial intelligence to all manner of businesses. In 2017, he described how AI has become central to everything Alibaba does. He cited one example.

Tsai described the help Alibaba has given farmers in China to detect whether their crops are infected by disease or have other problems. The program uses drones to take aerial photos and computers to learn growth characteristics of each crop. It then uses image recognition to spot issues.

Of late, Alibaba has expanded into health care and media, as well as sports. Its AliSports encompasses television and digital sports rights, event operation, venue commercialization, copyright, media, business development, gaming, and ticketing. AliSports secured exclusive title sponsorship of the FIFA Club World Cup from 2015 to 2022. It’s become a sponsor as well for the Olympics, providing everything from data services to an online video channel for Chinese viewers.

In 2014, Alibaba became the biggest initial public offering in U.S. stock market history, bigger than Google, Facebook, and Twitter combined. It is now the world’s seventh most valuable company. And Tsai as co-founder and executive vice-chairman, No. 2 to Ma, became one of the world’s wealthiest people, with a current net worth hovering around $10 billion, the same as Mikhail Prokhorov, according to those who track such things.

Unlike Prokhorov, Tsai has harbored no known political ambitions, but his positions on China-US relations have become controversial. He is a go-to commentator for western media looking for a voice to defend China in its ongoing trade war with the U.S.

Tsai has warned that a full-blown trade war between the countries would hurt many U.S. businesses that have ties to China … although recently he’s also suggested as well that the trade deficit between the two countries could reverse as the Chinese middle class grows and demands more U.S. goods.

He has called U.S. treatment of communications giant Huawei as “unfair,” part of an attempt to hinder China’s development. The Trump administration believes Huawei has ties to the Chinese government and has been used as tool to steal intellectual property. It has slapped sanctions on the company and asked Canada to arrest and hold for extradition a company executive who is also the CEO’s daughter.

And although he holds Taiwanese and Canadian citizenship and splits his time between Hong Kong and California, his company is Chinese. Alibaba has been accused of helping Beijing and the Chinese Communist Party, of which Ma is a member.

Most recently, Reuters reported that Alibaba was the “force” behind a Chinese government propaganda app called “Xuexi Qiangguo,” which is required reading for Communist party cadre. It has been nicknamed “Xi Jinping Thought” because of its healthy helping of the Chinese president’s thinking. Party members get “study points” for viewing the app … now the most popular on the mainland.

Alibaba’s acquisition of Hong Kong’s South China Morning Post in 2015, engineered by Tsai, also raised some concerns. Although Alibaba promised editorial independence, Tsai said that Alibaba believes that “the world needs a plurality of views when it comes to China coverage. China’s rise as an economic power and its importance to world stability is too important for there to be a singular thesis.”

Tsai may be critical of the current U.S. administration —and generally approving of the Chinese regime— but he and his American wife, Clara Wu Tsai, are very much part of the fabric of American life. In addition to their education —he at Yale, she at Stanford and Harvard — and their choice of domicile —La Jolla, their children are being educated in the U.S. and they have given generously to their alma maters through the Joe and Clara Tsai Foundation. There are few Americans who have donated as much to higher education in the U.S. as Joe and Clara Wu Tsai.

Tsai has honored his father, Paul Tsai, also a Yale Law graduate, by funding the Tsai China Center and Tsai Center for Innovative Thinking at Yale (Tsai CITY) in New Haven with gifts totaling tens of millions of dollars. He also provided the Lawrenceville School with the largest single gift in its history. The amount wasn’t disclosed but it was in excess of $50 million. He sits on the New Jersey school’s board of trustees.

The foundation has similarly provided enormous gifts —perhaps as much as a quarter billion dollars— to Wu Tsai’s alma mater, Stanford, primarily for the Wu Tsai Neurosciences Institute in Palo Alto.

She also sits on the international council of advisors of the National Geographic Society and was executive producer of “Into the Okavango,” a documentary by National Geographic about Botswana’s Okavango Delta that premiered at the 2018 Tribeca Film Festival. Wu Tsai is also a trustee of Lincoln Center for the Performing Arts.

More recently, she helped finance the Reform Alliance with Meek Mill, Jay-Z and other sports figures. Wu Tsai was also heavily involved in putting the Reform Alliance together.

“Since my childhood days growing up in Lawrence, Kansas, I’ve become increasingly concerned about the issues in our country surrounding economic mobility,” she said. “Over the years I’ve come to learn it’s very difficult to move the needle on economic mobility, particularly in urban areas like Brooklyn, without also addressing the problems latent within our criminal justice system.”

And basketball is only one of the sports the family cares about. Tsai is the owner of the San Diego Seals of National Lacrosse League and is one of a bevy of celebrity owners of the L.A. Football Club. (His co-owners include Magic Johnson, actor Will Ferrell and the owners of the Golden State Warriors.) His children are also active, primarily in lacrosse. His daughter, Alex, even made the Hong Kong national women’s lacrosse team in 2017.

And of course, he’s owner of the New York Liberty buying full control of the team from James Dolan earlier this year, only a few months after agreeing to buy a minority stake in the Nets.

He’s close to Jeremy Lin. He’s called himself Lin’s “biggest fan” and a “very good friend.” The friendship —which extended to Tsai playing in Lin’s charity basketball game in China— survived the trade that sent Lin to Atlanta. The night of the trade Tsai tweeted that Marks had made him aware of the trade talks and praised the GM for “doing terrific work to build the Nets for the long term.”

Now, with the Nets, Barclays and Liberty making up a significant part of his net worth and his other charity work taking up significant chunks of time, Tsai will start to step back from his responsibilities at Alibaba. At 55, it’s time for giving back … and having fun.

There are rumors he’d like to parlay his sports ownership into a more high profile role on the international stage, but that doesn’t always work out as planned. Ask Bruce Ratner who remade the face of Brooklyn but wound up on the back pages of the city’s tabloids portrayed as a penny-pincher and a bum. Ask Mikhail Prokhorov, who went too far in thinking his sports-enhanced profile could help him play a role in Russian politics, only to find he was risking everything.

Now, Tsai is primed to take the next step in Brooklyn’s development. His ties to China and Asia in general as well as his expertise in e-commerce and artificial intelligence will be put in the Nets service. He understands that Prokhorov’s efforts has him and the team in a good place.

“I’ve had the opportunity to witness up close the Brooklyn Nets rebuild that Mikhail started a few years ago. He hired a front office and coaching staff focused on player development, he supported the organization with all his resources, and he refused to tank,” said Tsai.

Good luck, Joe!

Hey, wait a minute! Tsai credits Prokhorov with refusing to tank! Is that a subtle but sick burn directed at the city’s other NBA owner? Cool! Sounds like things will be alright!

So what’s next?

Hey, isn’t this enough?? Ya never know. Both the business and basketball sides will be adding “players” in the next few weeks and months. NEVER ever underestimate Sean Marks. Then, in October, the Nets will head to China for what was to be exciting enough: a two-game series with the LeBron James-led Lakers. Now, it will be Joe Tsai’s introduction as an NBA owner in a country where he is already well known.

Crazy, man, just crazy.

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