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September 23, 2009

Mikhail Prokhorov's Unique Offer

Mikhail Prokhorov, the Russian billionaire being courted by Forest City Ratner to help fund the Barclays Center arena for the New Jersey Nets (to become the Brooklyn Nets), posted his counter offer to the Atlantic Yards shareholders on his blog yesterday. Develop Don't Destroy Brooklyn brings us a translation of the entry, which DDDB calls "rather foolish and absurd." The gist is that Prokhorov will finance the arena in exchange for a significant share in the project as well as a controlling share in the Nets. What's unique about the post is that it sounds like Prokhorov's primary interest in the deal is the opportunity to elevate the state of basketball in Russia, which he says suffers from inconsistent financing and an unstable, unprofitable business model. He writes: "For our group, participation in such a complex project undoubtedly is interesting only in the event that NBA technology can be used for the systematic development of basketball in Russia." (Perhaps NBA technology sounds less bizarre in Russian? And since when do oligarchs have blogs?)
NJ Nets and the Development of Russia's Basketball [Mikhail Prokhorov Blog]
Prokhorov Issues Absurd Statement on the Nets, AY [DDDB]

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right - it has nothing to do with the absurd level of corruption in every facet of Russian business. Nothing at all.

Posted by: crimsonson at September 23, 2009 9:49 AM

Are there any Russian speakers on this blog, so we can get an accurate translation? DDDB used a google translation, which typically are pretty bad.

Posted by: FtGreeneCorey at September 23, 2009 9:53 AM

what is important about the offer is that it is $$$ to fund the construction of the arena.

$700 million loan plus state financed bonds will go along way toward getting the arena built.

i don't know the legal hurdles to getting started by the end of the year, but this should end the hope that the economic crisis will scuttle the arena.

now we should focus on outlawing any parking lots someway somehow. MSG gets by without any and atlantic ave has similar infrastructure.

Posted by: antidope at September 23, 2009 9:53 AM

It just sounds like someone did a terrible translation. What if it were "know-how" as opposed to "technology"?
As much as I think the AY deal stinks for the residents of Brooklyn and NYC taxpayers, it is petty and silly to butcher someone's language to then attack his statement as absurd. I'm pretty sure if I put this post in Babelfish, it would look mighty absurd as well.

Posted by: Maly at September 23, 2009 9:55 AM

KENSINGTON???? Calling KENSINGTON????

Posted by: daveinbedstuy at September 23, 2009 9:55 AM

ESPN has a good translation...

So now NY taxpayers are funding an enterprise that will be controlled by a Russian businessman????

Posted by: BH76 at September 23, 2009 9:56 AM

is it news today, dave?

Posted by: antidope at September 23, 2009 9:57 AM

Don't complain when outside money is shoved at you.

Why is it "foolish and absurd???"

I think the nutjobs here are not the tent dwellers, the brownstone commenters but DDDB.

Posted by: daveinbedstuy at September 23, 2009 9:58 AM

The revised offer is, dope.

Posted by: daveinbedstuy at September 23, 2009 10:00 AM

man you type so much you don't even remember dismissing my OT post about the revised offer last nite.

you are a machine.

Posted by: antidope at September 23, 2009 10:05 AM

I remember that, antidope. I just thought it was a rehash of the original one.

My apologies.

Keep up the good work in the HOTD threads. :)

Posted by: daveinbedstuy at September 23, 2009 10:16 AM

Even with the bad translation, I can't figure out why DDDB called the offer "foolish and absurd". They're just haters in general.

Posted by: FtGreeneCorey at September 23, 2009 10:17 AM

The DDDB translation is not a Google translation. It is a Russian speaking human's translation. (http://dddb.net/php/latestnews_Linked.php?id=2329)

As for whether or not it is a good deal for Prokhorov or Ratner or taxpayers, the details and amounts of the transaction are far from clear. Though we expect them to be announced today (weds) or tomorrow. Will they be clear then so the speculation can stop and the analysis can start? We'll see.

Posted by: DDDB at September 23, 2009 10:26 AM

DDDB- will you distinguish between good and bad terms? seems to me you will not like any terms that allow the arena to be built...

Posted by: antidope at September 23, 2009 10:29 AM

How is Team USA going to maintain their dominance in world basketball if they let this guy in?

A guy who admits this his Russian technology is inferior and hopes to overcome this by acquiring superior US technology.

A guy who's primary objective is to re-elevate Russian basketball to "position of equality among the elites of world basketball".

I'd call that a bit foolish.

NY taxpayers subsidizing the Forbes 40th richest man in the world and currently the richest man in Russia....

Now.. That's absurd..

Posted by: Colonel Steve Austin at September 23, 2009 10:32 AM

I love the dialog in "Everything is Illuminated" where the Ukranian guy has apprently learnt his English from a thesaurus and continually uses the the wrong word. "Were you proximal to your grandfather?"

Posted by: dittoburg at September 23, 2009 10:51 AM

"So now NY taxpayers are funding an enterprise that will be controlled by a Russian businessman????"

"NY taxpayers subsidizing the Forbes 40th richest man in the world and currently the richest man in Russia.... "

Funny how pro-AY people ignore these two statements. But DDDB is the nutjob? I don't think so.

Posted by: bxgrl at September 23, 2009 10:57 AM

OK, here is my 5 cents after reading Prokhorov's blog. He is not interesting in "technology" of the MBA. He is interested in the whole success of the MBA league. Seems like he is taking the deal ONLY if the MBA league agrees to his counter offer and he is doesn't seem so much interested in Brooklyn or the Nets but more in developing Russia's basketball league and having MBA help it being recognized as into the world basketball league. One of the parts of his counter offer is that he wants the MBA league let top Russian players train at MBA school here (I am guessing college basketball) because without it, they will just be benched on world teams without a chance to get any play time. He wants the potential Russian stars to thrive before the hit the big leagues and the way to do it, is if they get exposed in minors and get well known before any contracts for majors.

Posted by: Kensingtonian at September 23, 2009 11:02 AM

Sorry very busy at work. I meant NBA instead of MBA

Posted by: Kensingtonian at September 23, 2009 11:04 AM

do you want an arena or not?

if not, just say so.

if yes, do you really care if the money is russian or american or african? really? do you think the "NY taxpayers subsidizing the blah blah blah" really makes this a risk free investment? why aren't there lines of americans begging to get into the project. and puhlease don't tell me it's because they think it's a bad design...

i'm all for making a first class arena that relies on the subway infrastructure. i don't know how one can do it legally but i'd certainly look into restricting any developer owned land and eminent domain land from being used as a parking lot. restrict available parking and rates will be high enough to encourage train usage.

brooklyn nets fans can drive to their local elevated platform and take the train in.

Posted by: antidope at September 23, 2009 11:06 AM

imo, that stuff about building russian basketball is meant for internal consumption and may be aimed at bringing in the local league owners into a syndication of his position. he wants the economics and prestige first.
there are much cheaper ways of building "technology" bridges.

Posted by: antidope at September 23, 2009 11:09 AM

Can I give an in between answer, antidope? I think an arena is going there no matter what. Like you I would rather see one that adds to the neighborhood, not to traffic congestion. But I do care where the money comes from- only in that I don't feel tax payers should be subsidizing it at all. Ratner has been given too many gifts- between special deals, subsidies, eminent domain, etc. the fact that he still can't get it done says quite a lot about his abilities. DDDB notwithstanding.

Posted by: bxgrl at September 23, 2009 11:13 AM

there never would have been an arena wo govt tax subsidies. period. and certainly not in this envrionment.

i would venture to say that the govt has wellpriced the subsidies as it looks like it offered just enough to bring in the marginal investor required.

saying there should be no subsidies is tantamount to saying no to the arena.

Posted by: antidope at September 23, 2009 11:21 AM

Madison Square Garden doesn't get by without public parking - there are plenty of garages and lots in that area, and they need it. 33% of weekday game attendees, and nearly 50% on weekends, drive to the Garden.

Still, for me personally this is all about eminent domain and corporate welfare. If Ratner, or Prokhorov, or anyone else wanted to build on his own land with his own money, I really wouldn't object, whether or not I happen to think an arena is a good or bad project at this particular location.

Posted by: Sparafucile at September 23, 2009 11:21 AM

I'm with Sparafucile. We can fantasize all we want about people taking public transportation- and many will- but the reality is, you need people who will come from more outlying areas where access to a subway is not that great.

Posted by: bxgrl at September 23, 2009 11:26 AM

Any financing the nets can get at this point is good for their sakes. Many English Football Clubs have been recently bought up by foreign owners. Ironically, it's the Clubs bought by American Owners that are in potential financial trouble - Liverpool, Manchester United. Chelsea, which was bought by a Russian oligarch is doing quite well with the hundreds of millions he has invested, of course – he fires the coach every season.

Posted by: Crownlfc at September 23, 2009 11:27 AM

So since these guys have all that money, whay should my taxes have to subsidize them? Sorry, antidope- I need my streets repaired, I need better public transportation, I need better everything but an arena. If they can't fund it themselves, they don't need to do it. We need much better priorities than tossing money at the wealthy for an arena we will have to lay big bucks to attend events at, and which will be a money pit as per an independent financial study.

Posted by: bxgrl at September 23, 2009 11:49 AM

I saw that movie
the Russians are coming
the Russians are coming

let them come and lose money too!

Posted by: smeyer418 at September 23, 2009 11:50 AM

ahh, that's the opinion i suspected when i asked if you are for or against. i don't begrudge you your opinion, but i will pencil you in against an arena.

i think a nicely designed arena will continue the ongoing transformation of brooklyn into a place more and more people want to live and play.

except for the maplewood guy of course.

Posted by: antidope at September 23, 2009 11:56 AM

antidope- can you call me on the ropes? :-)

Truthfully- its not that I mind an arena. I don't want to pay for it - and Ratner certainly has the money and connections to finance it without my pittance- I don't like that he feels the need to squeeze taxpayers and I really dislike the idea that he needs eminent domain to build his development. He certainly already had plenty of land. And now he's cheaping out on the money promised to the MTA. An arena's fine- but not how he's doing it.

Posted by: bxgrl at September 23, 2009 12:02 PM

Legitimate question.

Many posters (bxgirl) keep using the terminology “we (taxpayers) are PAYING for this arena.”

Aren’t most of the benefits to Ratner (besides the costs to upgrade infrastructure) the result of tax exemptions?

It’s not like the City and State are cutting a check to Ratner … they’re just foregoing extra money they WOULD HAVE received (such as mortgage recording tax, property tax, etc.). Further, if we had the status quo (no Ratner), these additional City/State revenues would not have been available to collect anyway.

Also, I just read the New York City Independent Budget Office report and the Net Impact to the City/State/MTA is $8.3 million. This seems minor.

Say what you want about eminent domain, design, process, etc. but I don’t think making the financial argument carries the day when bashing Ratner/Russians/The Plan.

Posted by: Mr Joist at September 23, 2009 1:24 PM

Not agreeing with them is not bashing them. And sorry- but taxpayer subsidies do come out of pocket for all of us. We are investing far more than we will ever get back and I don't see either the need or the purpose since these guys are so rich. In fact, now that he's trying to pay less for the rail yard rights, its a very real hit. And he already got a special favor on that one.

Posted by: bxgrl at September 23, 2009 1:32 PM

i have to agree w dr j on this one bx.
if the alternative is a (monstrous) empty lot then there is no cash from you to ratner. and that's what's really bugging you, i sense. lost revenue is fictitious. did he get a deal on mta land? debatable, but it doesn't appear to me that the city is rolling over. more like they are debating merits of a non-revenue, blighted hole in the ground vs a [use your own adj] something.

Posted by: antidope at September 23, 2009 1:42 PM

I’m still not seeing the logic.

We have no arena now, so no property tax now. No arena now, so no mortgage recording tax now.

Foregoing the collection of these taxes is an opportunity cost but NOT an out of pocket cost to taxpayers. We had $0 before and we’ll have $0 afterwards if it all gets cancelled.

The REAL out-of-pockets cost are the things we’ll lose such as:

Loss of Existing Property Taxes on Arena Site ($13 million over 29 years)
MTA "loss" on Rail Yard (Arena Portion) ($10 million over 29 years)
Contributions of City Property (streets) ($9.7 over 29 years)

The present value of these losses seems miniscule.

Anyway, I haven’t decided if I’m for or against yet but I won’t be making my ultimate decision on the financial impact.

www.ibo.nyc.ny.us/iboreports/AtlanticYards091009.pdf

Posted by: Mr Joist at September 23, 2009 1:54 PM

I think what bothers me is that the city gave it away to him- even with other offers on the table that would have given the MTA more money. That area was nicely coming back and Ratner essentially bulldozed out all progress. After creating real blight, now he claims he is fighting it. Basically since you're saying the lost revenue is fictitious, then we have nothing to lose by letting the hole in the ground remain either. I feel like you're saying we are not going to get any financial return so lets have anything there no matter if its beneficial or not. I don't like a hole in the ground either- I'm just not so willing to give it away just to fill it now.

Posted by: bxgrl at September 23, 2009 1:55 PM

the city and the state gave $200,000,000 in direct support to this project. the tax exempt bonds are repaid by using what would otherwise be real estate taxes(Pilots-payment in lieu of taxes) to repay the bonds so that in the end we actually pay for the arena and don't own it. The 200 million in cash was used to repay the cost of acquiring the property.
The affordable housing will be built using as of right tax payer subsidy programs.
The IBO office said that they city would not get back its money in tax payments. ratner they believe would make about 3/4 of a billion dollars.
You can get more information mostly without too much bias at Norman Oder's atlantic yards blog.
Ratner has spent some of his own money- they claim about a total of $500 million spent so far(about 300 m of their own investor's money)

Posted by: smeyer418 at September 23, 2009 2:00 PM

Looks like they have a deal

http://bit.ly/hAdFS

Posted by: East New York at September 23, 2009 2:24 PM

I did get my information from an unbiased source, the New York City Independent Budget Office, linked in my last post.

On the bottom of page 3 of the report is a list of all the "costs" related to the project.

I don't count the City and State Capital Contributions for Arena because these are a combination of infrastructure upgrades (sewer, power) and the construction of the deck over the rail yards (debatable). Some of this should probably be counted but there is no breakout.
Loss of Existing Property Taxes on Arena Site = $13MM
Tax-Exempt Financing for Arena = a federal tax cost from forgone tax on the interest payments received by buyers of the bonds. $0 before, $0 after issue.
Arena Property Tax Exemption = $0 before, $0 after issue.
Mortgage Tax Exemption for Arena Financing = $0 before, $0 after issue.
Sales Tax Exemption for Arena Construction = $0 before, $0 after issue.
MTA "loss" on Rail Yard (Arena Portion) = $10MM
Opportunity Cost of Transfer of City Property & Streets to FCRC = $6MM + $3.7MM = $9.7MM

So: $13MM + $10MM + $9.7MM = $32.7MM on a present value basis. Small potatoes.

On a pure financial analysis, I don’t care that the “benefit” to Ratner is calculated at $726.3 million … I just care about the cost to me, the taxpayer, which is $33MM.

Posted by: Mr Joist at September 23, 2009 2:32 PM

Mr Joist the 200 million I count is without the infrastructure amounts. Its direct costs and the IBO issued a new report that says the benefit is less than 0.
The infrastructure amounts are an added 105 million and I didn't count them at all....

Posted by: smeyer418 at September 23, 2009 3:36 PM

actually its 205 million direct subsidy plus the infrastructure of an additional 100. Its 105 from the city and 100 from the state with the city responsible for the infrastructure improvements(roads with the sewers water etc that then get added to the water bills YOU pay plus what ever else lights etc..)

Posted by: smeyer418 at September 23, 2009 6:06 PM

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September 23, 2009

Mikhail Prokhorov's Unique Offer

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