Mikhail Prokhorov built his $10.5 billion fortune in Russian commodities, but with the country’s economy in freefall, it’s his holding in the National Basketball Association’s Brooklyn Nets that’s proving his most secure investment.
The commodities tycoon who ran against Vladimir Putin for president two years ago bought the Nets and their unfinished arena the Barclays Center for $223 million in 2010. Those assets are now valued at as much as $2.7 billion, meaning Prokhorov’s share could amount to as much as $1.8 billion.
That should ease the pain of seeing his personal fortune shrink by $2.5 billion this year as investments in companies such as OAO Uralkali, the world’s largest potash producer, took a dive amid the rout in commodities and the ruble. Not all Russian fat cats have it so good. The country’s 20 richest people lost $10 billion this week, Bloomberg Billionaires Index data show.
“What’s better than owning an NBA team in New York, especially in a new arena in a hip place like Brooklyn,” said Sal Galatioto, founder of Galatioto Sports Partners, which represented Comcast-Spectacor in its sale of the NBA’s Philadelphia 76ers to Apollo Global co-founder Josh Harris. “Given the appreciation of NBA teams, it’s a fantastic investment that’s not correlated to the stock market.”
Billionaires Diversify
The majority of Russian billionaires diversified their business in the last decade, but most of them still hold their main assets in Russia, while some, such as aluminum magnate Oleg Deripaska, lost part of their international holdings during the financial turmoil of 2008.
Big foreign holdings offered a lifeline to many beleaguered billionaires this week. Alisher Usmanov was knocked from his perch as Russia’s richest person, mostly due to his Russian holdings. Even so, his losses were partly offset by gains in Chinese technology companies Alibaba Group Holding Ltd. and JD.Com Inc.
Usmanov, who owns about 30 percent of Arsenal Football Club in London, was overtaken by Viktor Vekselberg, 57, who holds Swiss machinery makers Sulzer AG and Oerlikon Corp AG in his portfolio. Their values declined less than his Russian assets, helping buoy his fortune, the index’s data show.
Brooklyn Home
Deripaska is the only Russian billionaire without large overseas assets whose fortune increased this year. He owns a 48 percent stake in United Co. Rusal, the world’s largest aluminum maker, which has gained from a stronger market and lower costs from the weaker ruble. His net worth rose about $856 million.
In 2008, Deripaska lost the stake in Magna International Inc. after BNP Paribas SA, which financed the acquisition a year earlier, seized the shares as collateral for its loan.
Prokhorov also holds 17.02 percent of Rusal. In the U.S. he owns 80 percent of the Nets and a 45 percent stake in the Brooklyn arena, where he relocated the team in 2012.
Those assets, including the stadium, were valued at $2.7 billion when they were being considered for a merger deal with the Los Angeles Dodgers this year, two people with direct knowledge of the situation said, declining to be named as the information was unofficial and the parties failed to agree on the merger.
Bloomberg Billionaires Index estimates the assets at $2.1 billion. Based on those estimates, Prokhorov’s share is worth about $1.1 billion to $1.8 billion.
Chelsea F.C.
That’s a better return than Roman Abramovich has achieved with Chelsea Football Club. The steel magnate paid $105 million for the London soccer team in 2003 and has since invested more than $800 million. Chelsea is now valued at about $937 million, according to Billionaires Index estimates.
Prokhorov hasn’t ruled out selling a minority stake in the Nets but will remain the main owner, according to the two people.
The team with the highest payroll in the league hasn’t been without problems. It had a loss of about $144 million in 2013, according to an ESPN report, after plowing a record $190 million into salaries and taxes.
Still, the value of the team is supported by the NBA’s new television deal with Walt Disney Co.’s ESPN and Time Warner Inc.’s TNT in October, worth $24 billion over nine years — almost triple the average fees for its current TV agreement.
‘Safe Bet’
Given the “new media deal and international growth prospects, the NBA is a very safe bet, particularly compared to certain Eastern European economies,” said Chuck Baker, who heads sports mergers and acquisition as a partner in DLA Piper’s Global Sports, Media and Entertainment practice.
Uralkali, Prokhorov’s main Russian asset, declined about 28 percent this year, valuing the potash miner at about $5.9 billion. That’s about $1 billion more than Prokhorov paid for his 27.8 percent stake last year. While the company’s exports are benefiting from the ruble’s plunge, it risks losing about 20 percent of its capacity because of flooding at one of its mines.
The press services of Prokhorov’s Onexim, Vekselberg’s Renova, Deripaska’s Rusal and a press representative of Usmanov all declined to comment for this story.
