Mikhail Prokhorov has reached an agreement to sell a 49 percent stake in the Nets with a future option to buy a controlling interest to Joseph Tsai, co-founder of Chinese e-commerce giant Alibaba, a source familiar with the deal confirmed to Newsday on Friday.
Although the Nets had the worst record in the NBA last season, the source said the valuation of the sale is a record $2.3 billion, topping the $2.2-billion sale of the Houston Rockets earlier this year in a deal that included Toyota Center. Under terms of the sale first reported by ESPN, Tsai can choose to purchase a controlling interest in the Nets after four years, but not necessarily 100 percent ownership.
Prokhorov, who retains full ownership of Barclays Center, may retain a minority stake in the future, according to the source. Until Tsai can exercise his option, Prokhorov remains in control of Nets operations and the management team he installed more than a year ago, headed by general manager Sean Marks and coach Kenny Atkinson.
The source said Tsai, 53, remains committed to his executive role with Alibaba and that his purchase of a stake in the Nets is strictly a personal investment.
ESPN reported that it obtained NBA financial documents that show the Nets lost $144 million on basketball-related activities in the 2013-14 season, a figure more than $100 million higher than any other franchise. The Nets’ operating loss of $23.5 million last season was higher than any other team except the Detroit Pistons. The Nets have a chance to at least break even this season, in part because their television revenue goes up by close to $50 million, the result of increases in the NBA’s national TV contract and the Nets’ deal with YES Network, according to a Forbes report.
Since Prokhorov purchased the Nets in May 2010, they have had just two winning seasons and have made the playoffs three times, but they have turned into an exceptional investment.
Prokhorov originally bought an 80 percent share of the team and 45 percent of Barclays Center for $223 million, the assumption of $160 million in debt and $60 million for operating costs for the team’s final two seasons in New Jersey. In 2015, he purchased the remaining 20 percent of the Nets, which were valuated at $875 million and the remaining 55 percent of Barclays Center, which was valuated at $825 million.
Tsai, who was born in Taiwan and holds dual Canadian citizenship, is said to be an avid basketball fan. He has a personal background in athletics as a high school lacrosse and football player at The Lawrenceville School in New Jersey. Tsai got his undergraduate and law degrees at Yale.
With his business ties to the Asian market, where fan interest in the NBA is growing rapidly, Tsai likely will generate more opportunities for the Nets. The source said Tsai likes the direction of the Nets, who are off to a promising 3-3 start this season, including a win over LeBron James and the defending Eastern Conference champion Cleveland Cavaliers on Wednesday.