In the most recent NBA season, the Brooklyn Nets finished well out of playoff contention. It was more than a year after the team lost three superstars who briefly brought buzz, and championship hopes, to Barclays Center. The team’s struggles, though, didn’t arrest the exponential growth in the franchise’s value since the New Jersey Nets became the Brooklyn Nets in 2012.

On June 18, Sportico reported that Joseph Tsai, the Alibaba co-founder who owns the Nets, the arena operating company, the WNBA’s New York Liberty, and more, would sell a 15 percent slice of the umbrella BSE Global business at an estimated $6 billion, which the New York Post later revised to $5.8 billion. (Just 20 years earlier, the franchise had sold for $300 million.) The team-plus-arena component, $5.3 billion according to the Post, is an NBA record, though both Forbes and Sportico last year estimated—before this deal re-set valuations—that the Golden State Warriors, New York Knicks, and Los Angeles Lakers were worth more.

The apparent $688 million infusion from the family of Julia Koch—widow of the businessman, right-wing funder, and climate-change denier David Koch—represents a big payoff for Tsai, helping significantly to pay down debt.  Over two years, concluding in 2019, he and wife, Clara Wu Tsai, bought the Nets and the arena company for more than $3 billion—a huge gain for the previous owner, Russian oligarch Mikhail Prokhorov—but had to backstop arena finances after a pandemic shutdown and slow recovery.

When rumors of the deal surfaced in February, one local politician expressed outrage, arguing against investment by the conservative Kochs. I think that’s a crock, given the lack of outrage at previous Nets owners. More significant, the skyrocketing value highlights a public policy failure. Yoked with the Nets, the Barclays Center is by far the most commercially successful element of the troubled 22-acre megaproject announced in 2003 as Atlantic Yards and renamed Pacific Park Brooklyn in 2014. (Many still use the old name.)

It’s no private project. Nominally state-owned (to enable tax-exempt debt), the arena wouldn’t exist without public assistance, including eminent domain, direct subsidies, tax-exempt land, and the ability to sell naming rights and advertising. The public thus deserves part of the upside, especially since benefits from the remainder of the project, notably construction jobs, office jobs, and below-market “affordable housing,” lag far behind promises. Development over a two-block “blighted” railyard, which requires an expensive platform, is stalled, and rights to six towers are subject to a foreclosure auction, postponed four times. (See my recent overview article in Urban Omnibus.)

***

It turns out—in hindsight, duh—that the market for major league sports teams, especially in the nation’s media capital, is robust. Such teams are in limited supply, like “paintings for billionaires,” in the phrase of the once micro-fractional Nets owner Jay-Z. But Bruce Ratner, a developer beholden to a publicly traded parent company and no basketball aficionado, couldn’t hold on to see NBA values boom from media rights deals and more. Needing cash to complete the delayed arena, Ratner, who’d paid $300 million for the team in 2009, sold 80% of the New Jersey Nets and 45% of the future arena company to Prokhorov for just $200 million in cash, plus a commitment to absorb certain losses and debts.

In 2015, fully buying out Ratner, Prokhorov’s deal valued the team at $875 million and the arena company at $825 million, or $1.7 billion total. While Prokhorov didn’t deliver a promised NBA championship, he got billionaire Tsai to pay at least $3 billion—some say $3.3 billion—for BSE Global in 2019. Despite spending on the team and a new practice facility, Prokhorov earned at least $600 million, possibly much more.

But Tsai was no naif. As he’s said, the NBA’s “socialist” set-up, which requires league-wide revenue sharing, guarantees a rising financial floor. Moreover, the league has gained new media rights deals, sponsors, and international markets, including in China. Now sovereign wealth funds and other institutional investors can buy minority shares, juicing values.

Tsai also lucked out. Free agent superstars Kevin Durant and Kyrie Irving, exemplifying the era of player empowerment, chose the Nets, later joined by James Harden. The trio spurred new sponsorship deals, including a reported $30 million uniform patch deal with the trading platform WeBull. This past December, Sportico valued the Nets’ (and the arena company) at $3.98 billion, but said that number, inflated thanks to the temporary superteam, had grown at the lowest rate in the league.

***

Tell that to David Koch Jr., a 20-something basketball fan, whose family is worth more than $65 billion, according to Forbes, and can easily afford $688 million. While the new 15% stake leaves the Tsais in control, the Koch family would be first in line to buy the team. NetsDaily suggested that Koch Jr. might soon be apprenticing inside BSE Global.

When reports of the Koch investment surfaced in February, 33rd District Council Member Lincoln Restler, who represents Downtown Brooklyn near the project site, tweeted, “Oh Hell No. We gotta block the Koch brothers from getting involved in Brooklyn hoops. We don’t need their conservative agenda tarnishing the spirit of our @BrooklynNets and @nyliberty.” As one wag responded, “And what is the spirit of the Nets, other than making lots and lots of money?” After all, ticket and concession prices keep rising.

Restler’s rhetoric suggests the team embodies the community, something more plausible in smaller cities or with older franchises. It’s most exemplified by the NFL’s Green Bay Packers, in a far smaller market, where anomalous fan ownership makes the team more a public trust than a “sports entertainment corporation,” in the phrase of subsidy skeptic Bettina Damiani. Today, when players change teams regularly, it’s tough to forget comedian Jerry Seinfeld’s observation, “You’re actually rooting for the clothes.”

The game can be dazzling, though, so tarnished team owners benefit from #sportswashing. Ratner made empty promises to justify government assistance. Prokhorov got rich in the wild, post-Soviet gold rush. Tsai, his fortune made in China, can sound like an apologist for the regime. (In the U.S., he’s a philanthropist who supports Lincoln Center, scientific research, and “social justice.”) Arena sponsor Barclays, an admitted felon for rigging the foreign exchange market, also gets buffed.

Even supporters of the Koch family—whose fortune rests on monopoly power while preaching less government—should recognize a tremendous irony in having the Nets, Liberty, and arena company owned, even fractionally, by Koch money. After all, Koch Sr.’s libertarian philosophy argued against the public assistance that enabled the arena. The Koch-funded Cato Institute has fulminated against “sports pork” and eminent domain. 

***

Though few remember, the potential for greater public benefit has been raised before. In 2015, the New York Islanders moved to Brooklyn, with a purportedly “ironclad” 25-year lease (though they left four years later). That could’ve triggered a payment. After all, if a second professional team arrived at Barclays, according to the February 2005 Memorandum of Understanding (MOU) signed by the city, state, and original developer Forest City, “additional rent and other terms” would be negotiated.

But that document was nonbinding, and Empire State Development, the gubernatorially-controlled state authority that oversees/shepherds Atlantic Yards/Pacific Park, ignored that pledge. Nor did any elected officials raise the issue when Tsai bought the WNBA’s New York Liberty and moved them to Brooklyn. While the Liberty started slowly, they made the WNBA finals last year, saw their attendance grow, and were valued in the transaction, according to the Post, at $200 million, well above Sportico’s recent estimate of $130 million. Clara Wu Tsai aims for a $1 billion valuation.

Another missed opportunity came during Forest City’s 2009 renegotiations with the Metropolitan Transportation Authority, deferring payment for the rights to develop over a state-owned railyard, except for the parcel needed for (part of) the arena. At a public hearing, the business-backed Regional Plan Association (RPA) proposed new terms: either more money for the MTA or a share of future revenues. Though that doesn’t precisely translate to a slice of the Nets’ value, the concept was clear: share the wealth. That proposal was ignored.

Today, the situation’s more complicated. The team and arena were decoupled from the remainder of Atlantic Yards when Ratner recruited Prokhorov and deferred building the project’s flagship tower, which original architect Frank Gehry called “Miss Brooklyn,” slated to loom over the arena. Now, it’s harder to argue, as New York Times architecture critic Michael Kimmelman suggested in his 2012 arena review, that arena profits subsidize affordable housing. 

Still, the decoupling is not complete. Smooth operation of the arena relies significantly on the “temporary”—but surely permanent—plaza at Miss Brooklyn’s purported base, allowing a safety valve for crowds and periodic public gathering space. The plaza, a canvas for advertising, is now on its fourth corporate sponsor, Ticketmaster, bolstering BSE Global revenues. 

“Miss Brooklyn,” though, hasn’t vanished: No real estate developer discards buildable square footage. In 2015, the developer proposed moving most of that unbuilt bulk across Flatbush Avenue to enlarge an already substantial project at a parcel known as Site 5. A new plan, likely even larger, remains pending. If it proceeds, why shouldn’t Tsai be required to offer public benefit in exchange for keeping the plaza? After all, he’s got the bucks.

Nope, charitable contributions and (oft-sponsored) community engagement—sure to ramp up under Koch—don’t compensate for a tax-free arena property recently assessed at $110.2 million. Rather than pay taxes, the arena operators make payments in lieu of taxes, or PILOTs, to cover construction debt. Watchdog legislator Richard Brodsky likened the practice to sending “my tax payments to the bank to pay off the mortgage.” Yes, other venues, such as Yankee Stadium and CitiField, benefit from similar schemes, while Madison Square Garden has its own tax break. Given the exploding value of sports franchises, none are justifiable today.

Of the country’s sports markets, New York supplies the most valuable platform for team owners. It’s damning that public officials are either captured or overmatched. A BSE Global press release cited Julia Koch’s board membership (including Koch Industries, source of the family fortune) and charitable support for “transformative initiatives in healthcare, education and the arts.” 

“Our family,” she said, “is honored to join the Tsai family in shaping, advancing and contributing to the shared vision for the future of The Nets, The Liberty and the broader Brooklyn community.” Well, some women’s sports fans now advocate, given past Koch support for groups curbing women’s reproductive rights, that the family contribute $15 million to nonprofit organizations—already due modest payments via the WNBA’s Commissioner’s Cup tournament—aligned to the teams’ social justice work. 

That crusade has a point, but we also could think bigger: if those benefiting from the Brooklyn Nets and the state-enabled arena truly want to help, perhaps the Tsais and Kochs could cough up $300 million-plus for public construction (and ownership) of that unbuilt railyard platform, and help get the affordable housing built.

Featured image: A photo of the arena plaza, partly cordoned off for business purposes, promoting the We Love NYC initiative, funded by the members of the Partnership for New York City. All photos by the author. This piece draws on previous essays published in Oder’s Substack newsletter, “Learning from Atlantic Yards/Pacific Park.”