Real estate developer Bruce Ratner's agreement to buy the New Jersey Nets will face an immediate challenge over how he plans to cover potentially mounting financial losses for the club while preparing to move the team to Brooklyn, N.Y., industry observers said last week upon the deal's announcement.
The $300 million agreement calls for moving the financially strapped franchise across the Hudson River to Brooklyn and a $2.5 billion real estate development project that would feature a new arena. That facility, however, would not be completed for at least three years.
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In the meantime, the Nets will continue to play at Continental Airlines Arena, where the team's existing multimillion-dollar annual losses could grow to total $40 million over the next two years if the club becomes a lame-duck franchise, according to one executive familiar with the Nets' finances.
Ratner was not available for comment at press time. Nets front-office representatives declined comment.
It's Ratner's ability to sustain future losses that is seen as a key part of the NBA granting its approval of the sale. Like all NBA team sales, the deal will be reviewed by an NBA owner's committee, which will report to the league's board of governors whether to approve the sale.
"The question now is who is going to fund the next three years of losses," said Bob Caporale, chairman of Boston-based sports investment adviser Game Plan LLC. "It is something that has to be addressed within the structure of the new ownership. Over time, the losses can be pared, but it is going to be a pretty lean operation while they wait for a new arena."
The Nets are controlled by the nonprofit Community Youth Organization, which is run by the YankeeNets holding company.
As of Jan. 19, the Nets had posted an average attendance of 14,158 fans per game, ranking above only the Atlanta Hawks — who are in the midst of a transition to a new ownership group of their own. This is the fourth consecutive season the Nets are averaging fewer than 15,500 fans per game, a critical element creating the team's grim financial condition.
Projected future losses could be mitigated by the Nets making a deep run in the playoffs. At the end of last season, the team was on track to lose about $17 million. An appearance in the NBA Finals helped drop the loss to about $7 million, but the new owners can't bank on playoff runs to cut losses.
"The owners are going to need sufficient sources of dollars through a combination of equity and debt to cover the operating losses going forward," Caporale said.
The YankeeNets board was expected to approve Ratner's agreement-in-principle last Friday, ending what had become a protracted sales effort. Ratner was competing for the Nets against a group led by real estate developer Charles Kushner and U.S. Sen. Jon Corzine of New Jersey.
