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Volume 22 No. 39
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Barclays Center for sale

Forest City putting its stake on market

The Barclays Center is up for sale, with investment bank Evercore Partners expected by next week, sources said, to formally begin selling Forest City Enterprises’ 55 percent stake in the Brooklyn arena.

The venue ranks as the most popular arena in the country, based on ticket sales for concerts in the first six months of the year, according to Pollstar. And beginning next year, in addition to the Brooklyn Nets, it will be home to the NHL’s New York Islanders.

Indeed, if one of those two teams’ owners does not buy the arena — the Nets’ controlling owners hold the other 45 percent stake of the building — the structure would join a select list of venues in sports: an arena hosting two professional sports teams, but all three entities having separate ownership.

That runs counter to the traditional model of a team wanting to control the arena it plays in, enabling that franchise to benefit from having non-sports revenue at the facility as well.

Barclays Center opened in 2012 and in 2013 it was named Sports Facility of the Year at the Sports Business Awards. The arena has more than $30 million in annual cash flow, investment banking sources said, adding that such an amount would translate to a top valuation of $750 million for the arena.

That is far less than the price floated in recent weeks in reports that Guggenheim Partners was seeking to combine with the Nets under principal owner Mikhail Prokhorov. Those reports pegged the arena value at $1.1 billion and the team’s value at $1.7 billion. However, those Guggenheim reports appear to have been much ado about little, with no discussions ongoing.

“[T]here are no talks,” said Guggenheim spokesman Mike Sitrick via email last week. “Moreover … there has never been a proposal, never been a deal to walk away from. None was presented, none was ever seen.”

Part of the Nets has been for sale since the spring: the 20 percent piece owned by Forest City. Evercore has been shopping it at a valuation of $1 billion but to no avail. Underscoring the challenge of getting to even the billion-dollar threshold, the offer even includes sweeteners not seen in typical limited-partnership sales. The buyer would receive three of eight board of directors seats and an option to sell the shares back to Forest City, at market value, in 2023.

Forest City’s Bruce Ratner
The problem, market insiders said, are the steep financial losses at the Nets, which incurred a U.S. sports record loss of $144 million last season, according to published reports. The team has committed to stop the red ink after this season, but with an owner, Prokhorov, seen as willing to tolerate losses to sign top players, finding a willing partner subject to capital calls is not easy.

Forest City owner Bruce Ratner bought control of the Nets in 2003 in a $300 million deal. He subsequently sold the controlling interest to Prokhorov but maintained the share now on the market.

Forest City paid Prokhorov a fee to avoid capital calls through July 2015, according to Forest City’s annual report, so the purchaser of the stake would apparently enjoy one capital-call-free season — the coming, 2014-15 season.

Evercore, though a spokesman, declined to comment. Forest City referred questions to Nets and arena spokesman Barry Baum, who declined to comment.

Evercore could bundle the team and arena stakes, but sources said that is not the plan at the moment. Evercore is expected next week to begin sending preliminary information to potential buyers with nondisclosure agreements. After that, full financial books would be sent out.