Brooklyn Nets' Chinese New Owner Wanted Protection Against Overspending

Bloomberg – Before buying into the Brooklyn Nets, billionaire Joe Tsai discussed putting an unusual condition to his investment: a refusal to cover any losses related to player salaries, according to people familiar with the sale contract.
Tsai, co-founder of Chinese e-commerce giant Alibaba Group, last month agreed to buy 49 percent of the National Basketball Association team in a deal that values the franchise at a league-record US$2.3 billion.
Typically in professional sports, limited partners must contribute to offset losses. In the case of the Nets, the two sides discussed an exemption that would have protected Tsai from “cash calls” associated with player payroll.

That language never made it into the final contract, though Tsai does have other downside protection, said to the people, who asked not to be identified because the talks were private. The Nets declined to comment. Tsai didn’t return emails seeking comment on the provision.

Overspending on players wouldn’t jibe with the team’s plans to rebuild around young talent, but it’s happened before. During the 2013-14 season, Prokhorov added aging stars Paul Pierce and Kevin Garnett — along with their lofty salaries — from the Boston Celtics.

That year, the Nets lost US$144 million on basketball-related activities, a category primarily composed of player payroll, according to ESPN. It was the biggest loss in the league that season by more than US$100 million.

Luxury tax payments — a penalty for teams that overspend on players — contributed to that, but the team has continued to lose money. Brooklyn lost almost US$23.5 million last season, second-worst in the NBA after the Detroit Pistons, according to the league’s operating income figures cited by ESPN.

The Nets’ 2017-18 payroll is a more modest US$95 million, lower than all but six teams in the league, according to Hoopshype.com. This season, teams with payrolls above US$119.2 million will be taxed on the amount spent above that threshold.

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