Originally published on Forbes.com on Feb 23, 2011.
When Carmelo Anthony suits up for his first game as a Knick tonight, there will be a thick soup of euphoria in the air. There will be cheers, laughter and maybe even a few tears of joy. Because for the first time in a decade, New York basketball fans have a championship-caliber team to root for, helmed by two name-brand superstars.
But for Brooklyn native and Nets co-owner Jay-Z, the focus will be on the other side of the river, and what might have been – not to mention a lost opportunity for the rapper to add another seven-figure sum to his net worth ($450 million, by our latest estimates) through a bump in the value of his 1.5% stake in the Nets.
“Had the Nets been able to acquire Carmelo at a reasonable price, the franchise value would have increased,” says Marc Ganis, president of Chicago-based consultancy SportsCorp. “A star of his caliber combined with a rebranding and move to Brooklyn could have added more than $100 million to the franchise’s value.”
A simple back-of-the-envelope calculation suggests that Carmelo’s trade to the Knicks, and not to the Nets, will cost Jay-Z about $1.5 million in equity. It also represents lost value of $80 million for Russian billionaire Mikhail Prokhorov, who holds an 80% stake in the team as majority owner. And now, as the Nets prepare for a move to Brooklyn in 2012, both moguls must determine what it is that they’re moving.
When Jay-Z bought his stake in the Nets five years ago, he knew that it wouldn’t be easy to rehabilitate the team’s image. The Nets had always been the Robin to the Knicks’ Batman, the Memphis Bleek to Jay-Z’s Jay-Z. “People grew up on the Knicks,” the rapper explained shortly after signing on. “The Nets have always been the cousins. I hope to change that.”
At first, it seemed Jay-Z and his co-owners had plenty of momentum on their side. Bruce Ratner, then the majority owner, brought in star architect Frank Gehry to design a gleaming new arena. British bank Barclays came through with a 20-year, $400 million naming rights deal. There was even some thought that Jay-Z could lure his pal LeBron James to the Nets.
But projected costs for the new arena soared while the world slipped into the worst recession in a generation, and plans for the new arena had to be scaled back drastically. Gehry’s design was tossed aside in favor of a cheaper plan, and delays triggered a clause in the Barclays deal that left the Nets with half their original sum. In order to save the floundering Brooklyn plan, Ratner sold the bulk of his majority stake to Prokhorov.
Still, bad news kept coming. Despite a much-ballyhooed recruitment pitch, the Nets failed to land not only LeBron James or any other free agent of note. Once the big names were off the board, talk turned to Carmelo Anthony. Had the star swingman wanted to go to New Jersey, he would have been there long ago – the Nuggets preferred the Nets’ offer to the Knicks’. But Anthony refused to sign a contract extension with the Nets, paving his path to Madison Square Garden.
With Anthony on board, the Knicks are a more valuable team. Having traded him, the Nuggets will likely see a dip in revenues, though it remains to be seen whether the franchise will actually be worth less.
“The Nuggets will definitely suffer at the gate and be challenged in generating more revenue with a less competitive product,” says Paul Swangard, managing director of the University of Oregon’s Warsaw Sports Marketing Center. “But if the team went on the market today, they’d still command top dollar.”
The Nets, on the other hand, are still without a big name to create momentum for the franchise. But there may be a bright side to missing out on Carmelo – just not something that can be quantified anytime soon.
“As the old saying goes, sometimes the best trades are the ones you don’t make,” says Ganis. “The cost in terms of current players and future draft picks would likely have relegated the Nets to be a losing franchise for quite a few years to come even with Melo… there may be other opportunities to secure a superstar without gutting the franchise’s future.”
For now, the Nets are still the cousins.
Update: The Nets have acquired Deron Williams, one of the best point guards in the league, from the Utah Jazz. The deal is huge step in the right direction, but issues remain (Williams can opt out of his contract at the end of next season). In this writer’s opinion, the Nets are still the cousins…still.
For more on the business of Jay-Z — and his interest in the Nets — check out Zack’s new Jay-Z book, entitled Empire State of Mind: How Jay-Z Went From Street Corner to Corner Office, due out March 17th.