FDI Grows in Brooklyn, or "The Russians Are Coming, The Russians Are Coming"
Forget about Dubai Ports, forget about Huawei Technologies. There is a new crisis boiling over in foreign direct investment. A Russian billionaire may become the owner of a dearly beloved, U.S. professional basketball team and acquire a controlling interest in the team’s proposed arena in New York City.
On Wednesday of this week, the New Jersey Nets announced that, pending approval from the owners of other National Basketball Association teams and subject to a favorable outcome of litigation surrounding the construction of its new arena, Mikhail Prokhorov’s Onexim Group has agreed in principle to invest $200 million to acquire an 80% interest in the team, a 45% interest in the team’s unbuilt sports arena and the right to acquire a 20% stake in Atlantic Yards, the adjacent real estate project being developed by the team’s current owner, Forest City Ratner Companies. According to the release, the deal will ensure the completion of the proposed Brooklyn, NY-based arena, the relocation of the Nets to Brooklyn and the completion of Atlantic Yards. The tentative date for closing the deal is the first quarter of 2010.
Mikhail Prokhorev is a high-profile, self-made Russian investor. Many blogs, including Keith Gessen of The New Yorker and Ethan Trex of Mental Floss, catalogue his controversial history. His six-foot-seven height and the fact that he has played basketball make Mr. Prokhorev one of those figures that invite focused interest, even if past media coverage wasn’t enough. And there is the matter of his reported $9.5 billion net worth, making him Russia’s richest man. In his statement, Mr. Prokhorev said, “I have a long-standing passion for basketball and pursuing interests that forward the development of the sport in Russia.”
Forest City’s Bruce Ratner added his own rationale for the deal, stating that he was thrilled that ”[S]mart global investors appreciate the exciting economic potential of Brooklyn. We are one step closer to achieving our goals of creating much needed jobs and economic development for Brooklyn and the city.”
Notwithstanding the promised benefits of the agreement, critics were quick to attack. NoLandGrab, a local opposition group, argues that there must be shady side deals that were undisclosed. Develop Don’t Destroy Brooklyn is adamantly opposed as well, asking
Putting aside legal questions, what are the ethics and policy principles of subsidizing the 40th richest man in the world with city, local and federal financial gifts, as well as a highly controversial use of eminent domain?
The New York Observer reports that Congressman Bill Pascrell Jr., who represents a district that is adjacent to the Arena where the Nets now play, has asked the NBA Commissioner to investigate the deal. Mr. Pascrell has raised questions about a foreign corporation’s benefiting from tax incentives being employed to support the arena.
So all the elements now are in place for another epic battle over FDI. What will play out here—in the cosmopolitan metropolis of New York, in the legendary Borough of Brooklyn—is the same drama that unfolds in many American towns and villages when the concept of FDI materializes into the real-life acquisition of a local treasure. The forced migration of a sports team is almost always a deep and searing wound. Thousands of fans still mourn the losses of the New York Giants and the Brooklyn Dodgers to California, even though they happened 50 years ago.
The questions proliferate. Will the players or coaches be Russian? If they buy this franchise, will they buy others? Will Americans lose their jobs, even though they are high-paying jobs that most Americans can only dream of? Will foreign ownership change basketball, even though the team in question has never achieved a spectacular record? Will America lose control over one of its institutions, now treasured more in the anticipation of loss than ever before? Arguing that foreigners will benefit somehow from U.S. tax benefits is usually a start to a “we/they” analysis of the situation. Ultimately, someone will ask whether there can be some adverse affect on our national security?
It’s a good bet that somewhere someone is toiling away, trying to figure out how review by the Committee on Foreign Investment in the United States (CFIUS) can be invoked. Forest City’s hometown paper, The Cleveland Leader, is already advocating that CFIUS must review the deal.
