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Brooklyn Nets Transfering Ownership to Russia Could Cause PR Problems

By Jake Mann – Mar 31, 2014 at 2:09PM

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The Brooklyn Nets are considering an ownership transfer to Russia at the worst possible time.

The Brooklyn Nets are the fifth biggest franchise in the NBA, and generated almost $200 million in revenue last season, according to Forbes. In the midst of a nine-figure TV deal with Twenty-First Century Fox's (FOXA) YES Network, popularity is on the rise, and relocation from New Jersey has certainly helped. But this momentum may be at risk.

The team's owner, Mikhail Prokhorov, is considering an ownership transfer to a company in Russia at the worst possible time. With Moscow–Washington relations at their worst since the Cold War, do the Nets, and the NBA, have a potential PR crisis on their hands?

Pressure from the Kremlin
As ESPN and the AP report, Prokhorov, who owns 80% of the team through Onexim Sports & Entertainment, has been pondering a Russian ownership transfer for some time. It likely piqued his interest after the country upped regulations of public officials' foreign holdings last year.

Prokhorov in 2013. Image via A. Savin, Wikimedia.

Still, it might not be that simple. Earlier this month, Russia President Vladimir Putin lobbied native businessmen to take part in what the Kremlin calls de-offshorization. "Entrepreneurs need to understand their responsibility," Putin emphasized. "Our priority stance is that Russian companies have to be registered here, in their home country, and have a transparent ownership structure."

Although it's impossible to know how much importance Prokhorov places on these words, it'd be foolish to think they've fallen on deaf ears. Remember, the billionaire is actively engaged in Russian politics. He ran for president as recently as 2012, and his sister, Irina Prokhorova, is head of the country's Civic Platform Party.

The gears are in motion 
At the moment, no transfer has been made. The NBA reports Prokhorov hasn't officially applied to move the Nets' ownership yet, something Onexim has confirmed. As AFP points out, though, the owner recently revealed the gears are in motion. "This process is going slowly," he told the press last week. "I have already said numerous times that I am gradually transferring the basketball club to Russian companies, according to the law."

So what happens next? The league doesn't have any rules against foreign ownership. If, or more likely, when Prokhorov submits his application, it will have to be approved by 23 of the 30 NBA teams, executive VP of communications Mike Bass told CNN.

The potential PR crisis
Under ordinary circumstances, a 75% majority might not be tough to attain. But the current political environment is far from normal.

As a result of Russia's ongoing occupation of Crimea, the U.S. has imposed a number of sanctions on the country, which include export bans and the blacklisting of several government employees. A newly passed House bill will expand these efforts to encompass more officials, and possibly, Russian corporations.

With no immediate end in sight, it's reasonable to think the crisis might affect Prokhorov's efforts to move Nets ownership. According to the Pew Research Center, the majority of Americans now view Russia as a serious problem, and a quarter see the country as "an adversary."

Hence the potential PR problem for the Nets, and ultimately, the NBA. Although league revenue is trending upward, a recent Harris poll that asked U.S. fans to name their favorite sport shows the NBA ranks fifth, behind the NFL, MLB, college football, and auto racing.  

Because of this, now, perhaps more so than ever, teams are beholden to fans' demands. And now that U.S. bars have begun to ban Russian vodka, who's to say some Americans won't boycott basketball? Sports regularly get political, and many times, for reasons far less serious than the annexation of a sovereign country.

The bottom line
Mikhail Prokhorov also owns 45% of the Brooklyn Nets' arena, which is sponsored by Barclays (BCS 3.90%). Possibly the X-factor, it's still unknown which way the multinational bank is leaning. As the NY Daily News reveals, though, its name is already involved in the drama. "People are joking that the Barclays Center is going to turn into a Russian territory," a neighborhood development official told the outlet last week.

Is it guaranteed the situation will develop into a PR crisis? No, but it's possible, and the NBA will likely keep a close eye on what happens next. Public sentiment is overwhelmingly unfavorable toward Russia at the moment, and professional basketball needs to keep every last fan on its side. 

Jake Mann has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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