How an Outrageous NBA Transaction Supports Elizabeth Warren's Case to Be President

[bluewater]

[snip]
What did Prokhorov do to increase the value of the Nets franchise, which was based in dismal northern New Jersey when he purchased it? Well, he did almost nothing. The state and city governments of New York, though, did quite a bit:

• They acquired a bunch of private property at the convergence of three upscale Brooklyn neighborhoods via eminent domain seizure and the threat thereof.

• They bundled that land with a rail yard that New York’s Metropolitan Transit Authority sold to Prokhorov’s group for $100 million despite having internally estimated its value at $214 million.

• They spent somewhere in the neighborhood of $50 million on infrastructure projects related to the construction of Barclays Center and arranged for about $400 million in tax exemptions for it.

In other words, New York’s elected officials decided Brooklyn was a good place for a basketball team, then spent an enormous amount of taxpayer money to recruit a team to play there and to prepare a space for that team to play in. They then let a guy from Russia walk away with the $2 billion in profit that this created—profit that was basically guaranteed given that previous sales have established that it is all but impossible to lose money buying an NBA team no matter how badly you run it. (And Prokhorov did for the most part run it quite badly, with a recent uptick that took place only after he fired his initial management team, which had driven the franchise into the ground.)

What if, instead of doing this, New York had just bought a stake in the Nets itself, then sold the team after 10 years like Prokhorov did? I’ll tell you what would have happened: It would have $2 billion more than it does now, enough to, for example, cover several years’ worth of the budget shortfall that’s helping cripple New York City’s delay-ridden subway system.

As it happens, “taxpayers getting a stake in the stuff their money is used to pay for” is one of the planks in Democratic presidential contender Elizabeth Warren’s “economic patriotism” plan. Here is the relevant section:

Taxpayers should be able to capture the upside of their research investments if they result in profitable enterprises. Like any investor, taxpayers should get a return on the risky investments they are making in R&D. That can take various forms. Taxpayers can: get an equity stake in any company that relies on intellectual property these investments create; retain royalties on publicly funded innovation or a golden-share of the patent revenue; or require the companies benefitting from publicly funded R&D to reinvest profits back into domestic production, R&D, and worker training programs, rather than into stock buybacks

https://slate.com/news-and-politics/2019/08/mikhail-prokhorov-brooklyn-nets-sale-elizabeth-warren.html

[RainCaster]

1. She is the smartest one of the bunch on our economy

I think she is the one who will rise to the top.

[George II]

2. Quite a stretch by the author to connect the transfer of the Nets basketball team....

...to presidential politics.

Right from the beginning of your excerpt the author is off-base. The Nets were located in the Meadowlands Sports Complex, right across the parking lot from Met-Life Stadium, where both the Giants and the Jets play. It's one of the most up and coming commercial areas in the state, not in "dismal Northern New Jersey"!

The author also doesn't take into account the financial benefits to the area in Brooklyn where the arena is. Seems like he contrived a conclusion then went backward in his writing to fit his article and "facts" to confirm that conclusion.

No mention about the fact that the arena attracted the New York Islanders hockey team to Brooklyn, a team that was looking to move out of the area altogether.

The article is an exaggeration based on a false premise.

Finally, the Brooklyn Nets and the arena have absolutely NOTHING to do with Elizabeth Warren.

[bluewater]

3. Prokhorov made a profit of more than $2 billion off of the $500 million

Russian mogul Mikhail Prokhorov has sold his remaining stakes in the Brooklyn Nets and the company that controls the team’s Barclays Center arena to Taiwanese mogul Joseph Tsai for a reported $3.5 billion. This would mean Prokhorov, even after you account for annual operating losses he might have sustained, appears to have made a profit of more than $2 billion off of the roughly $500 million he used to purchase the team in 2009 and buy out a partner in 2015.

Russian oligarchs profiting off US taxpayers...

Not a good look.

[George II]

4. Everything else notwithstanding, what does this have to do with Elizabeth Warren?

[bluewater]

6. Everything else notwithstanding, Russian Oligarch $2 BILLION, US Taxpayer $0

Did you bother to read the article? The author makes quite clear what the tie-in is:

What if, instead of doing this, New York had just bought a stake in the Nets itself, then sold the team after 10 years like Prokhorov did? I’ll tell you what would have happened: It would have $2 billion more than it does now, enough to, for example, cover several years’ worth of the budget shortfall that’s helping cripple New York

As it happens, “taxpayers getting a stake in the stuff their money is used to pay for” is one of the planks in Democratic presidential contender Elizabeth Warren’s “economic patriotism” plan. Here is the relevant section:

Taxpayers should be able to capture the upside of their research investments if they result in profitable enterprises. Like any investor, taxpayers should get a return on the risky investments they are making in R&D. That can take various forms. Taxpayers can: get an equity stake in any company that relies on intellectual property these investments create; retain royalties on publicly funded innovation or a golden-share of the patent revenue; or require the companies benefitting from publicly funded R&D to reinvest profits back into domestic production, R&D, and worker training programs, rather than into stock buybacks.

The link in the second sentence refers to the work of a woman named Mariana Mazzucato, who wrote a book called The Entrepreneurial State (published in the U.S. in 2015), which argues that modern capitalist systems are flawed because “the public sector socializes risks, while rewards are privatized” and suggests reforms that would help taxpayers capture some of the money that would otherwise go to corporations and their shareholders.

And that is what the Brooklyn Nets have to do with London-based Italian-American economist Mariana Mazzucato. Enjoy your weekend!

Warren makes a great point, the taxpayers should be able to capture at least some of the upside of their investments if they result in profitable enterprises.

[George II]

7. A loose connection at best, not "quite clear". The taxpayers who got "$0".....

...(which is false anyway) were NY STATE and NY CITY taxpayers, the money used to improve the neighborhood was STATE and CITY money, not Federal. Warren isn't running for Governor on NYS or Mayor of NYC.

So what Warren is talking about is irrelevant.

The author is simply looking at the sale of the team in a vacuum, with no regard to the economic benefit to the neighborhood, city, and state - the tax revenue generated by ticket sales, concessions, transportation, etc. etc. etc.

There's so much highly subjective and non-inclusive stuff in that article

[bluewater]

8. Sports, Jobs, & Taxes: Are New Stadiums Worth the Cost? Apparently not.

Why Cities Subsidize Sports

The economic rationale for cities’ willingness to subsidize sports facilities is revealed in the campaign slogan for a new stadium for the San Francisco 49ers: “Build the Stadium—Create the Jobs!” Proponents claim that sports facilities improve the local economy in four ways. First, building the facility creates construction jobs. Second, people who attend games or work for the team generate new spending in the community, expanding local employment. Third, a team attracts tourists and companies to the host city, further increasing local spending and jobs. Finally, all this new spending has a “multiplier effect” as increased local income causes still more new spending and job creation. Advocates argue that new stadiums spur so much economic growth that they are self-financing: subsidies are offset by revenues from ticket taxes, sales taxes on concessions and other spending outside the stadium, and property tax increases arising from the stadium’s economic impact.

Unfortunately, these arguments contain bad economic reasoning that leads to overstatement of the benefits of stadiums. Economic growth takes place when a community’s resources—people, capital investments, and natural resources like land—become more productive. Increased productivity can arise in two ways: from economically beneficial specialization by the community for the purpose of trading with other regions or from local value added that is higher than other uses of local workers, land, and investments. Building a stadium is good for the local economy only if a stadium is the most productive way to make capital investments and use its workers.

In our forthcoming Brookings book, Sports, Jobs, and Taxes, we and 15 collaborators examine the local economic development argument from all angles: case studies of the effect of specific facilities, as well as comparisons among cities and even neighborhoods that have and have not sunk hundreds of millions of dollars into sports development. In every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.

https://www.brookings.edu/articles/sports-jobs-taxes-are-new-stadiums-worth-the-cost/



So, Russian Oligarch profiting $1.5 BILLION off US taxpayers.

Not a good look.

[bluewater]

9. Sorry, but Russian Oligarchs profiting off US Taxpayers is not a good thing.

Warren is just right, the taxpayers should be able to capture at least some of the upside of their investments if they result in profitable enterprises.

Why anyone would want to defend a sweetheart deal for a Russian Oligarch escapes me.

[George II]

10. The arena is still in Brooklyn, the street and infrastructure improvements are still there....

...etc. The Russian sold the TEAM (which is still there), not the entities on which NYS and NYC spent money.

The arena and associated businesses will be earning money for the state and city for decades to come.

[bucolic_frolic]

12. Is this the arena with partly occluded sight lines for ice hockey?

How did they seize upscale neighborhoods by eminent domain? Paid them off I guess.

[bluewater]

13. ask Putin perhaps?

Why would anyone defend a sweetheart deal for a Russian Oligarch?

That really has me puzzled...





Vladimir Putin crashes during a hockey game Tuesday in Sochi, Russia.

But seriously, don't all these Russian Oligarchs kick money back up to Putin? Isn't that how an Oligarchy works?

[Clarity2]

5. I saw this on the local news

it was but a blip, and I was like wth? Didn't know a russian partly owned the Nets.

Not that I agree with the rational of Warren, but I do doubt he was “out of favor with Putin”. Sports teams can be a conduit for money laundering and illicit activity. https://www.fatf-gafi.org/media/fatf/documents/reports/ML%20through%20the%20Football%20Sector.pdf

Link source:
The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering and terrorist financing.

[bucolic_frolic]

11. I never do understand why government sell off such stakes, such as the stakes they owned in

Chrysler, GM. Like we don't want an untouchable endowment to support lean times? Many states have a rainy day fund.

But it becomes a political football. Republicans would forever campaign on raiding the fund for tax cuts (that go to themselves and citizens never see a dime, but I get ahead of myself).

Foreign governments of all political persuasions have Sovereign Funds - Norway, some of the Middle Eastern countries. Royalty has the same, often hundreds of years after they leave office.

Nah, bad idea. We gotta give it all to the gun lobby and the frackers.

[Sneederbunk]

14. Corrupt government officials live in the moment.

[rampartc]

15. a team the stadium's neighbors can't afford to watch

if the city had demanded a stake, the conservatives would have screamed bloody "socialism."

every bank and auto company bailed out in 2009 should have traded shares for the money and accepted a gov't appointee on their board.