Empire State of Mind

by Zack O'Malley Greenburg

  Jay-Z shrewdly entered into negotiations at a time when Ratner was desperate for a big splash to help his project overcome major political obstacles. Both knew that Jay-Z’s popularity could help the plans for a new arena gain momentum. “From the standpoint of political lobbying, having somebody of that celebrity value can be a difference maker,” says Paul Swangard, director of the University of Oregon’s Warsaw Sports Marketing Center. “Certainly a portion of the district in that area would be fans of Jay-Z, and if he were to endorse an issue that has some pretty big political ramifications, I think the political value of him being involved in this process is pretty substantial.”6 In addition, the rapper brought the Nets a glamour previously reserved for the team’s cross-river rival. If Jay-Z was able to launch his wildly successful S. Carter sneaker in partnership with Reebok—and not Nike—surely he could lend the same credibility to the Nets, who’d long taken a backseat to the New York Knicks. “People grew up on the Knicks,” Jay-Z explained. “The Nets have always been the cousins. I hope to change that.”7

  Jay-Z also had the potential to directly affect the makeup of the Nets through his relationship with one of basketball’s biggest stars: LeBron James. The two men became close during the summer of 2003, when James joined Jay-Z’s Entertainers Basketball Classic street basketball team. After evening games under the lights at Rucker Park in Harlem, James and the other players would head downtown to carouse their nights away as the guests of honor at Jay-Z’s brand-new 40/40 Club alongside the likes of Sean “Diddy” Combs and Beyoncé Knowles. Though James signed his rookie contract with the Cleveland Cavaliers that same year, his star-spangled summer certainly gave him a taste of what it might be like to play in New York. Ratner likely realized that James’s first contract expired at the end of the 2006-2007 season—right around the time the Brooklyn arena was initially scheduled to open8—and that Jay-Z might be able to help persuade the young star to become the centerpiece of the rejuvenated franchise.

  Having Jay-Z on board boosted the Nets’ chances of successfully moving to Brooklyn, winning over Knicks fans, and landing LeBron James. The rapper knew how to leverage this reality. Details of Jay-Z’s stake in the Nets were never officially disclosed, but New York newspapers did their requisite digging and came up with some numbers. The Daily News reported that Jay-Z invested $1 million in the team,9 while the Post pegged his holdings at 1.5 percent.10 The latter figure would put the value of Jay-Z’s stake in the $300 million team at $4.5 million. Though the two reports seem to contradict each other at first glance, they both make sense under one scenario: that Jay-Z invested $1 million and received a 1.5 percent stake worth $4.5 million, demanding a deep discount on his purchase because of everything that both he and Ratner knew he’d bring to the Nets.

  Publicly, Jay-Z disputes this notion. “Nobody gave me anything,” he declared in 2005. “I spent my money like everyone else, and I came in and added value.”11 The semantics of this statement are a bit tricky. It’s easy enough to believe that he didn’t get his stake for free, but just because he spent money doesn’t mean he didn’t get a discount. Celebrities often get sweetheart deals when buying stakes in professional sports teams, and failing to take advantage of an option like that just doesn’t fit with Jay-Z’s ruthless business instincts. “These deals can vary wildly in terms of celebrities paying full freight or not,” explains Kurt Badenhausen, a Forbes senior editor who specializes in team valuations. “Whether a celebrity is receiving some sort of perks or reciprocal arrangements, they sometimes get a discount on what a nonfamous investor might pay for their stake.”12

  In any case, Jay-Z wasn’t getting only a discounted rate. He was getting a discounted rate on an asset that was sure to dramatically increase in value with a move to Brooklyn. Badenhausen estimates that the Nets will be worth about $500 million once ensconced in the Barclays Center, nearly twice what the team was worth in New Jersey. When Jay-Z first bought into the team, he undoubtedly realized that his $1 million investment, already worth $4.5 million, was bound to swell to nearly $8 million within a matter of years. In effect, he received a virtually guaranteed eight-fold return on investment just for attaching his name to the Nets, plus a potential share of the hefty operating income thrown off by a successful basketball team in the nation’s largest market.

  Jay-Z stood to gain millions from his investment in the Nets, but his presence proved to be a boost to the team as well. A year after the sale was finalized, Ratner declared Jay-Z one of his five most active owners. In addition to consulting with Ratner and Nets CEO Brett Yormark on marketing issues and stadium design plans, the rapper released a Nets-themed remix of his song “Takeover” during the team’s 2005 playoff run. He and Beyoncé immediately became a courtside fixture at the Nets’ otherwise unsexy home games in the swamps of eastern New Jersey.13

  Jay-Z struck up a relationship with Frank Gehry shortly after both joined Ratner’s group. The physical evidence could be seen at Jay-Z’s old Def Jam office, where a two-foot-tall 3-D model of Gehry’s Atlantic Yards plan sat on a table, right beneath a picture of Jay-Z schmoozing with Prince Charles in London. Gehry also suggested to Jay-Z that James Joyce was the first rapper. “When I listen to the tapes of his voice doing Finnegans Wake, it sounds like rap,” Gehry noted. “He’s very fast with the Irish accent, it’s all slurred together, and it’s quite interesting. When I heard it I thought he was a rapper, and I sent them to Jay-Z because I thought he might like it.” (When Gehry mailed Jay-Z a heap of Joyce novels, the rapper politely explained that he reads only nonfiction.)14

  In his first summer as part-owner, Jay-Z flashed his talents as a recruiter. The Nets’ then-coach Lawrence Frank asked him to call All-Star Shareef Abdur-Rahim and sell the forward on coming to the Nets. Whatever Jay-Z said to him worked, and the Portland Trailblazers agreed to the parameters of a sign-and-trade deal. Though the agreement eventually fell through when a medical exam revealed issues with Abdur-Rahim’s knee,15 the episode gave Ratner a tantalizing taste of Jay-Z’s ability to persuade players to join the team—perhaps, someday, the mighty LeBron James.

  James wouldn’t become a free agent for years, but in the meantime, Ratner was growing increasingly appreciative of Jay-Z and everything he brought to the Nets, though he’d take a bit more time to warm up to the rapper’s music. “Someone in my office gave me the lyrics to one of his rap songs off the Internet and I said, ‘Oh my God,’ ” Ratner told the Daily News. “[But] any preconceived notion I had about rap artists—the lyrics made me wonder—changed . . . You could see right away, you spend ten minutes with [Jay-Z], he is a soft-spoken, mild-mannered, intelligent guy who really knows what is going on.”16

  Once the initial excitement over the Nets’ future dwindled, Ratner and Jay-Z began to face the reality of the team’s uncertain intermediate fate. With an eye toward their Brooklyn debut, the Nets traded star forward Kenyon Martin for three first-round draft picks in 2004. Already miffed by the team’s impending move, New Jersey fans stopped showing up to home games. As attendance declined, the Nets traded away more of their stars, and the cycle continued. Not even Jay-Z’s frequent courtside appearances and lyrical references (“Now we own a ball team, holla back!”) could generate enough excitement to keep people coming to the arena. Jason Kidd, the player who’d first suggested Jay-Z invest in the team, was sent packing in 2008. LeBron James signed a contract extension with the Cavaliers that kept him in Cleveland through the end of the 2009-2010 season, by which point the Nets were struggling to draw one thousand people to games at the nineteenthousand-seat Izod Center. The team finished the campaign with an abysmal record of twelve wins and seventy losses and ranked last among all NBA teams in attendance.17

  Meanwhile, the scheduled 2008 groundbreaking date for the Nets’ new Brooklyn home had long since passed. Ratner’s plan was bogged down with lawsuits from angry residents, including a group called Develop—Don’t Destroy Brooklyn. By the time legal challenges filed against the development stalled the arena’s const
ruction, Ratner’s crews had already knocked down twenty-six buildings. While lawyers battled over the project’s fate, the gash in the neighborhood’s urban fabric lingered, further angering residents.18

  Though the Nets secured a twenty-year, $400-million naming rights deal with Barclays in 2007, the following year’s recession came at the worst possible time for Ratner’s group. The Nets were now losing about $25 million to $30 million per year in New Jersey, and Atlantic Yards’s construction costs had doubled to nearly $1 billion. If Ratner couldn’t scare up the financing for the arena, he risked losing the rights to develop the property.

  “I would bet if you started back in ’03 and somebody told him how long this would be and how expensive the fight would be, his stockholders, partners, whatever they are, and even probably him, would say, ‘You know, if you really costed it all out, you won’t make money and you shouldn’t do it,’ ” Mayor Bloomberg told the Wall Street Journal in 2010. “He’s had some very difficult times. He’s had to invest an awful lot more at less desirable terms than what the original business model said.”19

  To save his project, Ratner had to make some major concessions. Given the ballooning costs of Atlantic Yards and relative lack of financing available, he decided to abandon Gehry’s extravagant plan and shift to a scaled-back version. He also reworked his agreement with New York’s Metropolitan Transit Authority, replacing the scheduled $100 million purchase of the Atlantic Yards site with a series of payments that would cost him more over time. By 2009, he still faced a $300 million financing gap at a time when credit was scarce and investors scarcer. Ratner needed somebody even wealthier than Jay-Z, and fortunately he found one: Russian billionaire Mikhail Prokhorov.

  An eccentric six-foot-eight-inch metals baron, Prokhorov spent his leisure time kickboxing and buying up distressed assets—like the Nets—with the $10 billion fortune he’d amassed by 2009.20 That July, he met with Ratner to discuss the possibility of buying the team. Within two weeks, the pair had settled on the outlines of the deal, which was finalized nearly a year later. The arrangement called for Prokhorov to pay $200 million for an 80 percent stake in the Nets, a 45 percent share of the stadium, and an option to buy 20 percent of the surrounding real estate projects that Ratner would stay on to develop.21 Part of the reason Prokhorov was so eager to become majority owner of the Nets was the opportunity to partner with Jay-Z. Shortly after finalizing his purchase, the mining tycoon met Jay-Z and said he felt lucky to be working with him. “Despite the fact that I am very far from the rap music, we have a lot in common,” he said. “I share his passion for Brooklyn.”22

  Prokhorov also knew of Jay-Z’s value as a recruiter heading into the summer of 2010, when arguably the best crop of free agents in NBA history would become available. The class included guard Dwyane Wade, the league’s 2008-2009 scoring champ, as well as power forwards Chris Bosh and Amar’e Stoudemire, both five-time All-Stars. The ultimate prize, however, was LeBron James. Just twenty-five years old, he was entering that golden moment of an athlete’s career where a lack of experience no longer inhibits performance and age hasn’t yet begun to do so. During the 2009-2010 season, James averaged nearly thirty points per game and led the Cavaliers to the best record in the Eastern Conference for the second year in a row. Without a strong cast of players around him, however, he was unable to carry his team to the finals; the Cavaliers fell to the Boston Celtics in the semifinal round of the NBA playoffs.

  Teams were allowed to start negotiating with players on July 1, 2010, but the frenzy began well before the first day of free agency. In Cleveland, a host of local personalities got together to record a video entitled “We Are LeBron,” while fans in Los Angeles planned a parade in James’s honor. Even Mayor Bloomberg weighed in. “LeBron James would love living in New York,” he said. “It is the world’s greatest stage.”23 The teams themselves had started preparing for the LeBron sweepstakes years in advance. Both the Nets and the Knicks had cleared enough room under the NBA’s salary cap to offer two league-maximum contracts. The Miami Heat, Chicago Bulls, and Los Angeles Clippers also had the ability to sign James to a maximum deal and bring in another high-profile free agent to play alongside him. James’s hometown Cavaliers, meanwhile, didn’t have the cap space to bring in another star, but NBA rules allowed them to offer James a more lucrative contract than any other team.

  Though Mikhail Prokhorov was the newcomer at this particular party, he was quick to give the basketball world—especially the Knicks—a taste of Russian diplomacy. Just days before the free agent signing period began, Prokhorov commissioned a 225-foot-tall mural across the street from Madison Square Garden. The advertisement featured the billionaire standing side-by-side with Jay-Z, with the motto “The Blueprint for Greatness” emblazoned above.24 “I think Jay and I look really great, and I am looking into the possibility of buying this building and having it shipped back to Moscow,” Prokhorov quipped. “I want to put it across the Red Square near the Kremlin.”25

  Days later, the Nets showed up their rivals once again. LeBron James invited Prokhorov and Jay-Z to Cleveland to court him first, before Knicks owner James Dolan and his crew. When reporters following Dolan’s car caught sight of the Nets’ delegation, they abandoned Dolan and chased after Prokhorov and Jay-Z. The day’s events prompted New York’s Daily News to declare that Dolan was “playing secondfiddle to his cross-river rivals.”26 It seemed the Nets were no longer the cousins.

  During the following week, the LeBron James story exploded into a national obsession. Though the Nets may have appeared to be his most likely destination on day one, the following day’s reports had him going to Chicago; after that, Miami, with sports media outlets across the country weighing in on every rumor. When James scheduled a press conference for July 8 in Greenwich, Connecticut, the focus briefly shifted back to the Knicks. On Wall Street, trading of Madison Square Garden, Inc. stock options surged to a record high.27

  By the time James arrived in Greenwich to announce his decision, fans across the country were in hysterics. Millions tuned in to ESPN’s exclusive broadcast at 9 p.m. Eastern Time to watch the drama unfold. After nearly a half hour of beating around the proverbial bush, James revealed his plans. “This fall,” he said nervously, “I’m going to take my talents to South Beach and join the Miami Heat.” When asked why he made his choice, he responded, “I think the major factor, the major reason, in my decision was the best opportunity to win, and to win now and to win into the future.”28

  Indeed, heading to Miami offered James the best chance to win—he made his decision after the summer’s two other premier free agents, Dwyane Wade and Chris Bosh, signed with the Heat. While Jay-Z and Prokhorov were disappointed, it was clear that Miami offered something they couldn’t. Wisely, they refused to drown their sorrows by signing second-tier free agents to maximum contracts, as pundits suggested the Knicks did by signing Stoudemire. “We put on the list three top players,” said Prokhorov. “They had the decision to move to Miami. As far as other top players are concerned, they are really good, but we didn’t plan to put them on the roster because they are very good, but not good enough to make a championship for our team. . . . Be patient. . . . Support our team. We will win for sure.”29

  Prokhorov, Jay-Z, and the Nets may have missed out on the prize of the 2009-2010 free agent class, but they forced their way into the conversation for the first time in years. As the move to Brooklyn draws nearer, the team’s appeal will only increase—thanks to the prospect of rising ticket sales and concession stand revenues—as will the value of Jay-Z’s $1 million investment. Already worth $4.5 million, it could rise well beyond the $8 million predicted earlier in this chapter if the Nets’ young core of players develops into a cast of All-Stars, or if the team lands one of the marquee free agents set to hit the market in coming years.

  Pleasant as those options sound, there’s still a chance that the Nets’ grandest plan may yet work. LeBron James’s contract with the Miami Heat includes an escape clause that w
ould allow him to become a free agent again in 2014,30 shortly after the Nets move to Brooklyn. Once the new arena is complete, Jay-Z might have more luck convincing his pal to switch sides—and at least one prominent Brooklynite believes that’s exactly what will happen.

  “LeBron James has worked hard in Cleveland,” explained Borough President Markowitz the day after James signed with Miami. “So maybe he needs this vacation in Florida before he moves on to reach his professional zenith—a championship dynasty in Brooklyn.”31

  10

  Who Killed the Jay-Z Jeep?

  On a lazy Monday morning a few days before Christmas, I’m on the phone with Detroit-based marketing guru Michael Berrin, and I’m beginning to think I need another cup of coffee. In a prior life, Berrin performed as rapper MC Serch; friends still call him Serch. He’s known Jay-Z since the mogul was a lanky teenager rapping for room and board on Big Daddy Kane’s tour bus. Thus far in our conversation, Serch, who admits he’s prone to going off on tangents, is mostly telling tales about hip-hop in the late 1980s and how fantastic it was to rap with Tupac Shakur before he was famous. The stories are fascinating, but I’m beginning to wonder if I’ll hear anything about Jay-Z and his business savvy.

  After Serch pauses to thank his wife for picking up bagels, the conversation shifts to the auto industry. He launches into a diatribe about what’s wrong with Detroit—an ambitious topic for an hour-long conversation—and my eyes drift away from my computer screen toward the window. My fire escape is barely visible beneath a foot of snow, still plump and pale three days after a blizzard blew through New York. I briefly feel myself starting to reconsider global warming. Suddenly, Serch mentions Jay-Z’s name, snapping me from my reverie.

  “That deal was the most fucked-up deal that I’ve ever seen or heard of,” he says. “I came to Jay with the automobile industry in my back pocket to do a Shawn Carter edition vehicle that he approved, only to have the automobile industry basically shoot it down for fear that he was a bigger star than the car.”