The Slatest

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

Warren is depicted speaking while holding a microphone side by side with a picture of Prokhorov at a press conference.
Elizabeth Warren, Mikhail Prokhorov.
Photo illustration by Slate. Photos by Joseph Prezioso/AFP/Getty Images and Alex Goodlett/Getty Images.

Here is some news out of the world of professional basketball that has some relevance, if you can follow me for a second, to the presidential election: 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.

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.

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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!