As Kremlin Ties Turn Frosty, Oligarch Nets Owner Buys Up Brooklyn

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Mikhail Prokhorov.

Photographer: Rodolfo Molina/EB via Getty Images
  • Prokhorov’s media company drew Kremlin ire with coverage
  • U.S. share of billionaire’s holdings grows as Russia shrinks

On April 13, as his Brooklyn Nets were wrapping up a dismal season with a defeat at the hands of second-stringers from the Toronto Raptors -- their 61st loss in 82 games -- owner Mikhail Prokhorov left his box before the final buzzer sounded. That may have been the high point of his evening. 

Hours later, the Russian billionaire got word from staff in Moscow that masked agents of the Federal Security Service had raided the offices of his headquarters and other companies -- an apparent sign of dissatisfaction at the highest levels. 

Early the next morning, Prokhorov boarded his private jet for the nine-hour flight to Moscow.

Within weeks, top editors were gone from RBC, his media company, which had angered the Kremlin with investigative reports on the business interests of close relatives and friends of President Vladimir Putin. But the damage was done. Soon after, Prokhorov sold his main Russian holding, a $2 billion stake in a fertilizer company. The biggest of what remains, a $900 million holding in aluminum giant Rusal, is now on the block.

If that sale goes through, his most valuable investments would no longer be in Russia but in and around his adopted home, Brooklyn. In addition to the Nets and the Barclays Center arena, Prokhorov holds leases on several other entertainment venues there. The Bloomberg Billionaires Index estimates their value at $2.2 billion, while Prokhorov’s staff puts the figure at about $3 billion, according to two people close to the company. His remaining Russian assets -- some of which, like the Rusal stake, are likely to be sold -- are worth $2.3 billion, according to Bloomberg data. Another estimated $5.7 billion is in cash, those data show.

Prokhorov’s shift highlights the difficulty even the most experienced and powerful businessmen face in staying on the right side of the ever-changing line that the Kremlin defines as loyalty. Some billionaires, like Roman Abramovich and Mikhail Fridman, years ago pulled substantial holdings to Europe or the U.S., where the rules of the game are more predictable. Others, like oil tycoon Mikhail Khodorkovsky, have faced criminal charges in Russia and been forced to cede their assets to the state.

Such risks are a big reason why local businesses remain reluctant to commit capital even as President Vladimir Putin exhorts tycoons to invest to help revive the economy.

Uncertainty Rising

“Prokhorov has always stayed within the boundaries” and has benefited from his close ties to the authorities, said Gleb Pavlovsky, a former Kremlin adviser who now heads a political consultancy in Moscow. “But uncertainty is rising and that’s not Prokhorov’s element.”

Prokhorov declined to be interviewed for this article. Dmitry Razumov, the chief executive officer of his Onexim holding company, said in e-mailed comments the sales have long been in the works and that some proceeds will be invested in its Russian finance and energy businesses. “We have no plans to sell off all our Russian assets,” he said. “Quite the opposite is true.”

“Onexim’s current investment strategy is not about geography, but rather liquidity and maintaining a smart portfolio," Razumov said. The company’s focus is on assets where it has controlling stakes and a strong management role, he said. A spokeswoman said Prokhorov spends most of his time in Russia and doesn’t own a home in the U.S., staying in the Four Seasons hotel when he’s in New York.

Prokhorov Fortune

The Kremlin has said that neither he nor his companies have faced any pressure.

Prokhorov, 51, got his start in business selling jeans in the twilight of communism and built his fortune in the 1990s with Vladimir Potanin, an acquaintance who worked in foreign trade. The pair started a bank and later bought control of Arctic metals giant GMK Norilsk Nickel in a controversial privatization auction. 

The partnership ended bitterly in 2007 after Prokhorov was held on suspicion of facilitating prostitution during his lavish annual holiday party in the French Alpine resort of Courchevel. He and about two dozen guests were detained after early-morning raids at their luxury hotels and Prokhorov spent two nights in jail. He was never charged, but Potanin used the scandal to push to split their holdings. 

Norilsk Stake

Highlighting the Kremlin’s reach, Putin intervened at Prokhorov’s request when Potanin tried to force him to accept a knock-down price for his Norilsk Nickel stake, according to people involved in the talks. In the end, Prokhorov wound up with nearly $10 billion in cash and other assets after the split.

In 2010, Prokhorov, a 6-foot-8 basketball fanatic, bought an 80 percent stake in the Nets, becoming the first NBA owner from outside North America. Promising to bring the team to the championship within five years, he pumped money into new players -- and soon started hanging out with celebrities like Jay Z and Beyonce.

Back in Russia, he tried to keep in the Kremlin’s good graces. He moved his legal residence to a remote Siberian town so his hundreds of millions of dollars in tax payments would help the impoverished region. When the Kremlin was touting Russia’s high-tech prowess, he backed a hybrid-powered car. Putin took it for a test drive, but the project was later scrapped. He mounted a deliberately doomed presidential campaign that lent a much-needed veneer of competitiveness and legitimacy to Putin’s 2012 re-election.

“He thought he could play a good game,” said Yevgeny Chichvarkin, an acquaintance of Prokhorov who fled to London in 2008. “The Kremlin would like him and he’d get additional protection for his businesses.”

Media Missteps

But there was no way to get away from the risks of Russian business. The prominent journalists he’d installed in 2013 to turn money-losing RBC around started probing themes the Kremlin had made taboo: multibillion-ruble projects involving one of Putin’s daughters, deaths of Russian military personnel in the war in Ukraine and the wealth of Putin’s close friends.

Kremlin officials repeatedly told Prokhorov and the editors that they were crossing the line, according to people familiar with the conversations. Pro-government protesters marched outside RBC’s offices, denouncing staff as foreign agents.

By late last year, Prokhorov had concluded that it was too difficult to keep track of the Kremlin’s ever-changing rules for oligarch behavior and that only businessmen from Putin’s inner circle could succeed in Russia, according to people close to him.

Last December, Prokhorov invited Anton Krasovsky, who had served as his spokesman in the 2012 campaign, to visit his mansion outside Moscow. Showing off his private gym, the billionaire talked enthusiastically about the Nets but was downbeat about prospects in Russia, Krasovsky recalled. “He had had enough and wanted to get out,” Krasovsky said.

Brooklyn Expansion

Prokhorov’s Nets investment, together with the Barclays Center, which he also owns, has more than doubled in value since he made it, despite the team’s losing record. In December, he bought full control of the team and the arena. This year, he led a group that took over leases on Brooklyn’s Paramount Theater and the Nassau Coliseum on Long Island. New York Mayor Bill de Blasio attended the opening of a new Nets training center in February, praising the team’s commitment to the city.

Offshore Accounts

In April, RBC published revelations about offshore accounts leaked from a Panama law firm. Putin wasn’t mentioned, a point the Kremlin hit hard in its public statements, but RBC illustrated a front-page story about the leaks with a photo of the president. A state-television news anchor held up the edition and blasted RBC as “assistants” of the U.S. secret services.

Four days later, as Putin was speaking in public about easing regulatory pressure on business, agents of the Federal Security Service, the main successor of the KGB, swept into the offices of Prokhorov’s companies in Moscow, seeking evidence in a tax-evasion case that predated his ownership. The Kremlin denied any political motivation, but the message was clear. Privately, Kremlin officials say Prokhorov had crossed the line too many times, even after he’d been warned.

In July, the new editorial leadership at RBC -- brought in from the state news agency Tass -- gathered the staff and explained that journalists in Russia had to be careful to stay on the right side of “the double-yellow line” of what the Kremlin considers acceptable.

“Unfortunately, no one knows where the double-yellow line is,” the new editor said, according to a recording made by participants. “And unfortunately, in the current situation, it moves.” RBC declined to comment on the meeting.

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