The N.B.A.’s Oligarch and His Power Games
The Prokhorov Effect
“Pretend you are putting a gun against my back,” said the Russian billionaire. We were standing in a small training room on the third floor of his house outside Moscow. Suddenly he pivoted, and any ideas I had of sprinting off with his wallet went poof. His loaded foot was poised to crush my knee. You had to wonder, Did he really need the full security detail that followed his chauffeured Mercedes around Moscow in a Land Rover?
The key was that your body had to be relaxed, he said. Not rigid. Not tense.
“You have to be soft.”
“You could have broken my leg.”
“Yes,” he said, “but in a very soft manner.”
YOU MIGHT THINK that Mikhail Prokhorov would have had a not-so-soft case of buyer’s remorse this past spring. Last year, a month before the start of the National Basketball Association season, the 45-year-old Russian billionaire struck a deal to buy the New Jersey Nets from the real estate developer Bruce C. Ratner, who had owned the team since 2004. The price was $200 million for 80 percent of the franchise and 45 percent of the long-delayed Barclays Center arena in Brooklyn, where the Nets will play beginning in 2012. Prokhorov also agreed to cover some $60 million in operational costs and 80 percent of $207 million in debt. When the league owners finally ratified the sale eight months later, in May of this year, the Nets record stood at 12 wins and 70 losses, and Prokhorov’s shiny new team was the laughingstock of the N.B.A.
It was hard to count the low points. Coach Lawrence Frank was fired during the 0-for-18 start. At a snowy night game against the Milwaukee Bucks in February, when the Nets’ record stood at 4 and 47, there were nearly 19,000 empty seats in the Izod Center. By midseason, TV ratings had plunged 45 percent and were the lowest in the league. The franchise that once played to big crowds and made back-to-back trips to the N.B.A. finals in 2002 and 2003 had traded away its stars but was still bleeding $15 million a year. Management was downgrading to cheaper hotels; employees were forgoing pay on Friday furloughs. There wasn’t a budget for the normal complement of secretaries, scouts, videographers or even, at what would seem just the time the organization could have used one, a sports psychologist.
The season probably hit bottom when the Nets’ C.E.O. got into a shouting match with a fan who was wearing a paper bag over his head. Only a few late wins saved the franchise from the all-time N.B.A. record for ineptitude.
All of which might have dampened the spirits of another man making his debut as the first foreign owner in the N.B.A. But Prokhorov couldn’t have been happier, and not because he had just been on vacation in the Maldives, where he spent many hours doing back flips on one of his 20 customized freestyle Rickter water skis. To be sure, he wasn’t gambling with the grocery money. What he paid for the team was less than what he paid the Russian government in taxes last year. And his stake in the Barclays Center was potentially even more valuable than the 12-and-70 flea circus. It’s generally agreed that if you’re going to turn around a team, start with one that has been stripped to the bone after a cathartically bad year rather than a middling franchise hamstrung by contracts with so-so players. Much of the $17.8 billion fortune that made Prokhorov the second-richest man in Russia came from unlocking the value of assets vastly more distressed than the Mess in the Meadowlands. In his view, the laughingstocks had nowhere to go but up.
“Management skills can make a real difference,” he told me one afternoon last August in his Moscow office not far from Pushkin Square. “We’ll see how mine work out in five years.”
For Nets fans, the arrival of a 6-foot-8-inch bachelor billionaire, last seen on “60 Minutes” bantering with models in a Moscow disco and brandishing a Kalashnikov at home, seemed too good to be true. Prokhorov had invited anyone who couldn’t manage the rasp in the middle of “Mikhail” to call him Mike, but on NetsDaily, the premier Nets fan Web site, he quickly emerged as “Proky.” Proky was the sweet sound of salvation. The Web site editor (a 65-year-old New York-based television producer anxious to keep his old- and new-media identities separate) coined a phrase for the euphoria coursing through reader comments: the Prokhorov Effect.
Proky is definitely awesome./Our time has arrived./It's a miracle!/Wow . . . look at how hot his secretary is.
Prokhorov himself seemed a bit stunned by the Prokhorov Effect and his transformative American summer. “Nobody was interested in me before I bought the Nets,” he said, depreciating what had been a rather brilliant ability to hide in plain sight, working in the background while his former partner, Vladimir Potanin, worked out front. The revelry began in May, when he flew to New York in his Gulfstream: a Gracie Mansion breakfast with Mayor Bloomberg and the rap star and Nets shareholder Jay-Z; some English Breakfast tea with a Brooklyn blogger at the Clover Club in Carroll Gardens; a tour of Yankee Stadium; a catechism on WFAN with the pontiff of New York radio sports talk, Mike Francesa, during which Prokhorov compared his divorce from Potanin to Francesa’s parting of the ways with his former co-host, Chris (Mad Dog) Russo.
In his life pre-Nets, when he gave the occasional interview to business reporters, Prokhorov had the media skills of a cyborg. Knowing what was at stake as the new face of the team — sponsorships, tickets, public goodwill, a potential business empire in the West — he worked hard to show more of his personality. He watched Katie Couric’s interview with Sarah Palin for lessons in what not to do on camera. He strapped on a surgical mask in a training session that clarified the power of eye contact. The work all coalesced at his laugh-fest of a debut press conference in the Cosmopolitan Suite of the Four Seasons Hotel. “America, I come in peace,” he said with the accent of a baddie in a Bond flick. There were awkward moments — irony and comic timing aren’t second nature in a second language — but Prokhorov came across as charming, shrewd and, for an N.B.A. owner, insanely colorful. “Mikhail is right up there with the most flamboyant owners the league has ever had,” says Commissioner David Stern.
Back again in June, he met his newly hired coach, Avery Johnson and sat with him courtside at the TD Garden for the fifth game of the N.B.A. finals. Two weeks later, another trans-Atlantic flight as Prokhorov led the Nets delegation bidding for the free agent forward LeBron James in Akron, Ohio. Meanwhile the marketing department plastered Prokhorov and Jay-Z’s picture on a giant billboard across the street from the Knicks’ home at Madison Square Garden.
“I am looking at the possibility of buying this building and having it shipped back to Moscow and put up on Red Square,” Prokhorov said in mid-July during his fourth trip to the U.S. in three months. He toured the Nets’ temporary quarters at the Prudential Center in Newark and sat for another round of questions from still-seemingly-stumped Nets beat writers, who stared at the new owner as at a math problem from a class they’d missed. Having air-balled on the year’s top free agents, Prokhorov announced the Nets’ “strategy” had shifted to “Plan B,” with Plans C and D already lined up if B bombed. The goal was still to build a championship club within five years. If the Nets didn’t win, the bachelor billionaire said the responsibility would be on him, and he would punish himself accordingly — perhaps by getting married.
"Welcome to My Bachelor Pad"
Although Prokhorov’s official residence is a village in the Krasnoyarsk region of Siberia, where he pays upward of $500 million a year in taxes, he lives in Skolkovo, 45 minutes north of Moscow, in a sprawling 21,500-square-foot house he finished building six years ago. One wing is occupied by his older sister and only sibling, Irina, who heads Prokhorov’s charitable foundation, edits three literary journals and runs a publishing company that puts out about 90 books a year.
Prokhorov invited a photographer and me to lunch one afternoon last July. Moscow had been in the grip of the hottest weather in 130 years, and the air was seared with the smell of forest fires. We produced our passports for a guard at a well-fortified gate, went up a hill on a winding drive shaded by birch and evergreens and got out under a portico.
Inside, the black marble foyer opened onto a large living room that had the feel of a boutique hotel: dark wood floors, neutral rugs, boxy tan chairs and white-pillow couches, and for a studied touch of whimsy, some gilded cellos encased in plexiglass.
“Welcome to my bachelor pad!” Prokhorov said, bounding down the staircase. He had just finished his daily two-hour workout and was still dressed in sweat pants and a gray T-shirt. He shepherded us into the dining room. He seemed curiously uninvolved in the décor of his house, passing it off as the handiwork of his decorator. Clothes, furniture, art, books elicited no strong feelings, he said. At a party for Snob, a lavish magazine for Russian cosmopolites that is one of a group of media properties in which he is investing $150 million, he told Masha Gessen, the deputy editor: “I don’t read.” (“Then I guess we can write whatever we want!” she replied.)
What he does care about is food. He is old enough to remember the Soviet era of barren shelves, rotten vegetables and his mother waiting in long queues to buy whatever was available. After food come work, sports and women, more or less in that order. That Prokhorov knows what he likes can be illustrated by an epic showdown he once had when he was 8 over some cottage cheese his mother wanted him to eat. It just didn’t taste right. He sat for 12 hours in the kitchen with his teeth clamped, then five more the next day. Finally his father said the hell with it. Along the same self-certain lines, it took only a drop for him to know he didn’t like vodka; he insists he’s never had so much as a glass of the stuff. He employs two cooks, both from the Caucasuses. They remained in the kitchen while the house wait staff brought out communal platters of lamb; couscous; meat-filled dumplings called khinkali; khachapuri or cheese bread; and the exceptionally delicious endangered Armenian trout from Lake Sevan known as ishkhan, which is illegal to fish commercially but can apparently be bought legally in Moscow.
After tea, Prokhorov took us downstairs to his stainless-steel swimming pool and his weight room, and then through his wine cellar stocked with first-growth reds from Bordeaux and grand-cru whites from Burgundy from all the best years in formats no smaller than magnums. The photographer wanted a picture of him cradling a big bottle. “It’s my baby!” he joked, but the Bordeaux in his arms was not Pétrus or Latour; it was a jeroboam of Duhart-Milon, which in his cellar was like finding a Ford Fiesta in a garage of Ferraris.
“What’s that doing in here?”
“It was a gift.”
We rode the elevator up two flights to his library, where his Kalashnikov (a gift from Russian special forces in thanks for his financial support) was resting on a windowsill. He brought out a basket of three solid gold eggs nestled in excelsior, each weighing about a pound. Also a gift, for his birthday.
On the top floor above us was another little workout room where he followed a regimen of simple but gallingly difficult exercises. Throw a tennis ball over your head, catch it behind your back without looking. Drop two tennis balls with your wrists crossed, catch them with the cross of your wrists reversed. Jump onto a volleyball and balance.
We went up to the room later, and he ran through the exercises, a blur of darting hands and blind catches. He jumped onto a volleyball and balanced as deftly as a seal in a circus. He had the quickness of a mongoose in the body of a giraffe.
“You can’t try too hard,” he said, handing me a couple of tennis balls. “You have to relax. It has to be soft.” The passport in my shirt pocket was soaked in minutes. “Soft,” he said as the balls I fumbled pinged and ponged around the room. One of Prokhorov’s main sports is kickboxing, and the reason he prefers baggy Brioni suits to more tailored ones is that he doesn’t want his business costume to keep him from putting his foot over his head, not that he routinely has cause to. He demonstrated some kickboxing moves that made use of what he’d been rehearsing with the tennis balls.
And then he showed me how softly he could break my leg if I came up behind him with a gun or bolted for the gate with the 60 grand of golden eggs.
The part of the afternoon we didn’t devote to disabling journalists and tweaking hand-eye skills we passed in the library paging through leatherbound books of Prokhorov family pictures. His boyhood in Moscow, his scout camp, the pirate outfit on Neptune Day, the sneakers he still remembered buying for 4 rubles 12 kopeks. His parents, Tamara and Dmitry, and their 500-square-foot apartment on Kibalchicha Street on the north side of Moscow. Prokhorov was 23 when his father died of a heart attack at 59; his mother went 11 months later, of heart failure; she was 58. Long after he had the means to provide himself with any sort of house he wished, Prokhorov stayed on in that cramped two-bedroom apartment where he lived with his parents. His sister, Irina, moved back in with her daughter after her divorce.
Now that he had the run of a mansion designed to his specifications, I wondered if there was anything he hadn’t thought of. One thing, he said. In the old place he used to get up in the morning and pad into the kitchen to fix some sweetened black tea and slices of kolbasa, the proletarian Soviet sausage. It used to be four steps from the pillow to the kettle. Now it was a new Russian mile from his bedroom on the second floor to the distant kitchen on the first.
Prokhorov belongs, according to his sister, to a uniquely fortunate generation: the last educated under the old order and the first to capitalize on the opportunities of the post-Soviet system. “His generation was very lucky,” Irina said over supper one September night in Moscow. Nine years older than her brother, she had just enough distance to appreciate the history he and his cohort missed. “On one hand they received a good education from the Soviet system, and on the other they were generally ignorant of the repression; they never had a chance to become used to it. They were the beneficiaries of the atmosphere of joy and creativity that came with perestroika.”
Prokhorov was born May 3, 1965, with his mother’s eyes and dark hair. The height that was apparent in kindergarten when he was a head taller than his classmates came from both sides of the family. The first 10 years the Prokhorovs lived in an apartment known as a khruschoba, a play on the Russian word for “slum” and the surname of Premier Nikita Khrushchev. Prokhorov’s parents were both professionals. Dmitry grew up in Siberia, one of eight kids. The family were kulaks, relatively wealthy peasant farmers who were persecuted as class enemies under the Bolsheviks and again under Stalin. Dmitry’s father lost everything and was forced to flee from one part of Siberia and restart life in another.
“Our grandmother and her eight children lived in huge poverty,” Irina said. “My father never told me about the persecution until the late 1970s. He said, ‘I didn’t want to risk anyone finding out.’ Both my parents were terrified to tell a political joke. Mikhail and I were much more liberal-talking on the telephone, and my mother would often say, ‘Stop it!’ ”
Dmitry made his way to Moscow to study law and eventually became the head of the international department of the Soviet Sports Committee, which gave him the rare privilege of traveling abroad. Even the most humble airport souvenirs were prized as talismans of the West. A schoolmate of Prokhorov’s recalled a day when they were in 10th grade and “Misha,” as he called him, pulled him under a desk to show him a can of some exotic stuff called iced tea — what a bizarre idea! “And then he said, ‘You want to try Toblerone?’ ”
“Our father was a really brilliant man,” Irina said. “I think my brother inherited from him the faculties of memory, imagination and audacity — all virtues that were useless under the Soviet system. My father was more or less successful, but I remember his bitter remarks when he came back from trips abroad. He could see the difference between the life in the West and how we lived.” (In the late 1950s, Irina said, Dmitry was invited to join the KGB but declined when Tamara threatened to leave him.) Prokhorov’s mother grew up in Moscow and worked as an engineer for a university research group specializing in plastics. Prokhorov’s maternal grandmother, Anna Belkina, was a prominent microbiologist who during the war stayed in Moscow to make vaccines while Tamara was moved east to safety. Belkina was Jewish but avoided the fate of many of her colleagues who were fined, exiled or killed during the tide of anti-Semitism that swept through Soviet society after World War II. Though she wrote two doctoral theses, she was denied a chance to defend them and never got a Ph.D. She went to sleep every night with a bag packed, expecting to be arrested before morning.
“We lived with great contradictions,” Prokhorov said. “There was the public need to support the regime, and then there was the private life in the kitchen, where we listened to Voice of America on the radio, and read forbidden books and had discussions in a very soft manner about all sorts of things. I learned from both my parents that you had to be clever. They could think in a different way, but they made their views very soft. When you are 12 or 14, it’s not easy to feel the limits of what you are allowed to say or do.”
IN 1975 THE FAMILY moved to an apartment in a housing bloc of 14-story buildings on Kibalchicha Street on the north side of Moscow. A couple of days after our lunch, Prokhorov showed me the place, which remains much as it was six years ago when he moved out. The linden tree out front reached nearly to his old balcony now, but the dismal aesthetic of the Soviet era, still legible in the pitted concrete stairs and dimly lighted hallways, was unchanged. Prokhorov had to duck not to conk his head on the concrete rafters.
Inside he began rummaging through closets and drawers. Here was a four-inch nail a strongman friend of the family had bent in half; a boomerang from Australia; a Sharp double tape deck for the whole family that Prokhorov eventually “privatized.” A hall shelf was filled with books on physics, finance, and bound leather editions of classic writers like Balzac, Chekhov and Dickens. In his boyhood room were VCR tapes of Rambo (“I love Rambo — every five or seven years I watch it again”) and hockey photo books and chess manuals. Prokhorov was a gifted chess player, trouncing all the grown-ups on the beach during a family vacation to the Baltic Sea when he was 6, but he gave the game up, preferring hockey and soccer and sports where he could “feel the pulse of the opponent.” His bedroom wasn’t much bigger than a shoebox, with barely enough space for the extra long bed. His father was in charge of ordering supersize beds for the basketball athletes competing in the 1980 Summer Olympics in Moscow and added one for his son. When Mikhail was older and wanted a girlfriend to stay over, he had to set up a cot.
We ended up in the kitchen, four steps from the bedroom and barely larger. “When my parents had parties, there would be 20 people packed in here, standing, sitting, moving, talking all the time. We didn’t have a country house or a car. There was nothing to buy. We had parties.”
At 17, Prokhorov entered the prestigious and competitive Finance Academy, which was then known as the Moscow Finance Institute. There he met Alexander Khloponin, who would become his “ best friend” and who now works for the Russian Federation as a deputy prime minister and presidential envoy to the North Caucasus. After a year Prokhorov took a break from his studies for compulsory service in the Soviet Army. He served two years, often scrounging for wild mushrooms, which made the grim army porridge taste like risotto. Military service for college students was a new policy, and in the view of Mikhail A. Eskindarov, then the dean of the department of international economic relations, a key to the camaraderie and leadership skills of what would become one of the academy’s most distinguished classes, the Russian financial equivalent of last summer’s free-agent crop in the N.B.A.
“What was that miracle?” Eskindarov said one day last month in his office at the academy, where he is now the rector. “I believe army service brought those people together. They were physically strong; they got to be good leaders. They also all became candidates for the Communist Party. We don’t remember it now, but being a member of the Communist Party gave us discipline. We believed we were going to build socialism.”
The class was also uniquely positioned to understand how the party’s ideology was failing economically. Prokhorov was demobilized in 1985, the year the reforms of perestroika were introduced. To earn money, he worked unloading bags of cement from railroad cars north of Moscow. Cement paid 50 rubles per person per car, more than any other rail freight. When the laws changed, he could deliver the cement as well, earning as much as 400 rubles a day, more than teachers at the Finance Institute earned in a month.
He returned to his education in the fall of 1986; he studied under professors who had worked in foreign banks and understood capital formation, free markets and the increasingly conspicuous inefficiencies of the command economy. In 1988, still in college, he started a business stonewashing blue jeans. The company was called Regina, after the wife of a partner. He would buy jeans for 1 ruble, treat them with a mix of clay and pumice in a laundry on the outskirts of Moscow and then sell the pants to retailers for 15 rubles each. Khloponin was among his first employees. The company eventually grew to more than 300 workers. The profits enabled Prokhorov to buy a car, a humble Lada. “It was another level of life,” he said. “It freed me from the metro. I could invite a girl out and drive her to one of the small private restaurants.”
The Lada was not a big car, however, and Prokhorov was not a small driver. “My mother and I watched him get into the car from the window,” Irina recalled. “It involved a special procedure. We were laughing so hard. I shouted down to him, ‘Misha, where are your knees?’ He looked like a grasshopper.”
In 1988, his senior year at the Finance Institute, he joined the Communist Party and participated in the Communist Union of Youth (or Komsomol) programs. He was dispatched with other young party members and students to help farmers in rural Russia harvest potatoes. In Astrakhan he was in charge of the student brigade that harvested watermelons. Given he was getting a festive 15 to 1 return on his capital as the owner of a private jeans company, the paradoxes of party membership were not lost on him. I asked him why he joined.
“To resist capitalism!” he said. “It’s a joke of course.”
But a joke consonant with a certain personal caution, a way of covering bets. His professed love of risk was tempered by an aversion to recklessness. The party in late 1980s was still an inside track. Its auspices gave him the chance to travel a bit — he took a Komsomol trip to Czechoslovakia — but the whole edifice was crumbling; unimaginable changes were just around the bend. In 1989, the year he graduated, the Berlin Wall came down. It pains both brother and sister that their parents did not live to see the new Russian revolution. “My father once told me the worst thing he hated was laziness,” Prokhorov said. “He was a passionate worker, but we lived in a very limited society.” Beside the kitchen door was a little bell that once summoned them all to dinner. A thousand parties had come and gone. Unlike Irina, who finds it hard to visit the old family rooms, Prokhorov said he felt no nostalgia for the past. Still, he looked around the kitchen as if he were searching for something, and then at length said: “Even before my parents died, I felt all the responsibility to my family. I don’t know why. In any business, any relationship, if something goes wrong, I feel I am to blame. It’s something inside me.”
The Richest Man in Russia
It was as a banker during the tumultuous privatizations of Soviet state industries in the 1990s that Prokhorov began building his fortune. And it was as a metals-and-mining magnate in one of the most hellish places on earth that he made his name a decade later as one of Russia’s richest men.
From the Moscow Finance Institute, Prokhorov went to work at the International Bank for Economic Cooperation, or IBEC, based in Moscow and set up to handle the foreign trade accounts of 10 Communist states. He was in charge of international finance at the bank when, in March 1991, his friend Khloponin introduced him to Vladimir Potanin, a former bureaucrat from the Ministry of Foreign Trade who the year before started a private foreign trade company called Interros with about $10,000 raised from Soviet trade organizations eager to make deals. Potanin was four years older than Prokhorov. He had lived abroad, was fluent in English and French and had political connections that would prove invaluable.
As the Soviet Union unraveled in the summer of 1991, state-owned enterprises exporting goods to the West lacked a banking system for credit and currency exchange. With Prokhorov as an equal partner, Potanin created MFK bank in 1992, one of the first private banks in post-Soviet Russia. As the journalist David Hoffman recounts in his book, “The Oligarchs,” a number of Eastern-bloc countries were unable to repay loans, and IBEC was in trouble. Letters went out from IBEC’s management to clients in Russia suggesting that they shift their deposits to the safe harbor of MFK. “Potanin appears to have effectively taken the deposits and assets away from the troubled state bank, while leaving behind the debts,” Hoffman wrote. “Potanin inherited a $300 million windfall over a six-month period.”
A year later Potanin and Prokhorov opened the United Export Import Bank, or Uneximbank, with Potanin as the president and the public face, and Prokhorov as the chairman of the management board. With inflation running high, it wasn’t hard to make money converting rubles to dollars and dollars back to rubles. The bank amassed more than $2 billion in assets by the end of 1994. In 1995 Potanin devised the notorious scheme known as “loans for shares” that made him and his partner billionaires. Boris Yeltsin’s government was desperate for cash. There was no money for salaries, pensions, health care, military expenditures. Inflation was running at more than 200 percent, elections were looming and the resurgent Communist Party was poised to retake the country. The whole experiment with free markets and democracy seemed to be hanging in the balance. It was Potanin’s idea that Russia’s major banks make loans to the government (which no one expected it to be able to repay), to be secured with shares in the country’s state-run giant oil, metal and telephone companies. And so, the legacy assets of the defunct Soviet state were auctioned off for a fraction of their intrinsic value and transferred to a handful of banks controlled by men who came to be known as “the oligarchs.”
Uneximbank ran the auction for a 38 percent stake of Norilsk Nickel, the giant mining-and-metallurgical complex in northern Siberia that at the time was booking a profit of around $400 million a year and had $2 billion of debt. The mining company was already a client of the bank. On a technicality Uneximbank rejected a bid for twice as much from a rival bank and awarded the shares to one of its own subsidiaries with an offer barely above the preset reserve of $170 million. The bank’s subsidiaries also “won” loans-for-shares auctions for a controlling stake in Russia’s fifth-largest oil company, Sidanko, shipping companies and other concerns. After two years of nominal control, Uneximbank in August 1997 took the shares it had been holding as collateral for the unrepaid loans and sold them for $270 million to a subsidiary, Swift, thus gaining outright ownership of Russia’s largest producer of nonferrous metals.
“It was bad,” Potanin acknowledged to The New York Times three years later. “The prices were cheap. . . . But it did solve the problem of having more efficient owners.” Potanin was the public face of the scheme, with the political connections to make it happen, and he always appears on the now-canonical list of the era’s oligarchs, whereas Prokhorov, who worked behind the scenes and professed little interest in politics but benefited just as much, does not. I asked Prokhorov last month how, with 15 years of hindsight, he viewed the program that a 1999 article in this magazine said was “almost universally [regarded] as an act of colossal criminality.”
“Was it fair or not fair?” he asked. “Should you keep the profits or not? I can’t really be neutral, of course, but when we bought Norilsk Nickel, and also Sidanko, we met with more than 20 investors public and private. No one wanted to take the risk. People hadn’t received their salaries for a half a year. We bid $170 million for the right to manage Norilsk and then we invested $300 million in the company and another $100 million to buy the shares outright.”
Uneximbank’s stake in Norilsk Nickel was Prokhorov and Potanin’s most valuable asset, and the one they were most determined to protect, when, in August 1998, the entire Russian financial system collapsed. It was the beginning of the end of Prokhorov’s banking career. The Russian government decided to default on its sovereign debt, devalue the ruble and suspend payments to foreign creditors by commercial banks. Prokhorov had been looking forward to a week on the Côte d’Azur when he got the news. He went for a 12-mile run hoping to clear his head.
“I spent the whole night trying to create some model of how to save Uneximbank, and the next day I called in all my colleagues and I said, ‘There is no way.’ Thirty percent of our balance sheet was Russian Federation bonds. Can you imagine what would happen to American banks if the U.S. government stopped paying its treasury obligations? It was a great surprise to me that one of the strongest banks in Russia could crash in one day. In the first month nobody believed that this could happen to Uneximbank. A month later our Russian and Western partners were saying, ‘Give us our money back!’ For the next three months nobody wanted to speak to us. We set up a restructuring committee and moved all of our business to a bridge bank.”
That in itself was controversial — what critics call “asset stripping,” in which the valuable parts of a company are transferred to a new institution (in this case, Rosbank) and sheltered from creditors. And yet in the long run the shell game enabled Uneximbank to fulfill some of its obligations. Two years later, Uneximbank merged with Rosbank and a settlement was reached that gave the majority of the creditors about 34 cents on the dollar.
By now Prokhorov was looking for a new line of work. His and Potanin’s giant stake in Norilsk Nickel still rankled many Russians. A Moscow prosecutor went so far as to file suit to overturn the privatization of the mining combine in 2000. Where Yeltsin had rushed to put the assets of the state in private hands, Vladimir Putin reasserted the primacy of the Kremlin, making it plain the oligarchs would keep their holdings only if they stayed out of politics and aligned their businesses with the interests of the government. One way for Prokhorov to secure his franchise was to enhance the fortunes of the company where the bulk of his wealth was concentrated; in 2001, he took over the day-to-day management of Norilsk Nickel as its new general director.
It’s hard to know whether what Prokhorov accomplished in his six years running Norilsk Nickel illustrates the sort of strategy he believes will help propel the Nets to the top of the league, or the not-so-soft authoritarianism that will end in Plan E.
“When he took over Norilsk Nickel, the hemorrhaging had stopped and the company was back on its feet,” recalled Christophe Charlier, who worked under Prokhorov as head of mergers and acquisitions at the company from 2002 to 2004 and is now deputy C.E.O. of Prokhorov’s investment firm, Onexim Group, and the chairman of the Nets. “But there was no volume on the stock, no liquidity, analysts didn’t cover the company. There were no independent members on the board. We couldn’t even answer the question how much nickel we had.”
Prokhorov worked out of the Moscow headquarters but made many trips to the city of Norilsk, and the factories and mines of the combine built under Stalin with gulag labor. Norilsk is a world unto itself. For decades a secret city that did not appear on Soviet maps, it is an island in the wilderness of the Taimyr Peninsula, 175 miles above the Arctic Circle, with no link to the outside world, no power lines, no railroads, no highways. Darkness and 20-below-zero temperatures grip the land for months during the winter. The ships that bring in food and trucks and clothes, and carry out thousands of tons of nickel and palladium and other ores, required icebreakers to clear lanes in the pack ice of the Kara Sea and the frozen Yenisey River. Norilsk is among the most polluted places on earth.
“When you are the C.E.O. of Norilsk Nickel, you are president of a country,” Prokhorov told me. Assuming the top post, he made a point of working in the mines a couple of weeks, hoping, he said, to show his mettle and establish solidarity with the miners. He never sat down when talking about making Norilsk more efficient. “It was important to create trust,” he said. “My slogan was, We need to be the global leader. We need to streamline the cost of production and increase the market cap. We need to simplify the workers’ jobs. Better salaries. Better clothes. Better equipment. Cleaner factories. Better quality of job experience.”
And fewer workers. With shareholders now as much a consideration as employees, he spun off noncore businesses, like the harlequin’s quilt of subsidiaries, which did everything from making furniture to bottling soft drinks to operating the Norilsk phone system. A labor force that numbered 129,000 in 1996 was more than halved by 2004. Prokhorov improved cafeterias, restaurants and lavatories, and brought in artists, theater companies and lecturers — measures that enriched the culture but also soft-soaped the lost jobs and the cost-cutting. The company invested millions in pollution controls, but Norilsk remained among the most toxic places on earth, with elevated rates of lung cancer and an environment devastated for miles around by sulfur dioxide. Nickel dust from smelters fell so thickly that the soil around the city could be mined; acid rain has killed more than 1.2 million acres of trees. The chairman of the federation of trade unions in Norilsk once called Prokhorov a prime example of “ice-cold managers who act without restraint.” Some things Prokhorov did suggest a creepy usurpation of dissent — a replacement of the control of the old Soviet state with the control of a for-profit corporation.
“We established a network of psychologists to take up some of the counseling that was previously done by trade unions,” he said. “I secretly supported an opposition press, the Norilchanin paper, which had always been very tough on the company. I said to the editor, ‘I need a bit of criticism all the time.’ The only goal was criticism. The editor pushed my staff to another level so much that from time to time my security people, who didn’t know about the arrangement, tried to block the distribution of the paper.”
Prokhorov was resolved to make the revenues of Norilsk Nickel less vulnerable to fluctuations in the price of nickel and of palladium, one of the world’s most valuable metals. He used the company’s cash flow to buy a gold-mining firm, Polyus and then methodically added gold reserves from other parts of Russia. He acquired a 20 percent stake in a South African gold mine, which he later flipped for a profit that covered the cost of cobbling Polyus together. Then in 2006 he spun Polyus off to Norilsk Nickel shareholders, who essentially got what is now a $10 billion company free. During his tenure Norilsk Nickel stock went from less than $7 a share in 2001 to $189 in the first quarter of 2007. The market cap of the company, around $2.5 billion when he started, was more than $60 billion when he headed off for a ski holiday at the French resort in Courchevel in January 2007.
The Playboy of the Eastern World
For many years Prokhorov spent the Russian Orthodox Christmas skiing at Courchevel, booking rooms in the luxury hotels for guests, among them, in 2007, a number of young Russian women whom the French authorities suspected of being prostitutes. Prokhorov says the seven young women were his guests.
Prokhorov was arrested at the Hotel Byblos and was detained in a cell in Lyon for 88 hours. “I spent five or six hours a day shadowboxing and standing on my hands,” he said. “And I did a lot of stretching. I said to the police, ‘I’m not in a hurry.’ It sounds strange, but to a certain extent it was fun. I was reminded of my two years in the Soviet Army.”
The incident did not amuse his partner, Potanin. They had been drifting apart on questions of business strategy for some time, and the scandal brought their differences to a head. They agreed to dissolve their partnership and began negotiating a division of their common assets. In April 2008, Prokhorov sold his 25 percent stake in Norilsk Nickel not to Potanin but to another billionaire, Oleg Deripaska. In exchange for $13 billion of Norilsk Nickel stock, he received 14 percent of the Rusal, the world’s largest aluminum producer, and $4.5 billion in cash, with $2.7 billion more to follow. It turned out to be the perfect time to cash out. By the fall of 2008, markets all over the world were cratering, and Prokhorov, flush with cash, pounced on depressed real estate, media properties and half of an investment bank. He also, to much criticism, reneged on the offering plan to buy out minority shareholders at a specified price when he took control in June 2008 of a major Russian power company called TGK-4. Had Prokhorov abided by the agreement, which was marketed to domestic and foreign investors by the Russian government, it would have cost him hundreds of millions of dollars. One investor, Prosperity Capital Management, a U.K. firm, put out a press release in October 2008 calling the maneuver Prokhorov was using to duck his obligation “one of the worst transgressions of corporate governance we’ve seen.” Prokhorov, who had begun seeking an N.B.A. team and was increasingly mindful of his international image, eventually settled with the minority shareholders under terms that remain confidential.
“The minority shareholders are happy now,” says Dmitry Razumov, C.E.O. of Onexim Group, Prokhorov’s investment firm. “All claims have been resolved. We were lucky enough to find a loophole in the legislation to walk away from the deal.”
The fuss in France whetted the public’s fascination with his romantic life. For eight years in his 30s, he said, he had a steady girlfriend but was never tempted to marry.
“Some people say the reason I am not married is that I don’t understand small business and the toughest small business in the world is a family,” he said. “But when you are happy and feel every minute of your life, what is the reason to get married? I hate double standards. A lot of people say they love family and children and meanwhile they are on the dark side of the moon.”
I asked about the whole model-mad playboy motif, which seemed a bit of a put-on. “It’s a legend,” Prokhorov admitted. “But it is a legend I like to keep close to.”
One night in Moscow he invited me to one of his disco evenings, which he likes to organize every three weeks or so. On this Friday night in late July, his social secretary booked the V.I.P. area at a trendy den called the Soho Rooms, and then called several Russian modeling agencies to stock the pond.
When I arrived, Prokhorov was standing in a V.I.P. corral with two dozen high-cheekboned knockouts in lethal heels and dresses that were more like plot summaries. The blue and gray plastic V.I.P. bracelets on their wrists made them look like a flock of banded herons. Most couldn’t have been more than 20 or 25, though it was hard to make a scientific evaluation with stroboscopic eruptions of green laser light exploding around the room. Prokhorov, in a striped gray suit, spent most of the night posted in the same spot, bobbing to the heavy beat, sipping club soda and occasionally chatting with a model bold enough to engage him.
But it was not the models who seemed to interest him so much as the fact that the V.I.P. area wasn’t completely segregated from the rest of the club, and he could “feel the energy” of the smartly dressed new Russians on the main dance floor, all moving in unison, building a little socialism for the night.
He left, as planned, on the dot of 3.
Thirteen Is One Better Than Twelve
It’s possible that the ability to alight on a volleyball is just the sort of skill a Russian billionaire would want jumping into a new business in a foreign country. But the footing in contemporary Russia is in some ways much trickier.
One late afternoon at the end of September, a month before the start of the N.B.A. season, Prokhorov was reclining on a gray padded chair in his Moscow office, a cup of tea in front of him. The role he’d envisioned for himself as owner of the Nets had more to do with long-term strategy than with day-to-day operations, but there was still plenty of work left to get the project started. In two weeks the team would be stopping over in Moscow for a day to meet the new boss, make some appearances and then head off to China for two exhibition games. With their Russian ownership, the Nets had suddenly become one of the unlikely leaders of the N.B.A.’s efforts to gin up new business by “globalizing” its brand. (Despite relatively healthy attendance and TV ratings, the league reported losing $380 million last season.) The brand-building preseason games in China were arranged when the team had a seven-foot Chinese forward named Yi Jianlian as well as a Mandarin speaker in the marketing department. But with Proky’s arrival, the Nets were suddenly covered with Russian dressing: a new Russian-language Web site, an office in Moscow, a five-year deal with Stolichnaya vodka. Worse, they were bound for China without Yi, who had been packed off to the Washington Wizards in June, or the Mandarin whiz, who’d been globalized out of a job. Ni hao? Nyet!
Now the season opener at the Prudential Center was less than a month away. Prokhorov was planning to fly over for the first three home games. As he leaned back in his chair and closed his eyes a moment — it had been a long day, a hectic summer — I remembered a time in July, when we traipsed down to the Moscow River to a boathouse in the flood plain where he kept a naval strike force of Rickter skis. He squirmed into a padded wet suit and then jumped into the tea-colored water, a side channel off the main flow. The water was warm; God knows what was in it. He was up and away in no time on the Rickter ski, hulking over the tippy hull like an adolescent on a toddler’s bike. You could see the grasshopper in the Lada. At the touch of the throttle, the engine screamed like a furious chain saw, and he came ripping past the dock where a bunch of his friends were standing and then banked sharply, fanning up a tail of spray that sent them all dashing for cover. Out on the open water again, he gunned the craft in a hard circle, then cut back across the wave he’d raised, and the ski shot into the air, climbing the late gold light of a Moscow summer evening until Prokhorov was upside down with the 300-pound machine arcing over his head. He pulled it around full circle, thumping back into the water with a billowy thud. Again and again, he roiled the river and flung the Rickter ski off the waves through back flips and barrel rolls.
It dawned on me while I watched that he was chauffeured everywhere in Moscow — working while the driver coped with the traffic — and that this was his chance to steer. More than that: this was his chance to cut loose, to revel in a rush of unbuttoned adolescent freedom. The oligarchs of Russia aren’t exactly paper tigers, but those who aren’t in jail or exile understand the precariousness of their position, the importance of keeping the favor of the Kremlin. Last February, Prokhorov was publicly criticized by Putin for neglecting to fulfill promised investments in an electricity-generating project in southern Russia. Prokhorov initially had the temerity to say the prime minister was misinformed, but then, on further review, conceded that yes, the prime minister, whom he first met in 1994 at a bank opening in St. Petersburg, where Putin was the deputy mayor, was correct. When Prokhorov was angling for the Nets, he got the Russian president, Dmitry Medvedev, to mention his plans to President Barack Obama, as if U.S. politicians perforce had some say in how billionaires deployed their capital. At home, Prokhorov was at pains to stress how owning the Nets might benefit Russian basketball programs, enabling him to import N.B.A. “technology,” training regimens, coaching methods, sports medicine.
It was nearly dark when Prokhorov eased his ski up onto a trailer and emerged from the water. We stood around the stony landing as the day faded. He was not the invisible oligarch to an army of red ants. They began to swarm his ankles and wrists at first and somehow scaled his wet suit and got onto the back of his neck. He brushed them off, he tried slapping, but there were too many, and finally he waded back into the river and reclined into the sanctuary of the water with his eyes closed until just his head was clear.
Now in his office, he sprang out of his chair.
“Did you see the story about the Nets fan who wants an autographed jersey from Mr. P.?” he said. He went out to the reception area, where two secretaries sat at computers, and returned with a printout.
He was pleased that the Prokhorov Effect had generated so much interest. Season-ticket sales were up. Fans were amped. But there was no denying the weight of all the promises either, the pressure to live up to expectations, the energy it took constantly to project an air of confidence. He once said the desire to be “the man” was at the base of all his aspirations. All that talk of strategy and competitive advantage wouldn’t be worth a damn if the man’s team was the global laughingstock of the league.
“Money doesn’t drive me,” he said. “New ideas, the feeling of team spirit, mean more. To create a team better than any other, that’s what drives me. To find the idea is one thing; to realize the idea is another.” But really, comrade, how hard could it be? The old crew was 12 and 70 last year.
“As soon as we have the 13th victory, we can relax,” he said, and he laughed — but softly.