"Nets pay price to cover operating losses" (vol. 8, issue 25, pg 3) by Daniel Benjamin

After not being able to persuade investors to contribute to the cash shortfall that the New Jersey Nets were facing, Nets owner Bruce Ratner borrowed $60 million at the rate of 10.5% last month from Fortress Investments. This new debt brings the Nets total debt upto $210 million, with $150 million having accrued when Ratner had to borrow money to purchase the team.

NBA league policy allows teams to borrow up to $100 million using the franchise as security. Since the franchise is used as security the interest is very low for these loans. After using these low interest loans, teams that still need to borrow usually create a holding company putting up revenue generated by the team (the Nets are currently losing money playing in their current Contential Airlines Arena, which is why they are going to move to Brooklyn in 2008) and ownership gurantees as collateral. The type of borrowing that the Nets are using is called mezzanine financing, which typically has a higher interest rate because the lender (in this case Forteress Investments) would generally be one of the last in line to collect their debt in the event that the Nets go "belly up".

It's not surprising with the escalating costs of an expansion team or buying an existing team (this is due to the selling/awarding process which is generally an auction or another type of bidding process),that owners have to borrow money in order to do this. Even though New York has proven that it can manage hosting two franchises in the same league (Rangers and Islanders;Mets and Yanks) I'm not sure how successful the Nets are going to be in Brooklyn since the Knicks already play their (although New York City is a basketball hotbed). The reason I say this is because it seems the more popular of the teams (Yanks and Rangers) do alot better at the gate then their counterparts and their is no doubt that the Knicks are New York's team. I believe that mezzanine financing is great for lenders because they can charge well above the interest rate which obviously means more money for them. I also believe this type of financing has some appeal to sports teams because they are sort of protected from these types lenders if the team files for bankrupt.