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King Tuts Tomb
06-30-2011, 04:36 PM
I'm not an expert in accounting so I can't speak for the numbers, but it's interesting nonetheless.

http://deadspin.com/5816870/exclusive-how-and-why-an-nba-team-makes-a-7-million-profit-look-like-a-28-million-loss


We've obtained audited financial data for the New Jersey Nets covering the three fiscal years from June 2003 to June 2006. Though the numbers end five years ago, you can still see the roots of the argument that will have NBA owners, come midnight, again locking out their players. You can also see how a team makes money and how it pretends not to be making any money at all.
The documents are embedded below, but here are the salient parts (click images to enlarge):

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The big loss: That $27.6 million net loss looks bad, but, as you'll see, it's an illusion — a trick of accounting, one practiced by every sports franchise with the full blessing of American tax law and one we should keep in mind whenever an owner pleads poverty.

"Anyone who quotes profits of a baseball club is missing the point," Paul Beeston once said (at the time he was a Blue Jays vice president). "Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss and I could get every national accounting firm to agree with me." If anything, he was being too modest.

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The hustle: The first thing to do is toss out that $25 million loss, says Rodney Fort, a sports economist at the University of Michigan. That's not a real loss. That's house money. The Nets didn't have to write any checks for $25 million. What that $25 million represents is the amount by which Nets owners reduced their tax obligation under something called a roster depreciation allowance, or RDA.

Bear with me now. The RDA dates back to 1959, and was maybe Bill Veeck's biggest hustle in a long lifetime of hustles. Veeck argued to the IRS that professional athletes, once they've been paid for, "waste away" like livestock. Therefore a sports team's roster, like a farmer's cattle or an office copy machine or a new Volvo, is a depreciable asset.

The underlying logic is specious at best. As Fort points out, a team's roster at any given moment isn't actually depreciating. While some players are fading with age, others are developing and improving. But the Nets don't have to pay more taxes when a player becomes more valuable. And in any case, the cost of depreciation is borne by the athletes themselves, when they pass their primes and lose their personal earning power.

Nevertheless, the IRS not only agreed with Veeck but allowed any owner claiming the write-off to deduct roster expenses twice — first under "player salaries," in the case of the Nets' documents, and then under "loss on players' contracts" — and an enormous tax shelter sprang up within the balance sheets of franchises everywhere. This can't be emphasized enough: Every year, taxpayers hand the plutocrats who own sports franchises a fat pile of money for no other reason than that one of those plutocrats, many years ago, convinced the IRS that his franchise is basically a herd of cattle. Fort calls it "special-interest legislation." "It's not illegal," he says. "It's just weird."

The rules have changed over the years, but the depreciation shelter remains one of the great graces of owning a sports team. In some ways, it's gotten more fanciful. Between 1977 and 2004, owners could write off half the team's purchase price over five years, thanks to the pretend-loss of player value. One consequence, Fort notes, is that teams would change hands every five or six years, once the exemption had dried up. Now, after tax law revisions in 2004, owners can write off 100 percent of their team's purchase price, albeit over a 15-year span. What they're buying, as far as the RDA is concerned, is a set of players — the brand identity, the right to stage games and charge admission, and everything else are throw-ins. (According to Fort's analysis [pdf], the new RDA rules had the twin effect of increasing both tax payments and team values.)

It's not hard to see the benefits. Owners who've set themselves up as a partnership or a Subchapter S corporation can pass their "losses" onto their personal income tax forms. Let's assume that's what the Nets owners did, and let's put them in the 33 percent tax bracket. (The audit here covers the last year that Lewis Katz and Ray Chambers owned the team, the fiscal year ending in June 2004. In August 2004, six years after buying the Nets, they sold the franchise for $300 million to real estate developer Bruce Ratner. In 2009, Ratner sold an 80 percent share to a Rocky and Bullwinkle character named Mikhail Prokhorov for $293 million in equity.) That $27.6 million loss would mean tax savings of $9.1 million ($27.6 x .33).

If we're trying to arrive at some idea of how much money the Nets really made in 2004, we'll need to do a little crude math. Knock out the $25.1 million RDA — a paper loss, remember — and add the $9.1 million in tax savings. Suddenly, that $27.6 million loss becomes a $6.6 million profit.

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A typical profit: In the 2003-04 season, the Nets went 47-35, won the Atlantic Division, and lost in seven games to the eventual champions — the Pistons — in the Eastern Conference semifinals. (This was the last of the Kidd-Jefferson-Martin Nets.) That playoff run brought in an extra $4.8 million in revenue, a decent haul that few owners can count on every year. So let's pretend the playoffs didn't happen. Take away that $4.8 million, and the $1.4 million in expenses, and the $27.6 million net loss is now $31 million. Run the earlier calculation again and you would have a $4.4 million profit in a non-playoff season.

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The sale: Bruce Ratner's ownership group took over in fall 2004, and the Nets became a small piece of Forest City's $12 billion portfolio. This includes the Atlantic Yards land grab in Brooklyn, the future home of the Nets and the best explanation for why a buccaneering real estate developer like Ratner might buy a middling franchise like the Nets in the first place. As Neil deMause, co-author of Field of Schemes, explains: "If Ratner had gone to Brooklyn politicians and said, 'Hey, I want to build offices and residential buildings on public land,' they'd have hung up on him. But when he says, 'I'm going to bring professional sports back to Brooklyn,' suddenly here's [Brooklyn Borough President] Marty Markowitz holding press conferences and sobbing about the Dodgers. [Buying the Nets] helped him get a foot in the door with Brooklyn politicians."

This means you have to think about the Nets under Ratner as a single node on a vast network — "an element in a billionaire's wealth-generating portfolio," as Rodney Fort says. The real value of the team to Forest City will likely show up in small type on the balance sheets of another subsidiary, lying just beyond our view.

A real loss: "Something interesting happens in 2005," Fort says. "The team really did lose $30 million," even after you remove the phantom losses for player depreciation. (The adjustments aren't insignificant. The next year, in 2006, the team lost something south of $40 million, not the $70 million you see on the balance sheet.) Under previous ownership, the team had been a $4 million a year operation, give or take. What happened?

The motor plant: Operating income was down in 2005, dropping from $95.7 million to $77.4 million, and expenses rose, particularly in those line items representing what we'll loosely call the team's self-presentation: ticket sales, marketing, broadcast, etc. Fort's guess is that the Nets were "presenting the team to Brooklyn" and spending a good deal of money in the process. (The accounting also changed — among other things, we now have line items for both "loss on players' contracts" and "depreciation and amortization.") Still, that doesn't quite account for the swing from a mild profit to a seemingly large loss. "One of two things must be true," Fort says. "Either they haven't found all the values [of owning a team], or they're not losing money."

We can't know for sure, though, since we're only seeing a sliver of Forest City's portfolio. The mistake is in thinking of a sports team as a self-contained unit. Fort says a team is more like the motor plant at Ford. If you were to look at the motor division's revenue, he says, "I'd promise you it's negative." He continues: "But if you said, 'Look, Ford is losing money!' that'd be ridiculous." The motor plant is selling motors at a price that enables Ford to turn a profit when it sells completed motor vehicles. It creates value, Fort says, "every time a Ford goes out of the assembly line."

For anyone who wants to extrapolate these numbers to the rest of the league, caveats apply. These are six-year-old financials for a single team in the NBA, where market size is destiny and where, for instance, New York's books won't look anything like Milwaukee's. What's more, this is about as close a look as you'll get at the financial workings of a sports franchise, and even then the balance sheets are hopelessly opaque. But that's partly the point. In the modern era, franchises are owned by businessmen who approach their teams as one of many interconnected wealth-generating mechanisms. As in Fort's example above, the real value of one asset (the Nets) can't be known without looking at the numbers for another (the Barclays Center) and another (the rest of the Atlantic Yards development), and so on. There's nothing illegal or even wrong with that, but in such a system you can see very quickly why incentives for owners often fall irreparably out of plumb with the wishes of their fans — owners want to maximize revenue (which is their right), and fans want to win (which is their nature), and both Wayne Huizenga and the folks in the grandstand at PNC Park will tell you that these goals aren't necessarily compatible.

The other lesson to draw is that there are certain baked-in advantages to owning a team. You have both the relevant labor law and the tax code firmly on your side. You are making money you didn't exactly earn from the moment you sign the paperwork, and you are making more money for your other businesses — your shopping mall across the street from the arena, your legal practice, your broadcast holdings — and then, come tax time, you are allowed by law, and even encouraged, to pretend you are not making any money at all. Remember this the next time David Stern says the NBA's economic system is broken. "The bottom line about the bottom line," Fort says, "is that even if it looks like they're losing money, it doesn't mean they're losing money."

ECKrueger
06-30-2011, 04:44 PM
I would give an example of a company buying some machinery to illustrate:

When you buy the machine, it becomes an asset worth, say $50,000. However, in 10 years it won't be worth any thing. It depreciates. So, every year you write off $5,000 from that asset (at least in straight-line depreciation, won't mention other methods). That is where the "phantom loss" is coming from I believe. You are not actually losing money, but your assets are losing value.

graphic-er
06-30-2011, 04:52 PM
So which is it for the Pacers, and their woeful 5 years post brawl. You had Simon claiming that he has lost money every year but 1 in Conseco. I don't buy this BS.

Pacers got an 11 million dollar check from the CIB this year, couple that with this double dip write off on players, I tend to believe Simon made a profit this year. Especially with the playoff games.

Since86
06-30-2011, 04:55 PM
How are you not losing money? Let's use your machinery example.

Say we buy a $50,000 machine. The actual value of that machine is lower than $50,000, because the seller needs to make a profit, so the actual value is, say, $45,000. (obviously I'm being generous)

So each year it depreciates $5,000, and let's say it bottoms out at $5,000 just due to pure scrap value.

You started off with $50,000, and traded that for a machine worth $45,000. Now it's worth $5,000.

You no longer have that $50,000 in cash, and you no longer have a machine worth that in value. You've still lost money. While it might be an accounting "trick" it's not making money magically disappear.

You still don't have that money you started out with and you can't replace it.

It's just like buying food. You buy $20 of food. When you eat it, you no longer have $20 of food. It's the same prinicple. Your net worth doesn't stay constant, it flucuates. You have to show your value in dollars. It's not like you've tucked away that $50,000 and could regain it by a simple sale.

ECKrueger
06-30-2011, 05:00 PM
Ok say you have $50 and spend $20 on food. Now you have $30 and food. After you eat it, you still have $30. You don't lose additional cash by eating the food. You lose assets, but it is not costing you another $20 to eat the food.

BillS
06-30-2011, 05:01 PM
I'm not an accountant, so someone with more professional knowledge please feel free to correct me.

There is a difference between certain types of losses depending on where in the accounting process the losses are being shown.

There is a category called "Operating Income Before Depreciation and Amortization", which is Revenue minus expenses but with Depreciation and Amortization added back in.

The argument of the NBAPA is that almost all losses claimed by the NBA are accounted for by Depreciation OR by interest payments on loans to buy the team in the first place.

One thing that no one looks at, though, is the Amortization part of the Depreciation and Amortization. Just as teams can depreciate a capital asset over time to show its reduced value, they also are prevented from counting the entire cost of many capital assets in the year those assets are purchased. What this means is that, while there are depreciation expenses that are "funny money", there are actual expenses that aren't allowed to be subtracted from revenue in a given year.

King Tuts Tomb
06-30-2011, 05:03 PM
How are you not losing money? Let's use your machinery example.

Say we buy a $50,000 machine. The actual value of that machine is lower than $50,000, because the seller needs to make a profit, so the actual value is, say, $45,000. (obviously I'm being generous)

So each year it depreciates $5,000, and let's say it bottoms out at $5,000 just due to pure scrap value.

You started off with $50,000, and traded that for a machine worth $45,000. Now it's worth $5,000.

You no longer have that $50,000 in cash, and you no longer have a machine worth that in value. You've still lost money. While it might be an accounting "trick" it's not making money magically disappear.

You still don't have that money you started out with and you can't replace it.

It's just like buying food. You buy $20 of food. When you eat it, you no longer have $20 of food. It's the same prinicple. Your net worth doesn't stay constant, it flucuates. You have to show your value in dollars. It's not like you've tucked away that $50,000 and could regain it by a simple sale.

From the article:

"The underlying logic is specious at best. As Fort points out, a team's roster at any given moment isn't actually depreciating. While some players are fading with age, others are developing and improving. But the Nets don't have to pay more taxes when a player becomes more valuable. And in any case, the cost of depreciation is borne by the athletes themselves, when they pass their primes and lose their personal earning power."

LetsTalkPacers
06-30-2011, 05:05 PM
So wait all those math problems I did in 3rd grade actually can be applied in everyday situations? I call BS. I still haven't figured out what time both trains will meet in the middle.

pacersgroningen
06-30-2011, 05:11 PM
What it boils down to in this article, is the author trying to say that depreciation should not be taken into account. He says that players worth does not automatically depreciate, some players will improve and their value will improve. Assets decrease over time. So basically he disagrees players contracts should be seen as assets.

He might look at it as a trick, it is just normal accounting.

BillS
06-30-2011, 05:13 PM
Ok say you have $50 and spend $20 on food. Now you have $30 and food. After you eat it, you still have $30. You don't lose additional cash by eating the food. You lose assets, but it is not costing you another $20 to eat the food.

For purposes of telling someone how much money you make, you get to say the $20 is an expense.

For purposes of taxes and accounting, you may not be able to take the entire amount of the machine in the year you bought it. That means you have to spread the cost of the machine out over years. To oversimplify, my understanding is that depreciation is meant to offset the "savings" you are supposedly putting aside each year so you can buy the new machine once the old one becomes worthless, since you won't be able to show that entire expense in the year you do it. Sure, it is "funny money" until you actually have to spend it.

Now, applying it to players doesn't quite make sense to me, but we have to bear in mind that RDA isn't 100% of the salary in a given year, so it really isn't like they can claim $65M expense for salaries and then $65M in depreciation. In fact, though I'm very confused by the descriptions I'm finding, it almost looks like this only is in effect for 5 years after a team is purchased, which (if true) would be why it applies to a team that changed hands recently but would not apply to the Pacers.

able
06-30-2011, 05:23 PM
How are you not losing money?

In thise case (the example) the purchasing gets deducted as cost and the asset gets a tax write-off i.e. double dip

or as the article goes;

60 million = team salary (cost)(hard cash)
25 million = value depreciation on the team (write off)(phantom money)

income - 58 million(EXAMPLE, i know there are other cost but also income)

Loss 27 million which is deducted from income tax and leads to 9.6 mio saving (hard cash)

27 mio (loss) minus the 25 mio phantom omney is 2 mio minus the taxgains of 9.6 = income 7.6 mio

able
06-30-2011, 05:30 PM
Now, applying it to players doesn't quite make sense to me, but we have to bear in mind that RDA isn't 100% of the salary in a given year, so it really isn't like they can claim $65M expense for salaries and then $65M in depreciation. In fact, though I'm very confused by the descriptions I'm finding, it almost looks like this only is in effect for 5 years after a team is purchased, which (if true) would be why it applies to a team that changed hands recently but would not apply to the Pacers.

it used to be 5 and is now 15 year and the amount is the value of the players aka the franchise and the number of years the time over which the depreciation goes.

fact is that upon sale no profit is registered, (which in a normal business if i deprec, and sell for more then book, i need to pay over the "profit")
fact is also that salaries are fully on "cost" and this is added on top of possible intrest over loans on purchase (again cost)

players only in the eyes of the taxman depreciate for the business the contract runs out and is or is not renewed, player is replaced, traded etc, once the player's value is zero he retires.

able
06-30-2011, 05:32 PM
P.S. only 10 out of 30 need to do this in accordance to the article and the 300 mio Stern claims is shown

Pacer Fan
06-30-2011, 06:14 PM
The RDA is proper, he is trying to put a spin on it as it's a bad thing. Players fall under this depreciation. Humans/players are like cattle. Hell James Posey, Rashard Lewis, J. Oneal are prime example and there are a ton of players that would fit the RDA. Props for Veeck!!

King Tuts Tomb
06-30-2011, 06:19 PM
The RDA is proper, he is trying to put a spin on it as it's a bad thing. Players fall under this depreciation. Humans/players are like cattle. Hell James Posey, Rashard Lewis, J. Oneal are prime example and there are a ton of players that would fit the RDA. Props for Veeck!!

He's not saying the RDA is a bad thing, he's saying the refusal of the owners to tell the truth about their books, and in turn use that disinformation as a bargaining chip in labor negotiations, is a bad thing.

speakout4
06-30-2011, 06:20 PM
The RDA is proper, he is trying to put a spin on it as it's a bad thing. Players fall under this depreciation. Humans/players are like cattle. Hell James Posey, Rashard Lewis, J. Oneal are prime example and there are a ton of players that would fit the RDA. Props for Veeck!!
If you are buying the team then the players are assets that contribute to the value of the team. The same team without leBron will cost less to a buyer.

trailrunner
06-30-2011, 06:21 PM
This is interesting, but the players are going to lose this go around and in the process they may lose a year of income as well. If the players get what they want the price of tickets and anything else related to basketball will go up (again). The fans will pay for it in the end. The average salary for an NBA player is 5 million per. I make $50,000. You do the math. The players should wise up and give back a little or no one will be able to afford to watch them play.

I rarely support owners. I agree that they confuse reality and bend the system to their advantage. But the players will eventually cave to some extent. If we want fairness and clarity we should insist the owners open their books for scrutiny and close unfair tax loopholes. But the players are doing just fine and will continue to do so no matter what agreement they sign.

90'sNBARocked
06-30-2011, 06:28 PM
How are you not losing money? Let's use your machinery example.

Say we buy a $50,000 machine. The actual value of that machine is lower than $50,000, because the seller needs to make a profit, so the actual value is, say, $45,000. (obviously I'm being generous)

So each year it depreciates $5,000, and let's say it bottoms out at $5,000 just due to pure scrap value.

You started off with $50,000, and traded that for a machine worth $45,000. Now it's worth $5,000.

You no longer have that $50,000 in cash, and you no longer have a machine worth that in value. You've still lost money. While it might be an accounting "trick" it's not making money magically disappear.

You still don't have that money you started out with and you can't replace it.

It's just like buying food. You buy $20 of food. When you eat it, you no longer have $20 of food. It's the same prinicple. Your net worth doesn't stay constant, it flucuates. You have to show your value in dollars. It's not like you've tucked away that $50,000 and could regain it by a simple sale.

I am very weak in accounting so forgive me but doesnt that purchase of a 50,000 machine make you X amount of dollars?

Pacer Fan
06-30-2011, 07:47 PM
He's not saying the RDA is a bad thing, he's saying the refusal of the owners to tell the truth about their books, and in turn use that disinformation as a bargaining chip in labor negotiations, is a bad thing.

But he is spinning it as it's a wrong thing to do and it's not. The Players are contracted and the owners have the right to exercise the RDA in legal tax law. The net profits should be after all losses including tax, not before. It is laughable to think that owners should not include an owners rights of loss torward their profit. This is not disinformation at all as long as the numbers are there correctly on a total profit/loss which they are. There is nothing hidden in any documentation I have read.

Pacer Fan
06-30-2011, 07:51 PM
If you are buying the team then the players are assets that contribute to the value of the team. The same team without leBron will cost less to a buyer.

Your quote has nothing to do with RDA in which I was speaking of from the article.

King Tuts Tomb
06-30-2011, 08:19 PM
But he is spinning it as it's a wrong thing to do and it's not.

I don't see anywhere in the article. He says:


Every year, taxpayers hand the plutocrats who own sports franchises a fat pile of money for no other reason than that one of those plutocrats, many years ago, convinced the IRS that his franchise is basically a herd of cattle. Fort calls it "special-interest legislation." "It's not illegal," he says. "It's just weird."

Is this not true?

His main issue comes from the fact that they're using this (legal) exemption then lying about it.

Taterhead
06-30-2011, 08:41 PM
I am very weak in accounting so forgive me but doesnt that purchase of a 50,000 machine make you X amount of dollars?

Yes, but that doesn't change the loss on the investment into the machine. The machine and what it is used for are two different things. Even if you don't make any money with the machine the loss in the machines value still exists. Even if you don't use it at all, it still loses value. It's something that just factors into the cost of doing business.


I don't see anywhere in the article. He says:



Is this not true?

His main issue comes from the fact that they're using this (legal) exemption then lying about it.

It is but isn't his example of a "herd of cattle" both inflammatory by design and misguided?

The "herd of cattle" is merely a product that has value on paper. As is an NBA player. But he uses that term so that you associate the NBA player with the cattle, and make owners look like cattle drivers. We would all be wise to distrust anyone who uses these strategies to make their point in journalism. There is no doubt that NBA players are not treated in any way, like cattle.


From the article:

"The underlying logic is specious at best. As Fort points out, a team's roster at any given moment isn't actually depreciating. While some players are fading with age, others are developing and improving. But the Nets don't have to pay more taxes when a player becomes more valuable. And in any case, the cost of depreciation is borne by the athletes themselves, when they pass their primes and lose their personal earning power."

An athlete is looked at as a depreciating asset because he is aging. It's true that there is a progression during his career. But he can still only play so long. Just like cattle are only useful for a period of time. It's not an investment like a piece of property or even a machine that can be repaired. You can't refurbish cattle or a player and get more years out of them. With living things there is an hourglass constantly running on your investment and you don't know when it's due to run out, it could be tomorrow.

If that makes any sense.

Eleazar
06-30-2011, 09:00 PM
But he is spinning it as it's a wrong thing to do and it's not. The Players are contracted and the owners have the right to exercise the RDA in legal tax law. The net profits should be after all losses including tax, not before. It is laughable to think that owners should not include an owners rights of loss torward their profit. This is not disinformation at all as long as the numbers are there correctly on a total profit/loss which they are. There is nothing hidden in any documentation I have read.

I'm sorry but anything where you claim a lose when there is no actual loss of money is shady at best, and in most cases down right wrong. Yes, over time an asset loses value, but you aren't losing money. Your assets are losing worth, but not money. The only way to do this in a way that is not shady is to take into account how much money the asset made you. Unless it was a bad investment in most cases it will end in a net profit not a net loss.

hoosierguy
06-30-2011, 09:01 PM
Owner's should be more concerned with their cash flows instead of their net income.

As long as they are bringing in more cash than they spend each year, the owners should have nothing to ***** about.

A net loss by a team doesn't take a cent out of the owner's pockets if the causes of that loss are non cash items.

These teams do not have stock so earnings don't matter one bit. Who cares if net income is negative due to non-cash expenses?

TMJ31
06-30-2011, 09:29 PM
Wow, my brain hurts...

BlueNGold
06-30-2011, 10:24 PM
This logic is incredibly flawed. If owning an NBA franchise is so lucrative, why don't the players form their own leagues? If they lack the cash, I'm sure there are hundreds if not thousands of investers both individual and institutional investors who would line up for such a great ROI. But that's not what's happening.

I realize it's fashionable to hate on billionaire owners, but face it. The fact remains that NBA franchises are not what makes these guys rich. It's like owning a very big yacht. Lots of status and enjoyment. Not really a cash cow in most cases.

MagicRat
07-01-2011, 01:21 AM
Are we sure the $25 million is a made up depreciation number? In the financial statement notes it says it's due to contract buyouts and player injury...... :whoknows:

Edit:
http://sports.espn.go.com/nba/news/story?id=1630607


I'm thinking they did write somebody a big check.

Edit 2:

http://www.insidehoops.com/nbasalaries.shtml

2004-2005
Note: Dikembe Mutombo, between the Nets (buyout) and Rockets, makes around $18.8 million.

http://articles.chicagotribune.com/2003-10-08/sports/0310080132_1_salary-cap-stephon-marbury-contract


The New Jersey Nets waived eight-time All-Star center Dikembe Mutombo on Tuesday after finalizing what is believed to be a $30 million contract buyout.
The New York Knicks are among the teams reportedly interested in Mutombo.
Mutombo, 37, played in only 24 games last season because of a wrist injury that required surgery in November. He did not return until late in the regular season, and he was unhappy sitting on the bench most of the playoffs.

Mutombo had two years left on a $37 million contract, a deal that made it nearly impossible for the Nets to trade him.

Nets salaries:
http://www.basketball-reference.com/teams/NJN/2004.html

I'm guessing the author of the article has something confused between the income statement and the quote the professor gave him about some sort of tax code.

Edit 3:

And if it's supposed to be some sort of recurring phantom depreciation number, why is it only $1.2 million in '05 and $662k in '06?

This article is garbage.

wintermute
07-01-2011, 03:23 AM
I like to think that I'm financially literate, but accounting makes my brain hurt. Hopefully some real accountants chime in, I think we have a few on the board...

In the mean time, there's CBA expert Larry Coon's take on the same documents. All other things being equal I think I trust Larry Coon more. Here's the article:

http://sports.espn.go.com/nba/columns/story?columnist=coon_larry&page=NBAFinancials-110630

Larry Coon interprets the Nets' losses differently. He says they arise from accounting charges from the Nets purchase by Ratner (not from depreciation or RDA). Here's the relevant part:



The Nets were another weak franchise, which helps explain their upcoming move to Brooklyn. During the time period covered by these financial statements they were in the bottom half in attendance, had one of the league's highest payrolls, and were operating in a high-cost environment. Under these circumstances you would expect the team to lose a lot of money, and it did -- it claimed losses of $49 million in 2005 and $57.4 million in 2006.

But these statements also illustrate the accounting practices to which Hunter and the players association take issue. Brooklyn Basketball (the Nets' parent company) paid $361 million for the team. In order for the balance sheet to balance, it had to show assets in that amount. Some of these are real, physical assets; accounts receivable; and the like. Other parts are "intangible" assets, which represent the amount the buyer paid above the value of the tangible assets. These assets (but not the franchise itself) are amortized over their "useful lives," with a portion of their value (a total of $200 million for the Nets) counted as an operating expense each year. For the Nets this expense added up to $41.5 million in 2005 and $40.2 million in 2006.

In other words, $41.5 million of the Nets' $49 million operating loss in 2005, and $40.2 million of its $57.4 million in 2006, is there simply to make the books balance. It is part of the purchase price of the team, being expensed each year. This doesn't mean they cooked their books, or that they tried to pull a fast one on the players. It is part of the generally accepted accounting practice to transfer expenses from the acquisition to the profit and loss over a certain time period. However, it's an argument that doesn't hold water in a discussion with Hunter and the players association, who would claim that the Nets didn't really "lose" a combined $106.4 million in those two years, but rather that they lost $7.5 million and $17.2 million, respectively.


Again, I'm not an accountant. Take it for what's it worth.

The rest of the article is pretty informative too (and doesn't take sides). Worth a read, IMO.

Since86
07-01-2011, 01:12 PM
I think it should also be pointed out that the NBA owners have openned up ALL their books, because federal law requires them to do so when claiming a loss.

It's different in the NFL, they aren't showing their books, because they're not claiming that they're losing money.

I think it's pretty relevent that the owners obviously knew they were required to show everyone exactly how/when they're losing money, and that they wouldn't be doing "tricks" but rather following the norm. You can disagree with the "norm" but it is what it is, regardless of personal feelings towards it.

Reginald
07-01-2011, 01:19 PM
I rarely support owners. I agree that they confuse reality and bend the system to their advantage. But the players will eventually cave to some extent. If we want fairness and clarity we should insist the owners open their books for scrutiny and close unfair tax loopholes.

Just to clarify, the NBA owners have opened their books. They're inviting scrutiny far more than their NFL counterparts because one of their main bargaining chips is that, by any measure, most NBA teams are in the red.

Brad8888
07-01-2011, 02:02 PM
I am not an accountant. I also didn't stay at a Holiday Inn Express last night. I am a small business owner who is dangerously knowledgable with repect to the basics of accounting who has a mind that obviously likes to overanalyze and extrapolate to attempt to grasp this ultra complex concept. So, hopefully some of you will bear with me to the end of this very lengthy attempt at a reasonable explanation of franchises actually having losses due to depreciation actually occurring, even though the author of the originally posted article thinks that such losses don't really exist. I think they do.

It doesn't look like a phantom loss to me at all. Cash flow is rarely reflective of what net profit is.

A simple (though somewhat dated) example would be if an unemployed college graduate purchases a bicycle for $1000 to deliver newspapers during decent weather in his neighborhood. Assuming that the graduate is paid in full for all newspapers that are delivered and delivers every newspaper that is supposed to be delivered, the graduate has a net cash flow of the amount of money received less the cost of the newspapers, right?

Wrong. Assuming that the graduate uses the same bike throughout his delivery career, first the bike must be maintained and lubricated, with worn tires, chains, sprockets and other parts needing replaced, the occasional accident damage repairs made. All of these things are expenses that must be made to continue delivering papers efficiently as opposed to on foot. So, these things must be taken into account as they affect both cash flow and net operating profit or loss. So, that is all there is to it, right?

Wrong again. Theoretically, the additional food and beverages consumed to "fuel" the graduate beyond what would ordinarily be consumed must also be taken into account. I would guess that the IRS would likely frown upon taking that deduction despite it actually being a legitimate additional expense incurred which would not have had the graduate, after having submitted countless resume's with no luck in finding a job in the career field he had worked his *** off to get into, simply remained either a couch potato or a normal young person engaged in electronic based activities in any and all forms. The cash flow is reduced by the amount of the additional expense for the additional food and water required to sustain the graduate during the delivery of the papers. So, that is finally everything, right?

Wow, you're swift (if you have gotten this far without being bored out of your ever-loving mind). Yes, wrong again. There is the matter of the bicycle, the physical asset of his business. The graduate paid out $1000.00 for that bicycle up front. So, first year cash flow for the graduate should be reduced by the additional $1000.00, quite possibly leading to a loss overall in cash flow for the first year. That reduces profit or increases the loss, right?

Yada, yada, yada. Wrong. That bicycle has an anticipated life span of several years with proper repairs and maintenance, and, if it is assumed to still be useful for its purposes in the business of newspaper delivery at the end of that period, it should be able to be sold to somebody else if the graduate finally decides to either get a new bike, quit the business and start washing windows (less up front investment in state of the art squeegies), or finally receives a job offer that he can stomach that pays more than minimum wage, or for any other reason wishes to dispose of his bike without throwing it in a dumpster or just giving it away.

So, the young aspiring newspaper delivery entrepreneur must assign a value that he expects to get back for the bike at the end of its useful life, what is called its "salvage value". Then, for the purposes of this, the number of years of useful life must be determined. For the purposes of this discussion, the bicycle is going to retain 20% of its value at the end of a 5 year life. So, the asset will be losing $800 in value during that 5 year period, or $160 each year. Phantom money? No, the money was spent up front and not permitted to be an up front expense despite the cash flow being up front. so, is THAT finally all?

No, silly. You have to still take the entrepreneur himself into account (although I don't believe the IRS permits such for the most part, with sports franchises and their contractual rights to players being rather unique I would guess). Early on, the entrepreneur actually increases in efficiency and fitness and his theoretical "value" would increase because his capacity for delivering newspapers on a given amount of "fuel" in a given amount of time would increase, thereby increasing the likelihood of producing at a more profitable level.

In this (unquestionably flawed, perhaps laughable in my attempt to draw any sort of valid comparison to the NBA) world I have created, newspaper delivery is to be considered the equivalent of a sport and all of the other things that go along with that are to be included. So, this entrepreneur becomes more valuable and successful over the first couple or three years. Then, he starts to notice that he just doesn't have the same "get up and go" anymore, and it starts to take more time to get his routes done. Fans start to lose interest in him. Some customers start calling the newspaper office and want a different delivery person who will get them their paper more efficiently or they will simply drop their subscription and consume their news online from whatever free sources remain. Ultimately, the now older newspaper delivery person is no longer viable and is no longer employable as a newspaper delivery person, and he no longer has fan support other than from those who liked him as a person and are nostalgic for the way he used to deliver papers right up there with the best of them.

The same kind of arc ultimately exists for a professional athlete. On a guaranteed contract, the commitment to the athlete is an asset that is being paid for (both the commitment of the athlete to perform whatever duties are required in and out of whatever competitive arena to maximize performance in whatever sport they perform as well as whatever trading value that such a contract possesses within the operations of a given league). For a while, the athlete (assuming they are either self motivated to do so or have coaches and trainers that aid in their development) improves and hopefully gains additional value as a player that fans wish to watch either in person or on TV, thereby increasing the overall marketability of a given franchise. After a while, the athlete reaches peak performance, and hopefully develops a large fanbase for themselves and whatever franchise they happen to play for (or "Decide" to play for). Then, the athlete continues to age, their performance continues to evolve and become less exciting (slower, less athletic, and eventually no longer viable) and less likely to retain fan interest except for the respect and admiration that fans inevitably continue to have for their aging and eventually retiring heroes.

I do agree that full depreciation of the franchise value paid by the owners is not likely to be very fair, but, also keep in mind that, in the event of a sale of the franchise, whatever depreciation has been claimed as losses on the value of the franchise ends up being recaptured as income to reverse the former depreciation losses claimed at the end of it for IRS purposes to the extent that compenstion for the franchise ownership is more than the combination of the salvage value of the plus whatever amount of depreciation lies between salvage value and the sales price of the franchise. Amounts that are in excess of the salvage value plus the total of all accumulated depreciation (in simple terms) are then to be counted as capital gains (I believe) and also taxed accordingly.

Also, if properly accounted for, if I am not mistaken, I believe that athletes that are added to a franchise would increase the investment in and value of the franchise while those departing would decrease it, by the amounts of contractual value they have at that time. There is probably a whole lot more to it than that, though.

Also, one more concept that I believe is not being taken into account in this discussion is that of "Goodwill", and not the one that Latrelle Sprewell must have had to shop at when he complained about how tough it was for him to feed his family back in the day. Goodwill is about the perception of fans of franchises and the league on the whole. Phantom money? Yes. Real world validity? Also yes, because fan perception drives all income for the sport, its owners, the players, and everyone else employed directly or indirectly by the league, its franchises, or its supporting vendors, merchandising, as well as all businesses that benefit from having a professional sports team in their area (see the whole CIB mess and the lengthy discussions about that for those details). That is the biggest hit of all in the entirety of this situation. It will take years to repair the damage a lengthy lockout will cause to fan perceptions and interest in spending money on anything having to do with either the NBA or the NFL, especially in the economic times that we currently face which are far worse than they were in 1998, or even when the NHL had its lockout (I can't remeber when that actually was, but it was after the NBA). The amount of goodwill remaining on the books of these franchises (which I assume they are required to carry on their books within the guidelines of Generally Accepted Accounting Principles or GAAP) will plunge for virtually all franchises (the Pacers are likely to suffer about the least damage in htis case due to never having fully recovered from the brawl - I wonder if they took a loss in goodwill on their books or not???) and that loss will be very legitimate whether the first dollar ever changed hands.

A hearty :2tup: to anybody who bothers to read and digest what I have attempted to portray with this post. Hopefully, what I have put together makes at least some sense and has some validity (though I would love for ChicagoJ, Putnam, BillS, and some others to weigh in and clean up whatever messes I might have made along the way).

wintermute
07-01-2011, 02:48 PM
Brad, this is why I hate accounting. Valiant attempt though.

If as you say that depreciation charges are recouped when a franchise is sold, shouldn't the players be then entitled to a share of the profits on the sale value? I think this is a point that the players have raised.

Regarding goodwill, any goodwill remaining on the books wouldn't be realized/disappear until the sale of a franchise wouldn't it? So a lockout per se shouldn't hurt book values of franchises. In fact, if the owners get a sweet deal, franchise values would instead rise wouldn't it?

owl
07-01-2011, 03:13 PM
Regarding goodwill, any goodwill remaining on the books wouldn't be realized/disappear until the sale of a franchise wouldn't it? So a lockout per se shouldn't hurt book values of franchises. In fact, if the owners get a sweet deal, franchise values would instead rise wouldn't it?

Depends at what point in time you are valuating the business. A lockout certainly can't help increase values. Heck, who knows, we may never see the NBA as we know it currently, again.

Justin Tyme
07-01-2011, 04:17 PM
So wait all those math problems I did in 3rd grade actually can be applied in everyday situations? I call BS. I still haven't figured out what time both trains will meet in the middle.


Personally, I NEVER cared about what time both trains will meet in the middle! Talk about something IRRELEVANT!

AND to think with all their vast wisdom, the State of Indiana has now decided cursive writing doesn't need to be taught in schools any longer! LOL!!!!!!!!!!

I just rec'd a thank you note from a recent graduate for a gift given to them. The hand writing was so autrocious it could have been from a 3rd grader. Since I can't be texted and don't give out my e-mailed address, they were forced to send a thank you card in writing with one of those things called a stamp on it. I shouldn't be too hard on them, b/c they may be the one changing my bed pan in the nursing home or taking my fast food order. I want to make sure both are properly done right. ;)

Brad8888
07-01-2011, 07:33 PM
Brad, this is why I hate accounting. Valiant attempt though.

If as you say that depreciation charges are recouped when a franchise is sold, shouldn't the players be then entitled to a share of the profits on the sale value? I think this is a point that the players have raised.

Regarding goodwill, any goodwill remaining on the books wouldn't be realized/disappear until the sale of a franchise wouldn't it? So a lockout per se shouldn't hurt book values of franchises. In fact, if the owners get a sweet deal, franchise values would instead rise wouldn't it?

Thanks, wintermute.

If I am not mistaken, the players receive their pay regardless of whether a profit or loss is incurred by the franchise they play for, and regardless of the market value of that franchise at any given time. While I see a point to say that the franchise would not exist without its players and their ability to generate fan interest leads in large part to its valuation, there is also a point to saying that the input from management and the ownership of the franchise as well as ownership's willingness to spend money wisely in acquisition of the talent and management of the perceptions of fans to the franchise on the whole is a facor as well.

In view of these factors, I don't completely agree that profits from the sale of franchises, when those profits are actually realized, should be considered an actual portion of basketball related income that is realized as a direct result of the players themselves, which leads to a very tricky task in determining what portion of it could even be considered basketball related income that would be subject to division with the players.

With respect to goodwill, as I understand it, goodwill is an abstract, subjective attempt to quantify the amount of positive feelings and willingness to consume whatever goods or services a business produces with an eye for taking that into account for accounting purposes. Goodwill, if tracked, would have to take a significant hit regardless of whether the consumers (fans) believe the owners or players (or both) are to blame for the shutdown of the league. That would lead to a decrease in value for the franchises and the league as a whole.

With that said, yes, the potential market value (not book value) of franchises would increase in response to a sweetheart deal where most franchises are either more profitable (large markets) or have less operating losses as a result of player costs being drastically reduced.

The question then would be if the decrease in goodwill is more than offset by the gain in overall potential financial performance that comes about due to lower labor costs. At this point, that is extremely difficult to guess in my opinion, and later on, assuming the league thrives again, the goodwill would need to be adjusted back up as fans come back and spend more money than they have been / will in the aftermath of the lockout.

idioteque
07-01-2011, 09:05 PM
Personally, I NEVER cared about what time both trains will meet in the middle! Talk about something IRRELEVANT!

AND to think with all their vast wisdom, the State of Indiana has now decided cursive writing doesn't need to be taught in schools any longer! LOL!!!!!!!!!!

I just rec'd a thank you note from a recent graduate for a gift given to them. The hand writing was so autrocious it could have been from a 3rd grader. Since I can't be texted and don't give out my e-mailed address, they were forced to send a thank you card in writing with one of those things called a stamp on it. I shouldn't be too hard on them, b/c they may be the one changing my bed pan in the nursing home or taking my fast food order. I want to make sure both are properly done right. ;)

LOL, I am in graduate school and we had a HAND WRITTEN quiz a couple of weeks ago. Everyone's handwriting was so bad that the professor had to meet with most of us individually to decipher our what we wrote down.

Eleazar
07-01-2011, 09:13 PM
Personally, I NEVER cared about what time both trains will meet in the middle! Talk about something IRRELEVANT!

AND to think with all their vast wisdom, the State of Indiana has now decided cursive writing doesn't need to be taught in schools any longer! LOL!!!!!!!!!!

I just rec'd a thank you note from a recent graduate for a gift given to them. The hand writing was so autrocious it could have been from a 3rd grader. Since I can't be texted and don't give out my e-mailed address, they were forced to send a thank you card in writing with one of those things called a stamp on it. I shouldn't be too hard on them, b/c they may be the one changing my bed pan in the nursing home or taking my fast food order. I want to make sure both are properly done right. ;)

Exactly maybe they should focus on teaching kids how to write legibly instead of teaching kids how to write a signature. In our society there is almost no need to know cursive other than for signatures. There are so many things more important for a school to teach than cursive it is ridiculous that they even taught it in the first place. From 2nd grade to 5th grade I had to use cursive for everything I wrote in school. Since 5th grade the only time I have ever used cursive is for my signature. It is more important to put that time wasted on learning cursive to better use, like learning how to write legibly, or anything really.

Naptown_Seth
07-01-2011, 09:22 PM
I would give an example of a company buying some machinery to illustrate:

When you buy the machine, it becomes an asset worth, say $50,000. However, in 10 years it won't be worth any thing. It depreciates. So, every year you write off $5,000 from that asset (at least in straight-line depreciation, won't mention other methods). That is where the "phantom loss" is coming from I believe. You are not actually losing money, but your assets are losing value.
Except that for the NBA you don't "buy" a player, you only own them over a short period of time where the pay rate is unlikely to change drastically enough to show true depreciation.

AND...as they mention some players actually GET BETTER. Buy that tractor and then have it become a more valuable tractor every time you use it. Now talk the gov't into still pretending like it was getting worse.

It's more like buy cattle where some of them are calfs and some are ready for the stockyards. Some lose value during the next few years but others gain it.

And then also have it where you didn't buy the cattle for life. No one pays Dirk a lifetime contract up front that goes till the time he's dead.

You are instead CONSTANTLY RENTING your equipment, and no one writes off depreciation of rented equipment.


As the article points out, the person that needs to be writing off the depreciation of the "equipment" is the OWNER OF THE RENTAL EQUIPMENT - ie, the player himself. Dirk rents himself out, he owns "Dirk the BBall player" and rents out his services via contracts. Over time the value of "Dirk the BBall player" depreciates which impacts how much rent he can charge for "Dirk the BBall player".

So it's Dirk the Owner of Dirk that should get to write off that depreciation, just like the owner of the rental tractor would do, not the company renting it from the owner.

This is why it's cheap, scummy and shows how full of s*** owners are...yes, even the Pacers ownership is full of s***.

Naptown_Seth
07-01-2011, 09:32 PM
BTW, just in case someone is about to say "but the owners/player renters should be allowed to write of the business expense of having to rent players", the article clearly indicates that they do this too.

Then they write off the depreciation losses that the PLAYER IS INCURRING, not the owner/player renter.

Dirk should get to take a depreciation loss every year he gets older and less able to charge for his services due to wear and tear. Good f'ing luck with that.

But Dirk is clearly a supplier of entertainment equipment to a larger entertainment company. He should be able to claim the depreciation just like he should be able to claim every single thing he pays for that goes into improving/maintaining his physical ability, the gym, trainer, medical treatments, supplements, etc.

The owner shouldn't get to claim any of that. If he wants to "buy" Dirk outright and then collect whatever salary he can possibly get from NBA teams as income, then we are talking.

But "buying" Dirk outright is going to cost a lot more than the rental fee of 15-20m a year he's paying right now.

Naptown_Seth
07-01-2011, 09:40 PM
I realize it's fashionable to hate on billionaire owners, but face it. The fact remains that NBA franchises are not what makes these guys rich. It's like owning a very big yacht. Lots of status and enjoyment. Not really a cash cow in most cases.
But what's also being pointed out here is that a lot of benefits are hidden. Getting other business opportunities in Brooklyn because you brought the Nets there won't have to be claimed on anyone's books, but they are taking the expenses paid out to enjoy those benefits out of their taxes just the same.

It's like getting to claim the tractor depreciation without having to claim the farm profits from your parent company Farm, Inc which you rented the tractor to at a loss in order to offset the Farm Inc profits...except you don't even have to acknowledge (or pay for) the Farm Inc benefits.

It's like buying a car to use as a bribe. You claim the depreciation as a biz cost, but don't mention the 3 gov't contracts you got for giving the car to a key senator on the awarding committee.

Look at my poor left hand, it's so sad, please give it 10 dollars to cheer it up and ignore my right hand as it steals your wallet. Did I mention I'm broke? Yeesh.

BlueNGold
07-01-2011, 09:56 PM
But what's also being pointed out here is that a lot of benefits are hidden. Getting other business opportunities in Brooklyn because you brought the Nets there won't have to be claimed on anyone's books, but they are taking the expenses paid out to enjoy those benefits out of their taxes just the same.

It's like getting to claim the tractor depreciation without having to claim the farm profits from your parent company Farm, Inc which you rented the tractor to at a loss in order to offset the Farm Inc profits...except you don't even have to acknowledge (or pay for) the Farm Inc benefits.

It's like buying a car to use as a bribe. You claim the depreciation as a biz cost, but don't mention the 3 gov't contracts you got for giving the car to a key senator on the awarding committee.

Look at my poor left hand, it's so sad, please give it 10 dollars to cheer it up and ignore my right hand as it steals your wallet. Did I mention I'm broke? Yeesh.

Again, if it's so valuable, the players should just start their own league. Call it the USBA. They are the very best players in the US and their product would...by default...be marketable. They already have great name recognition.

If you can't find large investors, sell stock to raise the money. I'm sure more than a few law firms would be happy to help pump it up. Is the ticker USBA taken?

Above all else, stop whining over not making 8 figures per year and play basketball.

Edit: to your point, if there are hidden benefits, investers are going to find them. IOW, you are claiming the franchise brings value whether or not it leads to a cash loss by itself. That doesn't change the fact you are saying it's valuable. Again, if it's so very valuable lots of people would be willing to start a new league and reap the benefits. But it has to really be valuable and I don't think overall it really is for the majority of NBA franchises.

MagicRat
07-01-2011, 10:18 PM
He's updated his article saying the original is garbage, for the reasons I stated above......

"CORRECTION: Portions of the analysis below are wrong. They were based on a misreading of the "Loss on players' contracts" line item, which, it turns out, wasn't an RDA claim after all. (If you look in the audit notes for 2004, No. 8 refers to a "player buy-out and a player injury" — the former of which is almost certainly Dikembe Mutombo (http://www.nytimes.com/2003/10/05/sports/pro-basketball-nets-will-buy-out-mutombo-s-contract.html) — totaling the same $25.1 million listed in the "Loss" line item.) The example is bad, and I apologize for that."

http://deadspin.com/5816870/exclusive-how-and-why-an-nba-team-makes-a-7-million-profit-look-like-a-28-million-loss

Dude should've read the notes to the statements first......

But he still leaves the section calling it "house money". Come on, man.

So this whole argument about depreciating players is moo.

speakout4
07-01-2011, 10:44 PM
Questions:

If the nba as a whole is profitable but 22 out of 30 teams are losing money those 8 teams must be making so much that they cover the losses of all 22 teams and then some. Would revenue sharing lead to all 30 teams being profitable? This seems improbable so it is highly unlikely that three quarters of nba teams are losing money.

If the nfl owners are guilty of anti trust why is the union not also guilty? Players from different teams collude but owners from different teams should not. I have in mind the pending anti trust suit by the players against the nfl. If there is a union shouldn't it be limited to members of individual teams?

speakout4
07-01-2011, 10:54 PM
BTW, just in case someone is about to say "but the owners/player renters should be allowed to write of the business expense of having to rent players", the article clearly indicates that they do this too.

Then they write off the depreciation losses that the PLAYER IS INCURRING, not the owner/player renter.

Dirk should get to take a depreciation loss every year he gets older and less able to charge for his services due to wear and tear. Good f'ing luck with that.

But Dirk is clearly a supplier of entertainment equipment to a larger entertainment company. He should be able to claim the depreciation just like he should be able to claim every single thing he pays for that goes into improving/maintaining his physical ability, the gym, trainer, medical treatments, supplements, etc.

The owner shouldn't get to claim any of that. If he wants to "buy" Dirk outright and then collect whatever salary he can possibly get from NBA teams as income, then we are talking.

But "buying" Dirk outright is going to cost a lot more than the rental fee of 15-20m a year he's paying right now.
Why stop there? Why shouldn't a 50 year old be allowed to depreciate himself because he isn't 25 anymore and his physical skills are eroding. Additionally, all payments to gyms, vitamin supplements, hair growth stimulants, viagra, you name it for 50 year olds should be allowed as a depreciating expense. Women should be included particularly their expenses to make themselves more attractive as they age. Hell this doesn't just have to be about sports.

King Tuts Tomb
07-02-2011, 12:42 AM
Again, if it's so valuable, the players should just start their own league. Call it the USBA. They are the very best players in the US and their product would...by default...be marketable. They already have great name recognition.

If you can't find large investors, sell stock to raise the money. I'm sure more than a few law firms would be happy to help pump it up. Is the ticker USBA taken?

Is there anybody saying we don't need owners? I'm not sure what you're arguing here.


Above all else, stop whining over not making 8 figures per year and play basketball.

This is nonsense.


Again, if it's so very valuable lots of people would be willing to start a new league and reap the benefits. But it has to really be valuable and I don't think overall it really is for the majority of NBA franchises.

The average franchise in the NBA is worth $369 million (http://blogs.forbes.com/mikeozanian/2011/01/26/the-nbas-most-valuable-teams-2/).

King Tuts Tomb
07-02-2011, 12:47 AM
If there is a union shouldn't it be limited to members of individual teams?

Because players work for the NBA and teams are franchises of that larger company. They'd be bargaining against themselves if they were separated by teams. It's the same reason teachers in different schools are in the same union.

BlueNGold
07-02-2011, 10:04 AM
Is there anybody saying we don't need owners? I'm not sure what you're arguing here.



The question I am raising is: Who should be the owners?

More specifically, I am not aware of any reason the players could not become the owners. If playing NBA basketball is such a valuable commodity, they should just take hold of it and reap 100% of the benefits...not just 50%. Their agents are attorneys with connections who could assist with funding this type of thing if they didn't want to fund it themselves. As they retired, they could probably get a much better package considering they would be owners.

Ownership of a lucrative business, particularly a monopoly, is always going to make you more money. The only question here is whether it's actually lucrative. Has it appreciated in value? Sure it has. But the question is whether it's worth it now...not whether it was a good investment in the past.

Justin Tyme
07-02-2011, 10:27 AM
LOL, I am in graduate school and we had a HAND WRITTEN quiz a couple of weeks ago. Everyone's handwriting was so bad that the professor had to meet with most of us individually to decipher our what we wrote down.



WOW! That just shows you how far I'm out of the loop. I thought tests in college was still done by hand in a blue book! If those in graduate school cursive hand writing is that bad, that is just unbelieveable to say the least.

I said 40 years ago when students were allowed to use calculators in school that people's math skills would go down the drain. AND THEY HAVE! I can still do the multiplecation table to 13. It just pains me to watch kids in businesses giving money back. If the register didn't tell them how much to give back they would be absolutely clueless. People under 40 have not been taught how to count money back to the customer. Seldom does it happen that someone does count money back properly to me, but when it does happen "I THANK THEM for doing it and knowing how to do it." It's a lost art that was as common as riding a bicycle.

speakout4
07-02-2011, 10:43 AM
Because players work for the NBA and teams are franchises of that larger company. They'd be bargaining against themselves if they were separated by teams. It's the same reason teachers in different schools are in the same union.

Players do not work for the NBA. They work for the franchises. The NBA doesn't give a player a dime. Workers who are employed by the local McDonalds aren't working for the larger company either.

I was being rhetorical but trying to make the point that in one case owners who collude are guilty of antitrust but the union players aren't.

If they are separated by teams they need only bargain with their own franchise for better wages and benefits so no they would not be bargaining against themselves.

ECKrueger
07-02-2011, 11:53 AM
Except that for the NBA you don't "buy" a player, you only own them over a short period of time where the pay rate is unlikely to change drastically enough to show true depreciation.

AND...as they mention some players actually GET BETTER. Buy that tractor and then have it become a more valuable tractor every time you use it. Now talk the gov't into still pretending like it was getting worse.

It's more like buy cattle where some of them are calfs and some are ready for the stockyards. Some lose value during the next few years but others gain it.

And then also have it where you didn't buy the cattle for life. No one pays Dirk a lifetime contract up front that goes till the time he's dead.

You are instead CONSTANTLY RENTING your equipment, and no one writes off depreciation of rented equipment.


As the article points out, the person that needs to be writing off the depreciation of the "equipment" is the OWNER OF THE RENTAL EQUIPMENT - ie, the player himself. Dirk rents himself out, he owns "Dirk the BBall player" and rents out his services via contracts. Over time the value of "Dirk the BBall player" depreciates which impacts how much rent he can charge for "Dirk the BBall player".

So it's Dirk the Owner of Dirk that should get to write off that depreciation, just like the owner of the rental tractor would do, not the company renting it from the owner.

This is why it's cheap, scummy and shows how full of s*** owners are...yes, even the Pacers ownership is full of s***.

I'm just saying that is what the article was getting at, not that it made sense.

King Tuts Tomb
07-02-2011, 05:08 PM
The question I am raising is: Who should be the owners?

More specifically, I am not aware of any reason the players could not become the owners. If playing NBA basketball is such a valuable commodity, they should just take hold of it and reap 100% of the benefits...not just 50%. Their agents are attorneys with connections who could assist with funding this type of thing if they didn't want to fund it themselves. As they retired, they could probably get a much better package considering they would be owners.

Players can't be owners because the league doesn't allow it.


Ownership of a lucrative business, particularly a monopoly, is always going to make you more money. The only question here is whether it's actually lucrative. Has it appreciated in value? Sure it has. But the question is whether it's worth it now...not whether it was a good investment in the past.

I'd say yes. As the article points out, NBA teams are valuable to owners not because of their year-to-year earnings but for impact on a larger business portfolio. It's why so many real-estate developers buy teams.

Other than that, with global expansion coming in the next 10-20 years and the number of teams in America capped at 30, NBA teams are going to become even more valuable than they are now.

King Tuts Tomb
07-02-2011, 05:16 PM
Players do not work for the NBA. They work for the franchises. The NBA doesn't give a player a dime. Workers who are employed by the local McDonalds aren't working for the larger company either.

I was being rhetorical but trying to make the point that in one case owners who collude are guilty of antitrust but the union players aren't.

If they are separated by teams they need only bargain with their own franchise for better wages and benefits so no they would not be bargaining against themselves.

What I mean is their job market is the entire NBA. They need a uniform set of laws to bargain with all teams, otherwise it would be complete chaos.

People who work at McDonalds and Wendy's aren't in the same union, but they do operate under a set of rules secured BY unions (safety standards, child labor, minimum wage). The only difference is that their rules have been set in law while the NBA's are secured through collective bargaining.

BlueNGold
07-02-2011, 05:55 PM
Players can't be owners because the league doesn't allow it.



I'd say yes. As the article points out, NBA teams are valuable to owners not because of their year-to-year earnings but for impact on a larger business portfolio. It's why so many real-estate developers buy teams.

Other than that, with global expansion coming in the next 10-20 years and the number of teams in America capped at 30, NBA teams are going to become even more valuable than they are now.

The NBA does not have a monopoly on basketball leagues. So the NBA rules are irrelevant. Again, the players are free to create their own league and they should if it's so lucrative.

If the owners are in a better position to benefit due to their other businesses, big freaking deal. The players are free to build their own businesses to leverage that in the exact same way...and since they are the players they are in a much better position to capitalize on it. IOW, go for it baby. There is nothing stopping them.

That gets to the root of it all. Perhaps the owners are rich because they have capabilities that far exceed the average person, including you, me and NBA basketball players. The rest of us just need to accept that fact and do the best we can.

In any event, this will be hashed out by the marketplace, not our personal opinions on the subject. If the owners ask for too much, the players don't have to accept it. They could go to Europe or create their own league here in the US. Perhaps that's what they should start working on and maybe the NBA owners will reduce their demands.

King Tuts Tomb
07-02-2011, 07:16 PM
The NBA does not have a monopoly on basketball leagues. So the NBA rules are irrelevant. Again, the players are free to create their own league and they should if it's so lucrative.

It's only lucrative because it's been built for 60 years.


If the owners are in a better position to benefit due to their other businesses, big freaking deal. The players are free to build their own businesses to leverage that in the exact same way...and since they are the players they are in a much better position to capitalize on it. IOW, go for it baby. There is nothing stopping them.

I still don't understand the argument here. Nobody is saying the owners aren't important. They're extremely important, just like financiers are in every part of the marketplace.


That gets to the root of it all. Perhaps the owners are rich because they have capabilities that far exceed the average person, including you, me and NBA basketball players. The rest of us just need to accept that fact and do the best we can.

This is a debate wholly different than the one we're having now but I'm not sure I'd classify NBA owners as having capabilities that far exceed ours.

judicata
07-02-2011, 07:36 PM
The NBA does not have a monopoly on basketball leagues. So the NBA rules are irrelevant. Again, the players are free to create their own league and they should if it's so lucrative.

If the owners are in a better position to benefit due to their other businesses, big freaking deal. The players are free to build their own businesses to leverage that in the exact same way...and since they are the players they are in a much better position to capitalize on it. IOW, go for it baby. There is nothing stopping them.

That gets to the root of it all. Perhaps the owners are rich because they have capabilities that far exceed the average person, including you, me and NBA basketball players. The rest of us just need to accept that fact and do the best we can.

In any event, this will be hashed out by the marketplace, not our personal opinions on the subject. If the owners ask for too much, the players don't have to accept it. They could go to Europe or create their own league here in the US. Perhaps that's what they should start working on and maybe the NBA owners will reduce their demands.

If the average team is worth nearly 400 million dollars, how can players naturally move in to ownership? Tell you what, go try to round up enough capital to purchase something worth between 2 and 10 times your lifetime salary and see how easy it is.

Your argument has basically boiled down to your view that everything in life is a meritocracy, and if NBA owners are flush then they are just awesome at stuff. How many of the owners know anything about running the league and their franchise when they start writing checks? I'm supposed to believe that Mark Cuban could have built a league from the ground up just because he rode Perot's jock to Billionaire status? Irrespective of the superhuman abilities that come along with being super-rich, the established professional leagues have proven numerous times that market entry is practically impossible. Vince McMahon had cash, players, and the experience of actually creating a nationwide sports entertainment franchise and couldn't make the NFL flinch. These markets are naturally dominated by monopolies, don't act like entry is something that could just happen.

I guarantee you that if you had the players buy all of the teams in the NBA and the owners start up the USBA, the USBA would be out of business within 3 seasons. To be honest, it would never get off the ground, because the current owners wouldn't be stupid enough to try and compete with the NBA.

BlueNGold
07-02-2011, 10:45 PM
I guarantee you that if you had the players buy all of the teams in the NBA and the owners start up the USBA, the USBA would be out of business within 3 seasons. To be honest, it would never get off the ground, because the current owners wouldn't be stupid enough to try and compete with the NBA.

You have this backwards. The players and their agent attorneys could start their own league (e.g. the USBA). The owners would keep the NBA franchises but they'd lose their value without the best players. Hmmm...this reminds me of another league in the not so distant past.

Some of you must either not know about the ABA or you don't know the history. The fact is, the ABA was started to compete with the NBA very much like what I am proposing....and became a better league. Sure, they went out of business but that was because they merged. It scared the crap out of the NBA. The same thing could be done today but many people like you just don't see it.

King Tuts Tomb
07-02-2011, 11:14 PM
You have this backwards. The players and their agent attorneys could start their own league (e.g. the USBA). The owners would keep the NBA franchises but they'd lose their value without the best players. Hmmm...this reminds me of another league in the not so distant past.

Some of you must either not know about the ABA or you don't know the history. The fact is, the ABA was started to compete with the NBA very much like what I am proposing....and became a better league. Sure, they went out of business but that was because they merged. It scared the crap out of the NBA. The same thing could be done today but many people like you just don't see it.

The ABA was started based on the AFL model of forcing a merger with the NBA. The ABA wasn't financially stable and would have collapsed anyway had four teams not merged. Redundant major sports leagues don't work in America, for a lot of reasons.

judicata
07-02-2011, 11:43 PM
You have this backwards. The players and their agent attorneys could start their own league (e.g. the USBA). The owners would keep the NBA franchises but they'd lose their value without the best players. Hmmm...this reminds me of another league in the not so distant past.

Some of you must either not know about the ABA or you don't know the history. The fact is, the ABA was started to compete with the NBA very much like what I am proposing....and became a better league. Sure, they went out of business but that was because they merged. It scared the crap out of the NBA. The same thing could be done today but many people like you just don't see it.


You're missing the point. If owners have magical skills that mere mortals like us and the players do not possess then they could theoretically give the league to the players and then make another one that is better. Nobody thinks this could happen.

The market cannot and will not solve this problem. There is nothing approaching perfect competition in professional sports.

BlueNGold
07-02-2011, 11:52 PM
The ABA was started based on the AFL model of forcing a merger with the NBA. The ABA wasn't financially stable and would have collapsed anyway had four teams not merged. Redundant major sports leagues don't work in America, for a lot of reasons.

The ABA existed for 9 years and is proof that starting another major basketball league can be created to compete with the NBA in America. That happened even though it was created from the ground up by businessmen seeking an ROI...not the players who would have far more control of the situation...particularly if the new league was loaded with the best NBA talent.

Also, this happened more than 40 years ago when Indy was much smaller and the media as we know it today did not exist. As a result, it would almost certainly be more successful than the ABA.

Anyway, my point here is that if the players are not satisfied with the owner's proposal, they may have to take another course of action. The owners are not going to cave on this thing because most of them are not going to have positive cash flow unless something changes. They simply do not have any motivation to change their stance...so the players are going to blink or they will have to start their own league. It's entirely up to them.

BlueNGold
07-03-2011, 12:01 AM
You're missing the point. If owners have magical skills that mere mortals like us and the players do not possess then they could theoretically give the league to the players and then make another one that is better. Nobody thinks this could happen.

The market cannot and will not solve this problem. There is nothing approaching perfect competition in professional sports.

The market will solve this problem whether or not there is perfect competition.

BTW, I didn't say the owners could do anything. I implied they have some kind of skill that perhaps we don't have...and that's why they are wealthy. The point is, it's time to stop focusing on whether the owners are taking too much of the pie. IOW, bake your own if you're not happy about it. That is, either cave to their demands or start your own league...because they have no motivation to cave at the moment.

judicata
07-03-2011, 01:07 AM
The barriers to entry are enormous. You have yet to account for that.

BlueNGold
07-03-2011, 12:45 PM
The barriers to entry are enormous. You have yet to account for that.

Not only do the players have millions, their agent attorneys have money and connections to financiers around the world. If a small group of investers could found the ABA 40+ years ago, it can be done again.

BTW, ownership between the players does not have to be equal. The LeBron's of the league could buy into more shares and have greater voting rights.

But all of this comes down to whether you actually believe owning a franchise is lucrative. If it is, it's time to take on the opportunity. If you don't have the stones to do it or don't think you can do it, go ahead, try to negotiate. It's a losing bet thinking the players can hold out as long as the owners who probably save money not agreeing to the players' terms.

Brad8888
07-03-2011, 01:19 PM
If the average team is worth nearly 400 million dollars, how can players naturally move in to ownership? Tell you what, go try to round up enough capital to purchase something worth between 2 and 10 times your lifetime salary and see how easy it is.

Your argument has basically boiled down to your view that everything in life is a meritocracy, and if NBA owners are flush then they are just awesome at stuff. How many of the owners know anything about running the league and their franchise when they start writing checks? I'm supposed to believe that Mark Cuban could have built a league from the ground up just because he rode Perot's jock to Billionaire status? Irrespective of the superhuman abilities that come along with being super-rich, the established professional leagues have proven numerous times that market entry is practically impossible. Vince McMahon had cash, players, and the experience of actually creating a nationwide sports entertainment franchise and couldn't make the NFL flinch. These markets are naturally dominated by monopolies, don't act like entry is something that could just happen.

I guarantee you that if you had the players buy all of the teams in the NBA and the owners start up the USBA, the USBA would be out of business within 3 seasons. To be honest, it would never get off the ground, because the current owners wouldn't be stupid enough to try and compete with the NBA.

With this lockout in place for the foreseeable future, and the name Perot being brought up, it strikes me that Mark Cuban should forget about the NBA for a while and explore becoming President of the United States. He would have instant credibility with lots more people than just about anybody out there in recent years, and an immediate following even bigger than Perot had (before he willfully torpedoed his own campaign when he realized how perilously close he was to actually winning). Cuban would speak his mind no matter what, and would do everything in his power to follow through on what he says, without really caring what it would mean to any political future because he wouldn't be a career politician.

Back to basketball, I would think that the top players would have little problem rounding up financing and investors, as well as support from quite a few cities that will miss the stimulus of the NBA enough to kick in what it takes that the players can't find for themselves. There are no substitutes for the cream of the NBA crop when it comes to entertaining basketball at its very best. The money would be there for a league that would boast fewer teams, less games, and an overall superior level of talent, especially if that league were to become innovative and tweak the rules to where it became somewhat unique compared to NBA basketball (kind of like what happened with the original ABA).

Ultimately, that is the only bargaining chip that I believe the players realistically have. Could the NBA exist without its superstars? Not 30 franchises, IMO. It would need to be much smaller, and do away with the less talented players that pervade most current rosters.

Could either league ultimately survive such a scenario? Probably not, and within a few years, a merger would take place, kind of like what happened when the NBA merged the four ABA franchises into the league that combined both quality of teams as well as geographic diversity.

judicata
07-03-2011, 04:15 PM
Not only do the players have millions, their agent attorneys have money and connections to financiers around the world. If a small group of investers could found the ABA 40+ years ago, it can be done again.

BTW, ownership between the players does not have to be equal. The LeBron's of the league could buy into more shares and have greater voting rights.

But all of this comes down to whether you actually believe owning a franchise is lucrative. If it is, it's time to take on the opportunity. If you don't have the stones to do it or don't think you can do it, go ahead, try to negotiate. It's a losing bet thinking the players can hold out as long as the owners who probably save money not agreeing to the players' terms.

This is both revisionist history of the ABA and a complete disregard of the economics of natural monopolies. Since we are not operating out of the same foundations of assumptions, we're just going to have to disagree.

I think a lot of markets are lucrative that I would never attempt to enter. Many times they are lucrative because they operate in a monopoly.

BlueNGold
07-03-2011, 05:33 PM
Ultimately, that is the only bargaining chip that I believe the players realistically have.



It's nice to see that at least you get it. It's a legitimate bargaining chip and might be the only one.

On top of that, people need to understand that owners are focused on just a few things: Power, money and fame...probably in that order. Whether or not it's fair, they do not appreciate a player like LeBron influencing the balance of power in the league for the upcoming years. If they don't have the power, they start looking around to find why they are in this business relationship...starting with money...so there is a significant cost to the players for LeBron's "decision". That's just the way this all works. Very natural in fact.

BlueNGold
07-03-2011, 05:50 PM
This is both revisionist history of the ABA and a complete disregard of the economics of natural monopolies. Since we are not operating out of the same foundations of assumptions, we're just going to have to disagree.

I think a lot of markets are lucrative that I would never attempt to enter. Many times they are lucrative because they operate in a monopoly.

Sure, I disagree. I believe that if the players formed their own league they would have a monopoly on the best and most famous talent in the world.

Also, I am not saying the ABA and its history is identical to this. In fact, I am certain that a new league formed in the information age, owned by the players themselves, would have far more influence than the ABA.

hoosierguy
07-03-2011, 07:12 PM
Sure, I disagree. I believe that if the players formed their own league they would have a monopoly on the best and most famous talent in the world.

Also, I am not saying the ABA and its history is identical to this. In fact, I am certain that a new league formed in the information age, owned by the players themselves, would have far more influence than the ABA.

Your entire argument fails to account for one key fact- fans root for TEAMS and not players.

Even if the players somehow find enough capital to start a new league (impossible) and secured venues in which to play the games (not the current NBA arenas) the new teams lack the brand name and recognition to acquire a strong fanbase that would buy merchandise and generate viewership to create lucrative TV contract deals.

Kobe Bryant playing for the LA Beaches is not the same as him playing for the LAKERS.

judicata
07-03-2011, 07:22 PM
Your entire argument fails to account for one key fact- fans root for TEAMS and not players.

Even if the players somehow find enough capital to start a new league (impossible) and secured venues in which to play the games (not the current NBA arenas) the new teams lack the brand name and recognition to acquire a strong fanbase that would buy merchandise and generate viewership to create lucrative TV contract deals.

Kobe Bryant playing for the LA Beaches is not the same as him playing for the LAKERS.

That is one of the many high barriers to entry that make the notion of players creating their own league implausible. BNG is also assuming that players will act with perfect collusion. But once players start making overtures toward their own league, owners can easily counter by offering huge contracts to the main stars. Would Kobe, Dwight, Rose, Paul, James, and the like rather take an enormous risk on a long term enterprise, or collect a $50 million paycheck for one season. If you think the LA Beaches would have trouble competing with the Lakers even if it took their whole roster, consider how screwed the Beaches would be if the Lakers still had Kobe Bryant.

dal9
07-03-2011, 08:36 PM
If you think the LA Beaches would have trouble competing with the Lakers even if it took their whole roster, consider how screwed the Beaches would be if the Lakers still had Kobe Bryant.

More importantly, where is Luke Walton going to play?

On-topic:


http://thinkprogress.org/yglesias/2011/07/01/259378/almost-all-nba-team-owners-have-made-profitable-investments/
Jul 1, 2011 at 1:45 pm




Almost All NBA Team Owners Have Made Profitable Investments

Michael Wilbon’s curtain raiser on the NBA lockout repeats the sin of looking at the fiscal state of sports-related firms with reference to their annual cash flow:

The NBA, meanwhile, has teams losing real money. The league says 22 of 30 are operating in the negative; the players association would surely say it’s fewer than that. Either way, it’s reasonable — if not downright inescapable — to conclude there are NBA teams awash in red ink.

Normally when we talk about firm performance we make at least some reference to share prices or other measures of equity value. This is especially true when we’re talking about owners who are, by definition, the people who own the equity. Microsoft is considerably more profitable than Twitter, but someone who bought a large stake in Twitter four years ago is in much better shape than someone who spent an equivalent sum buying a stake in Microsoft. I would say that this is especially the case when it comes to something like these sports teams since the accounting profit or loss can be easily manipulated. For example, the Washington Wizards are owned by the same corporate entity that owns the Verizon Center in which they play. By shifting around the Wizards’ rent payments to the arena you can manipulate the team’s cost structure in arbitrary ways. Similarly, if I owned a profitable team and wanted to make the profits go away I might hire myself and my friends at high salaries. None of this speaks to the actual value of owning the firm. What’s more, a sports team isn’t like a dry cleaning business. Owning and managing a basketball team would be fun. If Ted Leonsis offered to gift me the Wizards with the proviso that the team loses $10,000 a year that would come out of my pocket, I’d leap at the opportunity. Indeed, the number of people who would like to own an NBA franchise far exceeds the number of NBA franchises available. Which is why WR Hambrecht’s comprehensive analysis (PDF) of the financial stake of pro sports teams in the United States confirms the obvious point that NBA teams have a large and positive equity value:
http://thinkprogress.org/wp-content/uploads/2011/07/NBA-franchise-1.jpg

When you think about it, the remarkable thing about pro sports is that it’s possible to make any money at all owning teams. If someone put the New York Knicks up for auction under the condition that any profits the team makes will be annually stacked up in Madison Square Park (former home of the Garden!) and lit on fire, I would expect to see a large number of bids by consortia of wealthy NYC-area basketball fans. Under the circumstances, it’s interesting that in recent years the vast majority of NBA owners have actually been making profitable capital investments:

http://thinkprogress.org/wp-content/uploads/2011/07/image001.png

It’s particularly worth noting that several of the teams who’ve lost the most franchise value have been fairly catastrophically mismanaged (I’m looking at you Minnesota), which is hardly the NBAPA’s fault. All things considered, the vast majority of the owners have nothing to complain about in terms of their financial fortunes over the past few years (years that have been unkind to the finances of many Americans!) and among the minority who may have “lost money” in some real sense, most primarily have themselves to blame and all are in possession of valuable financial assets. Even the lowly Memphis Grizzlies are estimated to be worth $266 million.

[UPDATE] Here’s a very useful post from Deadspin about how profits can turn into losses via the magic of accounting. There’s not even anything particularly dishonest about this. There’s a reason that accounting is a profession. You can’t just look at a firm in terms of naive cash flow, but once you go beyond that deciding what is and isn’t profitable gets complicated. The question “how much would I have to pay to take this team off your hands,” by contrast, admits of a fairly unambiguous interpretation.


Unfortunately, the Pacers are one of the few teams that did lose value over the last five years...how much "mismanagement" is to blame is up for debate, in our case.

BlueNGold
07-03-2011, 09:27 PM
No one denies the fact owners have made millions in appreciation. The question is whether it continues to appreciate or is it a bubble like most other investments became in the last decade, like stocks and real estate.

BTW, the Bobcats were sold just last year for a 25M loss. The smart money may be sensing that the gravy train is about at its end.

speakout4
07-03-2011, 10:07 PM
Sure, I disagree. I believe that if the players formed their own league they would have a monopoly on the best and most famous talent in the world.

Also, I am not saying the ABA and its history is identical to this. In fact, I am certain that a new league formed in the information age, owned by the players themselves, would have far more influence than the ABA.
I happen to agree that a new league perhaps with a novel twist on the game should work. I can't believe that nothing will ever be different and basketball as we know it will be forever the same. Just ask those who started facebook, google, twitter, groupon etc. if they agree.

BillS
07-03-2011, 11:09 PM
Which is why WR Hambrecht’s comprehensive analysis (PDF) of the financial stake of pro sports teams in the United States confirms the obvious point that NBA teams have a large and positive equity value:

:banghead:
:banghead:
:banghead:

Can you SPEND money based on how someone at Forbes thinks your "asset" has "appreciated"?

Can you pay bills by saying "hey, I'm short of cash, I'll take care of you when I sell the franchise"?

For all that everyone whines that the losses due to depreciation and amortized initial costs don't count, how can people be also complaining that some paper valuation means these owners should be able to wave off any actual monetary losses - after all, players will be happy to take IOUs based on sale value in lieu of paychecks.

BillS
07-03-2011, 11:14 PM
Your entire argument fails to account for one key fact- fans root for TEAMS and not players.

Have you paid any attention at all to how the NBA has been marketed for the last 20 years?

Do you REALLY mean that it was existing Miami Heat fans who made the new Miami LeBron James Jersey the best selling jersey in the league last year?

The problem is that the league markets players, survives on players, and gives no damn whether an individual team crashes and burns as long as the heroes continue to sell jerseys where no teams exist.

A new player-owned league that was all about the dunks and players? Hell, it'd make millions, especially since it is obviously so lucrative to own a so-called "team" that players deserve a majority of the money as it is. Why wouldn't players get together and spend that little bit of money necessary to do the easy stuff so they could reap the big bucks without those greedy owners in the way?

judicata
07-03-2011, 11:16 PM
:banghead:
:banghead:
:banghead:

Can you SPEND money based on how someone at Forbes thinks your "asset" has "appreciated"?



Yes. Its called a secured loan. Its a win for the owner so long as the appreciation is greater than the interest on the loan.

BlueNGold
07-03-2011, 11:59 PM
Forbes isn't loaning the money and considering the Bobcats sold at a loss, it might be a little difficult finding a bank to approve that loan.

In any event, this is not about past appreciation. This is about the future...and the smart money seems to think better cash flow is needed to make this work. IOW, all good things come to an end at some point and they might just think further appreciation is not in the cards...

BlueNGold
07-04-2011, 12:05 AM
Have you paid any attention at all to how the NBA has been marketed for the last 20 years?

Do you REALLY mean that it was existing Miami Heat fans who made the new Miami LeBron James Jersey the best selling jersey in the league last year?

The problem is that the league markets players, survives on players, and gives no damn whether an individual team crashes and burns as long as the heroes continue to sell jerseys where no teams exist.

A new player-owned league that was all about the dunks and players? Hell, it'd make millions, especially since it is obviously so lucrative to own a so-called "team" that players deserve a majority of the money as it is. Why wouldn't players get together and spend that little bit of money necessary to do the easy stuff so they could reap the big bucks without those greedy owners in the way?

Excellent post. Stern is most interested in making the NBA global and that's not about stressing local teams in the US. That's all about marketing the very best players to the rest of the world to increase viewership worldwide.

Personally, I think he wants to add NBA teams overseas or create some kind of worldwide competition but the articles I've read on this point do not make this clear.

dal9
07-04-2011, 12:06 AM
In any event, this is not about past appreciation. This is about the future...and the smart money seems to think better cash flow is needed to make this work. IOW, all good things come to an end at some point and they might just think further appreciation is not in the cards...

Although you might note that it is always to the advantage of the owners ("smart money") to claim this, when negotiating a CBA

BlueNGold
07-04-2011, 12:16 AM
Although you might note that it is always to the advantage of the owners ("smart money") to claim this, when negotiating a CBA

Absolutely. They didn't get rich by being poor at negotating. But look at the signs. The stock market crashed...then real estate. You look at the Bobcats selling for a 25 million dollar loss and then you factor in all that negative cash flow.

Now the dirty part. You factor in that the owners don't believe they have as much power due to "the decision".....then it becomes a bit more clear. That is, take my power away and I'm certainly going to ask for more money...particularly in this economy.

BillS
07-04-2011, 12:39 PM
Yes. Its called a secured loan. Its a win for the owner so long as the appreciation is greater than the interest on the loan.

So that should be counted as income because it is possible to hock some percentage of it?

I'd venture to say none of these guys made their fortunes by running the debt on all their assets up to maximum.

judicata
07-05-2011, 04:24 AM
So that should be counted as income because it is possible to hock some percentage of it?

I'd venture to say none of these guys made their fortunes by running the debt on all their assets up to maximum.

I'll take that bet in a heartbeat. Most of the new money hundred-millionares took on debt to invest in capital because the return on the capital was greater than the interest on the debt. This is the same principle, you just swap around the roles a bit. Your complaint was that appreciation doesn't translate into being able to spend money, I'm just point out that it does mean spending money as long as you are willing to get a little less return on your money. That principle holds true no matter what kind of investing you are doing.

able
07-05-2011, 04:52 AM
In judicata's meaning you find what's being done with some teams:

purchased at (example) 400 mio, bankloan for 300 mio 100 mio other means (stock, cash, whatever) interest on loan 4%

team makes a small profit (5 mio) interest 12 mio is forwarded as cost to the team, which now makes a loss of 7 mio in the meantime the "owner" has the team, the interest paid, the loss deductable in private, gaining him 2.5 mio in income, and 300 mio to play around with (which he otherwise would have had to spend to buy the team).

Since86
07-05-2011, 10:01 AM
I think some of you are forgetting the golden rule.

He who holds the gold, rules.


The players are coming to the table with their pockets turned out. They aren't going to win, it's pretty damn simple. We've argued multiple times about the rate at which players get paid. Look through this thread for the evidence.

We talk about how crazy it is for an NBA player to be paid $20mil a season for playing basketball. Whenever that point is brought up, multiple people come running in to point out that you're worth whatever someone is willing to be paid.

But now that the money is drying up, those people who ran in from the back think that the money should just continue to flow.

If the notion that you're worth whatever someone is willing to pay you, then why in the world are you arguing against pay cuts?

Clearly the players worth has gone down, in the eyes of the owners. So if they're worth the $20mil because an owner is willing to pay it, then they're worth $10mil in that's all the owner is willing to pay.

It's not like there's some magical force that doesn't allow pay scales, or whatever, to go backwards. Once you reach a certain point, it doesn't mean you can't return to an old bench mark.

The whole idea that the players are "owed" this money is downright stupid.

If you're worth whatever someone is willing to pay, and that ends up being $20mil, then good for you. If you're worth whatever someone is willing to pay, and that ends up being $10mil, then good for you too.

The whole discussion falls back to the most basic economic principles. When you make money you have more money to pay out. When you lose money, you have less money to pay out.

Pretty freaking basic.

Hicks
07-05-2011, 10:13 AM
In judicata's meaning you find what's being done with some teams:

purchased at (example) 400 mio, bankloan for 300 mio 100 mio other means (stock, cash, whatever) interest on loan 4%

team makes a small profit (5 mio) interest 12 mio is forwarded as cost to the team, which now makes a loss of 7 mio in the meantime the "owner" has the team, the interest paid, the loss deductable in private, gaining him 2.5 mio in income, and 300 mio to play around with (which he otherwise would have had to spend to buy the team).

After the 2.5 million gained, doesn't that leave him at a $4.5mm loss still?

I'm confused when you say play around with 300 million. I thought that 300 million was/is being spent to purchase the team?

BillS
07-05-2011, 10:27 AM
I'll take that bet in a heartbeat. Most of the new money hundred-millionares took on debt to invest in capital because the return on the capital was greater than the interest on the debt. This is the same principle, you just swap around the roles a bit. Your complaint was that appreciation doesn't translate into being able to spend money, I'm just point out that it does mean spending money as long as you are willing to get a little less return on your money. That principle holds true no matter what kind of investing you are doing.

The point is that you do that for one of two reasons:

- to take out cash so you can spend it without return
- to take out cash so you can invest it in hopes of a return greater than the cost of debt.

People who do the first don't remain rich for very long.
People who do the second but get no actual return on the investment just have lots of assets that all have equal valued liabilities against them and are still only rich on paper.

At some point, you have to actually have income, not just rearranging how assets are held (as property or as cash exchanged for indebtedness).

It has long been considered bad business (and therefore makes very difficult to get more cash through debt) to have too high a percentage of your assets encumbered by debt. If nothing else, the mortgage crisis should make that absolutely clear - no matter whose fault you assign to it, the fundamental problem is/was that too high a percentage of the value of the asset (over 100% in some cases) was encumbered by debt, and someone got hosed when it all came due (or came due accounting-wise due to reserve requirements and loss of appraised values...)

If, as is argued by Able and others, the crying about interest and indebtedness is about having used the value of the team to buy the team, where does the rest of the value come from that can somehow be cashed in and used for other things? Even though part of your payment on capital is deductible (not all of it, and not all the interest), you can seem to make a profit without deducting that interest and payment but the money spent for interest and principal is real, not funny, and can reduce you to below 0.

These accounting methods are complex, but they more often than not simply shift costs and income over a long period rather than inflating costs and hiding income. What is due may not be charted this year but will be next, what is gained may not be counted this year but will be counted at some point.

Speed
07-05-2011, 10:30 AM
I think some of you are forgetting the golden rule.

He who holds the gold, rules.


The players are coming to the table with their pockets turned out. They aren't going to win, it's pretty damn simple. We've argued multiple times about the rate at which players get paid. Look through this thread for the evidence.

We talk about how crazy it is for an NBA player to be paid $20mil a season for playing basketball. Whenever that point is brought up, multiple people come running in to point out that you're worth whatever someone is willing to be paid.

But now that the money is drying up, those people who ran in from the back think that the money should just continue to flow.

If the notion that you're worth whatever someone is willing to pay you, then why in the world are you arguing against pay cuts?

Clearly the players worth has gone down, in the eyes of the owners. So if they're worth the $20mil because an owner is willing to pay it, then they're worth $10mil in that's all the owner is willing to pay.

It's not like there's some magical force that doesn't allow pay scales, or whatever, to go backwards. Once you reach a certain point, it doesn't mean you can't return to an old bench mark.

The whole idea that the players are "owed" this money is downright stupid.

If you're worth whatever someone is willing to pay, and that ends up being $20mil, then good for you. If you're worth whatever someone is willing to pay, and that ends up being $10mil, then good for you too.

The whole discussion falls back to the most basic economic principles. When you make money you have more money to pay out. When you lose money, you have less money to pay out.

Pretty freaking basic.

Exactly right, I agree, if you aren't worth as much you should get paid less.

I'm a primary supporter of this idea. The question is ....what the true worth is and how you determine it. Not the philosophy behind it, imo. Thats what they are arguing about, I think. How much money should go to the players, hence, what is their worth. Thats where it gets complex.

If the answer is - its whatever the owners say the players should get paid because thats how it works in the real world... then I'd say the union should disolve and let each player independantly negotiate with each owner to find his value. Then you have a pure version of players getting paid what they are worth or what they can generate.

The Union provides certain guarantees to the teams (max salaries, rookie scales) and their players (group benefits for the ENTIRE union). If the Union disbands (sans all of the legal hurdles to leap) the owners could then define the market by what they'll pay. They couldn't group together and say look we will only pay top players 10 million a year, since well thats against the law to limit what a person can earn and it would be collusion.

So if the Union decertified the teams could pay fair market value, in a true sense to the players and if the teams (independantly of each other as single businesses), by chance, decided to only pay start 10 million you'd be in business. However, how much would Lebron or Dirk or DRose get paid by Cuban, the Lakers, NY??? Like I've seen written 150 million, how much, whats the number? It's possible in this scenario.

So then you'd have players get fair market value based on what they can get paid, in a very real sense. Lebron generates 500 million a year for a team, what could he get paid? Not what should, but then you have a true free market. Its what we (none union 'we') operate under, there isn't a limit to what I can make other than my worth. Problem with this full free market is the Pacers, Bucks, Detroit, well most of the teams in the league can't compete with the big money backed teams and disolve.

Not trying to argue with you Since86, you make good points and I agree with your general sentiment on things and the frustration about wanting the league to play. I even agree that the players should swallow hard and be happy for the how lucky they are to have the skills to be financial taken care of well for generations of their children. I just want to make the point that its never as simple as we think from a larger picture view.

So they a a few choices, come together as a group and agree to what the players value or disband the union and have at it and all hell will break lose. Thats a missing piece I think when we talk about players being paid what they are worth.

judicata
07-05-2011, 11:27 AM
The point is that you do that for one of two reasons:

- to take out cash so you can spend it without return
- to take out cash so you can invest it in hopes of a return greater than the cost of debt.



To start with, you don't have to get a loan for the entire amount. Lets say you need $100m to maintain your lifestyle and you start with $400m.

Traditionally, an entrepreneur would buy capital with $300m, like a widget producing factory. At the end of the year each year the factory returns 5% of the $300m to the owner. The 100m is doing nothing, so the owner "pays" 5% of the 100m to maintain his lifestyle. He could have earned $20m, but only earns 15m.

NBA owners buy a team with $400m and secure a loan against the team for $100m for 5%. At the end of the year the team is worth $420m, he pays $5m in interest to the bank, and has earned $15m. Same as the entrepreneur.

In both cases the person maintaining his lifestyle is "spending without return." In both cases the person is taking on a lot of risk and might be left with nothing but illusory value, like a widget factory in a post-widget world. The only difference is that the entrepreneur has cash flowing to him from the customer. In today's world, that mode of wealth accumulation is practically antiquated.

Since86
07-05-2011, 11:51 AM
Exactly right, I agree, if you aren't worth as much you should get paid less.

I'm a primary supporter of this idea. The question is ....what the true worth is and how you determine it. Not the philosophy behind it, imo. Thats what they are arguing about, I think. How much money should go to the players, hence, what is their worth. Thats where it gets complex.

If the answer is - its whatever the owners say the players should get paid because thats how it works in the real world... then I'd say the union should disolve and let each player independantly negotiate with each owner to find his value. Then you have a pure version of players getting paid what they are worth or what they can generate.

The Union provides certain guarantees to the teams (max salaries, rookie scales) and their players (group benefits for the ENTIRE union). If the Union disbands (sans all of the legal hurdles to leap) the owners could then define the market by what they'll pay. They couldn't group together and say look we will only pay top players 10 million a year, since well thats against the law to limit what a person can earn and it would be collusion.

So if the Union decertified the teams could pay fair market value, in a true sense to the players and if the teams (independantly of each other as single businesses), by chance, decided to only pay start 10 million you'd be in business. However, how much would Lebron or Dirk or DRose get paid by Cuban, the Lakers, NY??? Like I've seen written 150 million, how much, whats the number? It's possible in this scenario.

So then you'd have players get fair market value based on what they can get paid, in a very real sense. Lebron generates 500 million a year for a team, what could he get paid? Not what should, but then you have a true free market. Its what we (none union 'we') operate under, there isn't a limit to what I can make other than my worth. Problem with this full free market is the Pacers, Bucks, Detroit, well most of the teams in the league can't compete with the big money backed teams and disolve.

Not trying to argue with you Since86, you make good points and I agree with your general sentiment on things and the frustration about wanting the league to play. I even agree that the players should swallow hard and be happy for the how lucky they are to have the skills to be financial taken care of well for generations of their children. I just want to make the point that its never as simple as we think from a larger picture view.

So they a a few choices, come together as a group and agree to what the players value or disband the union and have at it and all hell will break lose. Thats a missing piece I think when we talk about players being paid what they are worth.

This notion that LeBron generates 500million, I'm not arguing the number but the idea, so he should deserve a bigger cut is where you lose me.

I'm going to start cherry picking from other sources.

Ever watch the TV show "Sharl Tank?" The overall idea is this. 4 big time businessmen sit in a room and average Joes either pitch their business idea or they have an invention of sorts, and then the businessmen weigh in on their opinions. If they like the business/invention they start haggling over money, percentage stakes in the company etc.

No matter how good the idea or business is, the averages Joes always end up giving up a good portion of the cut to the investors. Why would they do that? It's their idea, it's their company, so they should get all of it or atleast 90% of it.

Sure it might be the "right" thing to do, but it's pretty easy to say that you deserve all the money when you're not the one taking the risk.

LeBron might "generate" 500mil per year, but without the owner he generates none. Without the NBA as a league, he's flipping burgers, sitting in a jail cell, just graduating college, whatever but the odds are that he's not a millionaire.

He is THE RISK. What happens if he's involved in a car crash that ends his playing career? Sure, you're going to say insurance is going to pay his salary. But as someone who works insurance, there is a premium that has to be paid in order for it to be covered.

Does LeBron pay his own premium? I doubt it.

Sure LeBron is a very important piece to the puzzle, but he's not THE piece.

If LeBron doesn't like it, and thinks he deserves more, than he can go out and invest in himself. But he'd better take a look at the NBA logo and try to realize that it's not him on it, but rather Jerry West.

So before there was a LeBron, there was a Michael Jordan. And I can continue on down the list, but I think my point is proven.

You think LeBron is the sole reason that he "generates" so much money? Yeah right.....

MJ generated tons and tons of money. So did Magic. So did Bird. So did Bill Russell. So did Wilt. So did Jerry West. So did Oscar. The list just continues and continues and continues.

So is LeBron the reason he generates so much money, or is it the system he was plugged into?

If LeBron was never born, that money would be generated by someone else. Might not be as much, but you never know, it could actually be more.

LeBron isn't setting a new trend, he's following one.

And besides, that's ignoring the endless argument about how the NBA is setup for marketing and how others think it should be.

The NBA has been in business marketing the individual player, over the team, for quite some time now. LeBron isn't "generating" anything. He's only the face on the machine. A machine that would continue churning out money regardless if LeBron's face was on it or not.

Which came first, the chicken or the egg?

Well in this instance the egg(the NBA marketing machine) was around before the chicken(LeBron) was even a twinkle in his daddy's eye.

BillS
07-05-2011, 12:53 PM
NBA owners buy a team with $400m and secure a loan against the team for $100m for 5%. At the end of the year the team is worth $420m, he pays $5m in interest to the bank, and has earned $15m. Same as the entrepreneur.

Here is where I am losing you. How has he earned that $15M in hard money? He hasn't - his asset has appreciated $20M but his only cash is still what he took out (less perhaps the interest he paid back if he has no other income).

Now, what does he do the second year? He still needs $100M to "maintain his lifestyle" (yeah, a real subtle dig there, but for the sake of argument I'll keep that term). His asset is worth $420M but has already got some amount of debt against it (unless you are saying he paid back the whole $105M, in which case where did he get that money since it clearly didn't come from the cashing in of his asset), let's say $90M. He borrows ANOTHER $100M for $5M in interest and the asset appreciates $20M that year as well. Now his payments are doubled. Do this every year and sooner or later you are above the loan-to-value threshold (or you are paying out more than you can take out) and you can't do that any more. The only way this doesn't happen is if the appreciation + principal paydown > the new loan.

Asset appreciation is NOT income.

Speed
07-05-2011, 12:55 PM
This notion that LeBron generates 500million, I'm not arguing the number but the idea, so he should deserve a bigger cut is where you lose me.

I'm going to start cherry picking from other sources.

Ever watch the TV show "Sharl Tank?" The overall idea is this. 4 big time businessmen sit in a room and average Joes either pitch their business idea or they have an invention of sorts, and then the businessmen weigh in on their opinions. If they like the business/invention they start haggling over money, percentage stakes in the company etc.

No matter how good the idea or business is, the averages Joes always end up giving up a good portion of the cut to the investors. Why would they do that? It's their idea, it's their company, so they should get all of it or atleast 90% of it.

Sure it might be the "right" thing to do, but it's pretty easy to say that you deserve all the money when you're not the one taking the risk.

LeBron might "generate" 500mil per year, but without the owner he generates none. Without the NBA as a league, he's flipping burgers, sitting in a jail cell, just graduating college, whatever but the odds are that he's not a millionaire.

He is THE RISK. What happens if he's involved in a car crash that ends his playing career? Sure, you're going to say insurance is going to pay his salary. But as someone who works insurance, there is a premium that has to be paid in order for it to be covered.

Does LeBron pay his own premium? I doubt it.

Sure LeBron is a very important piece to the puzzle, but he's not THE piece.

If LeBron doesn't like it, and thinks he deserves more, than he can go out and invest in himself. But he'd better take a look at the NBA logo and try to realize that it's not him on it, but rather Jerry West.

So before there was a LeBron, there was a Michael Jordan. And I can continue on down the list, but I think my point is proven.

You think LeBron is the sole reason that he "generates" so much money? Yeah right.....

MJ generated tons and tons of money. So did Magic. So did Bird. So did Bill Russell. So did Wilt. So did Jerry West. So did Oscar. The list just continues and continues and continues.

So is LeBron the reason he generates so much money, or is it the system he was plugged into?

If LeBron was never born, that money would be generated by someone else. Might not be as much, but you never know, it could actually be more.

LeBron isn't setting a new trend, he's following one.

And besides, that's ignoring the endless argument about how the NBA is setup for marketing and how others think it should be.

The NBA has been in business marketing the individual player, over the team, for quite some time now. LeBron isn't "generating" anything. He's only the face on the machine. A machine that would continue churning out money regardless if LeBron's face was on it or not.

Which came first, the chicken or the egg?

Well in this instance the egg(the NBA marketing machine) was around before the chicken(LeBron) was even a twinkle in his daddy's eye.

Its a good argument that risk of the investor plays into the value/worth assigned to a player or players, I'd agree. Even with that factored in and if you live in a non union/players world where they get what the market will bear, the best players in the league would get an astromonical pay day. Even factoring in the owner/investor risk. Cuban can't help himself, Dolan can't either. I saw it written that Cuban has had a choice to win or be profitable, because you can't do both in this environment at least not in a sustained way.

You can really take "Lebron" out of it and just say the top/elite players. The league did exist prior to Lebron, but the same principles apply if you use MJ, Bird/Magic, whoever.

You asked why the ABA failed. It failed partly because of this reason, the 'stars' were migrating to the NBA. There weren't enough 'stars' for both leagues. ABA was ables to sustain without them.

So in a way my point that its more complex is validated by your point that the investors risk has to be factored in to the players worth, among a million other moving pieces, in a word it is complicated. So I agree losing money should mean less for the players, but it comes down to how you measure 'losing' money, and therefore how do you value a player.

As for the machine being bigger than the top/elite small players I think from our Friday discussion that we just disagree on the importance we place on each side. I do agree they mutually need each other, I just think that the top/elite players would find an audience regardless eventually, therefore generate revenue, therefore get paid. The NBA machine has everything in place to maximize this immediately for a gifted player, but this (to me) wouldn't preclude them from going overseas and making a bundle or finding another situation that was able to get them paid, eventually.

It's back to the post about scabs, eventually people would want to see Dirk and Dwight Howard again instead of Fred Jones and Louis Admunson. You'd still have us die hards who follow their teams, but it wouldn't be as entertaining and you'd lose all of the fringe fans. And eventually those elite players, even the next generation who is in Junior high now would find and audience, generate interest, generate revenue, therefore get paid and the NBA would lose regardless of marketing. TV contracts would constrict, attendance wither eventually they'd become the TRUELY not viable.

Now would any of this happen, nope. NBA knows how its bread is buttered, they market the stars and it works. Would the players try to go outside the NBA, nope not as a group, too much risk, not enough reward. I will say this though, if this thing lasted two years the Union decertified, a bunch of the contracts were up. I'd for sure guess that a Mark Cuban type investor would set up a league, pay Dwight Howard, CP3, and whoever to play, get a TV contract with Fox and try to make it work. Then what?? It's probably fail, but the NBA would shudder at the sight of it.

Again, this is just something we fundamentally disagree on, the NBA IS the players, imo. Doesn't mean they should reap all of the benefits, but it does mean they should reap what they are worth.

I've gotten off point, my response earlier today was that I agree that a player should make less if the business makes less, since well that goes to fair market value. I disagree that its that simple because 'making less' by a company is and by how much can be a subjective thing. Sprinkle in that the players negotiate collectively via union, its even more complex.

Its not as simple as the owner saying we lost money therefore you make less AND here is how much less you are going to make. Its much more complex.

Speed
07-05-2011, 01:06 PM
More directly to the Shark Tank example. Those investors pay up to the point they think they can make money, the NBA has the same idea, they just don't have 3 other leagues/investors sitting next to them for a competitive balance. NBA essentially has a monopoly, but they are exempt from the anti trust laws that do not allow monopolies as a special set up (getting into stuff I really don't understand now). So if the players break up the union it could trigger a HUGE bit of litigation around anti trust laws. Basically what the NFL had happen, I believe. Anyway, my point is, its still not apples to apples since the inventors and investors on Shark Tank don't have the same set up to start with.

Side note: No anmosity intended, just something interesting to talk about when there is really nothing to talk about. :D

judicata
07-05-2011, 01:09 PM
Here is where I am losing you. How has he earned that $15M in hard money? He hasn't - his asset has appreciated $20M but his only cash is still what he took out (less perhaps the interest he paid back if he has no other income).

Now, what does he do the second year? He still needs $100M to "maintain his lifestyle" (yeah, a real subtle dig there, but for the sake of argument I'll keep that term). His asset is worth $420M but has already got some amount of debt against it (unless you are saying he paid back the whole $105M, in which case where did he get that money since it clearly didn't come from the cashing in of his asset), let's say $90M. He borrows ANOTHER $100M for $5M in interest and the asset appreciates $20M that year as well. Now his payments are doubled. Do this every year and sooner or later you are above the loan-to-value threshold (or you are paying out more than you can take out) and you can't do that any more. The only way this doesn't happen is if the appreciation + principal paydown > the new loan.

Asset appreciation is NOT income.

I was using round numbers for the sake of simplicity, and using the $100m figure as a long term lifestyle maintenance amount, not a yearly requirement. I did this to avoid having to calculate what the opportunity cost of eating is on a rolling yearly basis for someone that is otherwise trying to maximize their wealth by investing all of their money.

So in my example, the owner lives off his $100m minus $5m interest and the amount he spent during year two. He pays $5m more in interest. The team appreciates another 5%, and is now worth $44xm. Lets say he does this for 10 years. His team is worth $650m. He owes $100m still. He has had $5m to live on each year during this 10 years.

Obviously the team may not appreciate 5% on a yearly basis, but then again it might make money some years as well.

You can call it whatever you want, but its an accumulation of wealth. It looks different from a paycheck, but owner seems to be doing pretty well.

wintermute
07-05-2011, 01:09 PM
I think a very central question to all the discussion is whether the NBA is making (or losing) money. Here's another article that takes a look at that question:

http://fivethirtyeight.blogs.nytimes.com/2011/07/05/calling-foul-on-n-b-a-s-claims-of-financial-distress/

I hesitate to make a new thread about it, because a) it's usually the same people arguing over the financials and might as well keep it to thread; and b) I'm lazy and this article has a lot of charts that are a pain in the butt to format :D With that said, feel free to post a new thread if you like.

Hicks
07-05-2011, 01:13 PM
The players versus owners talk makes me think of a TV or movie star versus the network and/or studio that produces their show or movie. There's definitely a give and take, and it would wrong to declare any one part to be THE product.

There's some kind of balance to be made between the talent behind the product and the investor/marketer behind the product. Both sides are vital.

Since86
07-05-2011, 01:20 PM
Again, this is just something we fundamentally disagree on, the NBA IS the players, imo. Doesn't mean they should reap all of the benefits, but it does mean they should reap what they are worth.

I think this is where we really start parting ways.

I agree that the NBA IS the players. I don't agree that the NBA IS LeBron James.

They reap, roughly, 70% of the revenue. Even at 60%, they would be getting more than fairly compensated. And at 60%, the Pacers make money instead of losing money.

EDIT: And waterminute. Obviously you have the right to disagree, but why would the owners claim a loss, if it wasn't happening when they know that they are required by law to open their books?

If they weren't really losing money, do you think they would allow their books to become public? I seriously doubt it.

If the NBPA could prove that the NBA wasn't losing money, then public perception would be flipped on it's head, and the public would be screaming for a deal.

I seriously doubt anyone is going to show that the NBA is making money, and that the owners are hiding it.

wintermute
07-05-2011, 01:23 PM
They reap, roughly, 70% of the revenue. Even at 60%, they would be getting more than fairly compensated. And at 60%, the Pacers make money instead of losing money.

???

Players get 57% of revenue. Maybe even less, since not all revenue is counted towards BRI.

The real problem is that nonplayer expenses have been growing faster than revenue.

Edit: The NBA's books aren't open to the public. It's open to the NBPA only. And the NBPA has cried foul. Thanks for reading the article anyway :D

Since86
07-05-2011, 01:27 PM
???

Players get 57% of revenue. Maybe even less, since not all revenue is counted towards BRI.

The real problem is that nonplayer expenses have been growing faster than revenue.

I'm going by memory, but I'm pretty sure my numbers are pretty damn close.

The total operating cost of the Pacers, using Forbes numbers, was $107.5mil. PS&E generated $101mil in revenue. So they lost -6.5million in one season. Roughly $70million of the total $107.5million goes towards the players and their salaries.

So if my total expenses total $107.5million, and $70million goes towards one thing, player salaries, they're responsible for 70% of total cost. Roughly.

Since86
07-05-2011, 01:30 PM
Edit: The NBA's books aren't open to the public. It's open to the NBPA only. And the NBPA has cried foul. Thanks for reading the article anyway :D

The point is still the same and the proof is this thread.

The NBA has opened up their books, the NBPA has tried to show that it's accounting tricks, and "reality" has hit and proven that it isn't "tricks" at all.

The NBPA isn't going to find 300million hidden.

Speed
07-05-2011, 01:36 PM
I the Pacers make money instead of losing money.



This is where I think we for sure agree. I'm for a system that does this, for selfish reasons for me.

wintermute
07-05-2011, 01:40 PM
The NBA has opened up their books, the NBPA has tried to show that it's accounting tricks, and "reality" has hit and proven that it isn't "tricks" at all.


Are you referring to the Deadspin article? Yes, that Deadspin writer put a completely wrong interpretation on it. Larry Coon still considered it questionable accounting though. And the NBPA to my knowledge never publicly disclosed the NBA's books, other than to say that they dispute it. I suspect they can't say more.

So any new analysis that says the NBA isn't losing money has to be wrong, right? Because one previous writer has gotten it wrong?

Since86
07-05-2011, 01:56 PM
Are you referring to the Deadspin article? Yes, that Deadspin writer put a completely wrong interpretation on it. Larry Coon still considered it questionable accounting though. And the NBPA to my knowledge never publicly disclosed the NBA's books, other than to say that they dispute it. I suspect they can't say more.

So any new analysis that says the NBA isn't losing money has to be wrong, right? Because one previous writer has gotten it wrong?

No, it has nothing to do with the writer being wrong. I think it validates my opinion, rather than forming it.

I'm saying what person, in their right mind, would say that they're losing money when they, by law, have to show their books?

They've practically ASKED for the NBPA to go through their books with a fine tooth comb. If anything is out of whack, the NBPA is going to jump on that with full force and try to win the PR battle.

The NBA owners could have simply taken the NFL owners route and held out for MORE profit, and kept their books closed, instead of merely asking to make a profit.

BillS
07-05-2011, 02:27 PM
I was using round numbers for the sake of simplicity, and using the $100m figure as a long term lifestyle maintenance amount, not a yearly requirement. I did this to avoid having to calculate what the opportunity cost of eating is on a rolling yearly basis for someone that is otherwise trying to maximize their wealth by investing all of their money.

So in my example, the owner lives off his $100m minus $5m interest and the amount he spent during year two. He pays $5m more in interest. The team appreciates another 5%, and is now worth $44xm. Lets say he does this for 10 years. His team is worth $650m. He owes $100m still. He has had $5m to live on each year during this 10 years.

Obviously the team may not appreciate 5% on a yearly basis, but then again it might make money some years as well.

You can call it whatever you want, but its an accumulation of wealth. It looks different from a paycheck, but owner seems to be doing pretty well.

The difficulty of this argument is that if you use the right numbers you can make anything come out the end. For example, we could use these numbers vs. a player with a $5M salary to show that the owner has $100M of debt (which is actual and owed to someone whether he sells the team for $650M or $50M) while the player has no debt.

Your hypothetical owner is also only getting cash by hocking his asset in one of those years, so even if we stipulate that an asset converted via debt to spendable money is income, my argument that the remaining appreciation is not income still stands.

Where we might be able to find common ground in terminology is in using the word "wealth", because wealth is the sum total of income and assets less liabilities. However, wealth that includes assets that are value estimated rather than given value by actual exchange is subjective and therefore not absolute - I could claim my comic collection is worth $100K but until I find someone who agrees it's all just vapor.

As we all know, it isn't that easy. There are more factors, but we've seen during multiple bubbles (the tech bubble that crashed in 2000, the real estate bubble that still hasn't recovered) that one year's valuable asset is the next year's trash. The only sustainable model of income is one that generates exchangeable wealth separate from the value of the asset itself - cash flow profit. Anything else is, whether well-informed or not, speculation.

wintermute
07-05-2011, 02:37 PM
They've practically ASKED for the NBPA to go through their books with a fine tooth comb. If anything is out of whack, the NBPA is going to jump on that with full force and try to win the PR battle.


But they did :confused: Billy Hunter said they disputed the league's figures. They've said so at every turn.

What do you expect them to do? Publish the financial statements in full? They probably can't do that. No doubt confidentiality is one of the conditions for getting access in the first place.

It's not as if the league gives any more detail than saying they lost $300m either.

Since86
07-05-2011, 02:42 PM
Disputing the figures and proving them to be wrong are two different things.

EDIT: They've handed every single detail over to the NBPA.

Can we atleast agree that if there was an accounting "mistake" by the league, that the NBPA would be screaming about it?

wintermute
07-05-2011, 03:09 PM
Can we atleast agree that if there was an accounting "mistake" by the league, that the NBPA would be screaming about it?

But it doesn't have to be an outright mistake. Accounting numbers aren't black and white, as any accountant would agree. Interpretation of rules matters, a lot. Accounting is more akin to law than math, for example. Earlier on in this thread I mentioned that accounting makes my head hurt, and this is a big reason why.

You can choose to believe the NBA's assertion, that's fine. But plenty of others doubt the NBA's claims.

Since86
07-05-2011, 03:27 PM
That's why I put "mistake" instead of mistake.

And what supporting evidence do you have to show that the NBPA is correct? None.

That's my kinda my point. The NBPA has had access to the owners books for quite some time now, and they haven't offered up a single piece of evidence supporting their claim.

wintermute
07-05-2011, 03:35 PM
Equally, where's the league's evidence?

To a casual observer, the NBA is at a very good place right now.

Since86
07-05-2011, 03:39 PM
Equally, where's the league's evidence?

To a casual observer, the NBA is at a very good place right now.

They've presented it to the NBPA. If their numbers are wrong, then the NBPA would not only be telling us they're wrong, they'd be SHOWING us that they're wrong.

That's why it's the law that the NBA has to open up their books. They've presented evidence supporting their claim.

And if the owners are willing to sit out an entire season, I hardly think that "very good" would be an applicable description of the status of the NBA.

EDIT: What would have really made this discussion interesting is if I still dated my ex-gf.

She works for the accounting firm that represents PS&E, and has full access to their books. When I found out, I asked nicely to take a peak, but unfortunately, she wouldn't let me.

MagicRat
07-05-2011, 07:56 PM
The original article now includes a response from the NBA:

THE NBA'S RESPONSE: From Carol Sawdye, NBA executive vice president and
chief financial officer:
In the three years you addressed, the Nets' cash losses were $20 million in 2004, $27 million in 2005 and $40 million in 2006. Those cash losses have continued since then.
We did not include purchase price amortization in the financial data that we gave to the players and all of the net loss numbers we have used both with the players union and disclosed publicly do not include purchase price amortization. Put simply, none of the Nets losses or the league losses previously disclosed are related to team purchase accounting.
Using the conventional and generally accepted accounting (GAAP) approach, we include in our financial reporting the depreciation of the capital expenditures made by the teams as they're a substantial and necessary cost of doing business. And like every other business, our teams are seeking to make a profit rather than hope that there's some future tax benefit that may or may not be realized.


The remainder of the article is still garbage....

wintermute
07-06-2011, 05:10 AM
The NBA has responded to Nate Silver's article (the NY Times blog claiming that the NBA might not be losing money).

Here is the original article:
http://fivethirtyeight.blogs.nytimes.com/2011/07/05/calling-foul-on-n-b-a-s-claims-of-financial-distress/

In summary, the writer used Forbes and Financial World data to say that the NBA probably has overall positive operating income, and that any losses are coming from other areas.

Here is the NBA's response:
http://www.chicagotribune.com/sports/basketball/bulls/chi-nba-disputes-report-questioning-its-losses-20110705,0,2983001.story

Essentially, what the response boils down to is that Forbes and Financial World estimates are inaccurate. The NBA has frequently referred to Forbes valuations as "not reflecting reality". The NBA also made Since86's point, that the player's union has full access to the books. However, it's worth noting that the union disputes the league's figures, and their CBA offer reflects that.

And finally, Nate Silver's response to the league response
http://fivethirtyeight.blogs.nytimes.com/2011/07/05/n-b-a-disputes-forbes-analysis-suggesting-league-is-profitable/

Which essentially says that Forbes and Financial World data, for all their warts, are the only publicly available independent estimates of the league's financials.

We all can believe who we choose to believe, I guess.

wintermute
07-06-2011, 03:34 PM
And finally, the union's response

http://www.nba.com/2011/news/07/06/union-response-nba-financials.ap/index.html

The union's argument is a new one. Here:



"In 2009-10, the NBA repeatedly offered projections that league revenues would decline as much as 5 percent, or $180 million, while also projecting losses of $370 million. Revenues were actually up in `09-10 and the revenue projections were off by as much as $200 million. Yet, the loss figures were only adjusted by $30 million. So yes, we feel there is more than adequate basis for questioning their projections and financials,'' Wasserman said.


No smoking gun though, and yes it could be explained by other factors. Specifically by an unexpected increase in non-player expenses.