Report: How NBA owners turn profits into paper losses

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UPDATE July 2, 11:10 am: We need to make you aware of some flaws in the accounting used by Deadspin (and repeated here) in their original post that was the basis of this one. However, I don not believe it changes the overall theme that completely legal and widely accepted general accounting principles allow an NBA team to inflate losses or even hide small profits, with the losses all being paper.

To the corrections. First, the loss on player contracts cited in this article of $25.1 million almost certainly was a buyout of Dikembe Mutombo. A legitimate loss to write off. That said, the RDA that allows owners to write off players depreciation is in place, legally allowed and used.

Also, the NBA does not include the amortization of losses on buildings in its figures. Finally, it should be noted the Nets owners at the time were forced to take out loans that year to cover the losses.

The examples used here turned out not to be ideal ones. But as anyone who has dealt with accounting like this before will tell you, there is a lot of way to move money around on paper — the Nets claimed losses of more than $100 million over a couple years, ESPN’s accountants looked at it and found closer to $24 million in actual losses. Still, those are actual losses, you understand the owners concerns about the financial system the game has been using. The point that one should be cautious with the claims of ownership about the size of the losses they incur remains valid, however. But we strive here to be accurate.

June 30, 2:36 pm: It simpler to explain cold fusion than to explain the finances of an NBA team.

But Deadspin has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.

Which would allow someone like David Stern to talk with a straight face about how 22 of the 30 teams are losing money, when in fact what you and I would consider the real numbers tell a different story in a number of those cases.

Deadspin’s Tommy Crags explains how the Nets lost $27.6 million in 2004:

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….

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.

It gets more complex when teams are sold, as the Nets were, because the new owners get to write off part of the purchase price. Larry Coon does a good job explaining this over at ESPN. And then there are the other businesses tied to this an NBA team owner may also own — if he owns the building you can charge rent or not, do all sorts of things to move the money around on paper. There are countless other examples.

Nobody — not even the players — are arguing that some markets are not hurting and that the system does not need adjustments. It does. More than the players want to admit. Owners in the NBA should have a fair opportunity to turn a profit — but if you put a bad product out on the floor and do a poor job marketing, you should not be guaranteed a profit. Like any business, you should need to earn it.

What we’re saying here is don’t take the owners word on what they are losing as fact. It’s very complex and there are plenty of ways to hide profits on paper — all legally, under generally accepted accounting principles — and make things look worse than they are.

Underdog Cavs insist they have plenty of bite for Finals

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INDEPENDENCE, Ohio (AP) — They are defending champions and decided underdogs.

The Cleveland Cavaliers, however, say they aren’t using any snubs to get ready for the NBA Finals.

Set for a third straight championship matchup against Golden State, the Cavs are ignoring the Las Vegas odds makers and others who don’t think they have a shot at beating Stephen Curry, Kevin Durant & Co.

Cavs coach Tyronn Lue doesn’t feel his team needs the underdog label for inspiration, saying being in the NBA Finals is “enough motivation alone.”

Kevin Love was reminded that Warriors forward Draymond Green said earlier this season that he wants to “destroy and annihilate” the Cavs in the Finals. Says Love said: “He wanted us, and he has us starting next Thursday.”

 

Check out Kawhi Leonard’s highlights from this past season (VIDEO)

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Russell Westbrook and James Harden were putting up the bigger numbers, they were drawing more attention. And while MVP is a regular season award, nobody has boosted their MVP credentials more in the postseason than Kawhi Leonard.

He had a really impressive regular season, too. Since we’re on a long break between games, enjoy the highlights of Leonard’s season. He may enter next season as the MVP favorite.

Kevin Love on Cavaliers: “I don’t feel like we’re underdogs”

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Kevin Love and Las Vegas bookmakers do not see things the same way.

In Vegas, the Golden State Warriors are heavy favorites to win the title — bet $100 on them to win and you get back $41.7 (or less). Cleveland is a heavy underdog.

Love sees a confident team that is the defending NBA champions, as he told Dave McMenamin of ESPN.

“The whole underdog thing is funny to me, because, yeah, at the end of the day we are defending our title,” Love said Saturday after the Cavs’ first practice in preparation for the Warriors since clinching a spot in the Finals. “We’re trying to repeat, which is so hard to do. I think we will use it as fuel, we will use it as motivation, but the idea of playing into it? It’s tough for me to say that is the case. I don’t feel like we’re underdogs. We match up well with them, and I think they’d say the same about us.”

What else was he going to say?

More than any other team in the league, the Cavaliers are built to give Golden State trouble. The Cavaliers can exploit mismatches, be physical on defense, and they have LeBron James, Love and Kyrie Irving. Three NBA stars.

Is that enough against four NBA stars is the question.

Mike Brown still waiting on Tyronn Lue to pay up overdue bet

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OAKLAND, Calif. (AP) — Mike Brown is ready for Tyronn Lue to pay up on a nearly two-decade-old bet. Yep, Lue owes him $100 and Brown plans to accept it at long last – perhaps even during the NBA Finals when they see each other.

All this time Brown never wanted the money he earned by beating Lue in a shooting contest when the Cavaliers coach was an NBA newcomer, yet Golden State’s acting coach – who spent two stints leading Cleveland – joked how Lue can surely afford it these days.

“I’m glad he finally admitted that he owes me money because for many years he wouldn’t admit that he owed me money. He does owe me $100 and since he got his new deal hopefully he can afford to pay me now,” Brown said Saturday post-practice. “I asked him many time for it but he’s denied it. He’s denied that the game ever took place.”

Lue insists he has tried to pay up – time and time again, to no avail.

“Mike, I owe him $100 from when I was a rookie. That’s all I ever know about Mike,” Lue said Saturday. “I tried to pay him and he wouldn’t take the money so he says I always owe him. He’s always been a great guy.”

The 40-year-old Lue was rewarded with a contract extension after the Cavs’ championship run last June for the city’s first major sports title in 52 years. Cleveland overcame a 3-1 Finals deficit to the Warriors, and now the teams are preparing to face off for a third straight year.

“I think what it has to do with, it has to do with the fact he’s got a nice, long, fat contract with the Cavs and he realizes that he can finally afford to pay me the money that he owes me for the shooting game back in 2000 or whenever it was,” Brown said with a grin.

Brown acknowledged he cannot recall any other details such as how many shots each man made, saying: “I don’t even remember, that was back when I was in shape and a good shooter. He’d kill me now”

“Yeah, he was with the Spurs and I was with the Lakers and we had a little shooting contest and I lost,” Lue said. “He wouldn’t take the money so from now on 19 years in a row always says, `You owe me $100.’ He won’t take the money. Always been close to Mike and I like Mike a lot, respect him a lot.”