Report: How NBA owners turn profits into paper losses

19 Comments

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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Top-10 college recruit Anfernee Simmons may go straight to NBA

Getty Images
Leave a comment

A couple of years back, Thon Maker decided to play a post-graduate fifth year of prep school ball, not go to a major college, then jump to the NBA. He could because he had graduated a year before and was 19, the Bucks took him in the lottery, and so far it has worked out for everyone.

Now another recruit, Anfernee Simmons, may follow that path. Simmons is spending this year at the IMG Academy, and the combo guard is considered a top-10 recruit in this class.

Jonathan Givony of ESPN broke the story after speaking to Simmons.

“Some people have brought it to my attention,” Simons told ESPN during an interview in Connecticut, where his team was participating in the National Prep Showcase. “As long as the opportunity is there, I will do it.

“I can see myself going to the NBA combine, if I have enough teams to actually invite me or recommend me for the combine and enough teams want to bring me for workouts. I really need to hit the weight room hard and get a little stronger.”

This is a sensible approach — find out where you roughly fall in the draft, then make a decision. Listen to the teams, not friends/family/agents. If you have a first-round guarantee, then go pro.

Givony and others describe the 6’3″ Simmons as talented but still a project for the NBA level, starting with the fact he needs to get stronger (something true of most rookies). Not that it really scares off teams any longer, many are willing to develop and wait on a player with potential (he could spend a chunk of his first season in the G-League). Simmons is fast when he drives, and has a smooth release on his jumper. If he gets stronger and his game matures, a team may take a risk on him.

Shorthanded Cavaliers now without Iman Shumpert for 5-7 days

Getty Images
1 Comment

Isaiah Thomas is still rehabbing his hip, he should return next month.

With him out, Tyronn Lue and the Cavaliers have had to lean more on Derrick Rose at the point, except he has a sprained ankle that is going to have him out a couple more weeks.

That has forced Iman Shumpert into the starting point guard role in Cleveland, although he mostly is there for defense/shooting as the playmaking duties fall to LeBron James.

Now the Cavaliers will have to get by without Shumpert for a while with water on the knee, Cleveland announced on Saturday. He left Friday night’s Cavs win against the Clippers with a sore knee and did not return

“Additional examination and imaging today at Cleveland Clinic Sports Health confirmed left knee effusion. He will be out 5-7 days while he undergoes treatment and rehabilitation,” the Cavaliers said in a statement.

This is going to force Lue to play Jose Calderon, who he has kept glued to the bench this season despite the injuries. J.R. Smith and Dwyane Wade will need to take on more run as well.

The Celtics have won four in a row — thanks to a more focused offense — and face the Pistons, Nets, and Hornets this week.

Joakim Noah on if he can play at former level: “Probably not. Probably not.”

Getty Images
4 Comments

For three games, Joakim Noah has been clear of the 20-game PED suspension he started at the end of last season.

For three games, he has not even dressed for the Knicks.

This is the former Defensive Player of the Year who was already on the decline when Phil Jackson gave him a $72 million contract that is now the worst in the NBA. Noah is out of the rotation, where Enes Kanter starts at center (with Kristaps Porzingis at the four) and Kyle O’Quinn coming off the bench.

Noah told Marc Berman of the New York Post he is frustrated but gets the situation.

“I’ll be all right. I’ll be all right,’’ Noah said in his first comments since being reinstated. “I understand the situation. I’m going to make the best of it.”

When asked if he still feels he can be close to the player he was in his 2013-14 campaign, Noah said: “Probably not. Probably not. You know. I can help. I feel like I could help this team and that’s just my reality. But I just want to just be the best that I can be.

“It’s not about trying to be what I was three, four years ago, because it’s not the reality.”

Noah is a smart and mature player, he understands his reality, and he has the exact attitude you want a veteran off the bench. He can help in practices, he can help because he understands how to play defense and can teach it, and eventually, he will get a chance on the court. He is not part of the future of the Knicks, but he can guide these young players.

The Knicks new management will look for a way to unload Noah’s contract, but considering the sweeteners the Knicks would need to throw in to get a team to deal for Noah, it’s unlikely we see any action on that front for a long time.

Frustrated Gregg Popovich calls all three referees “f****** blind”

Getty Images
5 Comments

The Spurs completed an amazing comeback win against the Thunder Friday night, coming from 23 down to knock off the Thunder when Carmelo Anthony‘s game-tying three was just a two because his toe was on the line.

Gregg Popovich was into this one.

So much so that when he didn’t like an out-of-bounds call he made sure all three officials knew exactly how blind he thought they were.

The best part of this is Popovich covering his eyes, just to really emphasize his point.

We’re really going to miss Pop when he steps away to live at a winery full time.