To match Interview NBA/STERN

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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Serge Ibaka says he wants to stay with Magic forever, and they want him long-term

Serge Ibaka jokes around while posing for a photo holding a plastic Flamingo during Orlando Magic's NBA basketball media day, Monday, Sept. 26, 2016, in Orlando, Fla. (AP Photo/John Raoux)
AP Photo/John Raoux
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The Magic took a major risk trading for Serge Ibaka, who’s heading into unrestricted free agency next summer. Rather than have Victor Oladipo (who’ll be a restricted free agent) and the No. 11 pick (who’s on a four-year contract), Orlando could come away empty-handed within a year if Ibaka leaves.

So far, everyone is saying the right things.

Ibaka, via Josh Robbins of the Orlando Sentinel:

“I’m looking to stay here to play forever — for [as] many, many years as possible,” Serge Ibaka said during the Magic’s media day.

“I’m not really worried about my contract year or my long-term,” Ibaka said.

“One of the things I learned playing on a good team is when the team wins, when you make the playoffs, everybody looks good. So that’s what will be my focus right now, because if we win and make the playoffs, everything will take care of itself.”

Magic general manager Rob Hennigan, via Robbins:

“We certainly traded for Serge thinking long-term, and that’s our expectation,” Magic general manager Rob Hennigan said.

I’d be surprised if the Magic and Ibaka didn’t discuss the parameters of his next contract, with the Thunder’s permission, before making the trade. But the Collective Bargaining Agreement prevents any binding unofficial arrangements, so nothing is set in stone.

Ibaka is already talking about making the playoffs, and that would go a long way toward convincing him to stay in Orlando. But what if the Magic miss the postseason, a distinct possibility? How keen will Ibaka be on returning then?

He’ll have other suitors – unless he has a down year. Then, how badly will Orlando want him back?

That Ibaka and the Magic are entering the season with the stated intention of a long-term arrangement means something. But it means only so much.

Quote of the Day: Karl-Anthony Towns wants to learn how to be great

Minnesota Timberwolves center Karl-Anthony Towns celebrates after hitting the game-winning shot in an NBA basketball game against the Portland Trail Blazers in Portland, Ore., Saturday, April 9, 2016. The Timberwolves won 106-105. (AP Photo/Steve Dykes)
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“There are so many talented players in the league. But only a few of them are remembered as being great — because they were willing to say they don’t know. And I’m willing to say that I don’t know everything. I do not know how it is to be a great player, to be a Hall of Famer. I want to learn.”

Karl-Anthony Towns, Minnesota Timberwolves (via Kyle Ratke on Twitter)

There were a lot of things to like about Towns’ rookie campaign — it was impressive enough to make him the clear Rookie of the Year — he averaged 18.3 points and 10.5 rebounds a game, shot 54.2 percent from the floor, and had a PER of 22.3.

But if you talk to people around the league, what really impressed them was his work ethic and drive. He puts in the time, he’s driven, and he listens. There’s a reason Kevin Garnett took to him.

KAT is going to be great. No question.

Jamaal Wilkes auctions off Basketball Hall of Fame ring, nets $25,000

SPRINGFIELD, MA - SEPTEMBER 7:  Jamaal Wilkes speaks during the Basketball Hall of Fame Enshrinement Ceremony at Symphony Hall on September 7, 2012 in Springfield, Massachusetts. (Photo by Jim Rogash/Getty Images)
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Jamaal Wilkes spent a brilliant basketball career always being overshadowed by an all-time great. At UCLA he won two titles and 88 straight games as part of John Wooden’s legacy on squads remembered as Bill Walton’s teams; in the NBA he won championships on teams led by Rick Berry first, then Magic Johnson and Kareem Abdul-Jabbar. Look at it this way: when the Lakers clinched the NBA title in Game 6 of the 1980 Finals, Wilkes had 37 points and 10 rebounds. But what do we remember from that game? Magic scoring 42 points with 15 rebounds and 7 assists as he played all five positions.

Wilkes finally was recognized for his greatness when he was elected to the Naismith Basketball Hall of Fame back in 2012.

This week he put his Hall of Fame ring up for auction online via Nate Sanders and got $25,000 for it. From the official press release:

The 10k Jostens ring features a diamond set on a square red stone. “Basketball Hall of Fame” is engraved in the gold surrounding the stones. Wilkes’ name is engraved on one side above two basketball players in relief. The opposite side has the year “2012” engraved above the Hall of Fame’s official logo.

The ring comes with a letter of authenticity from Wilkes.

Wilkes had previously auctioned off his Hall of Fame trophy, too.

John Stockton working with Bucks point guards at training camp

SACRAMENTO, CA - APRIL 30:  John Stockton #12 of the Utah Jazz dribbles in Game five of the Western Conference Quarterfinals against the Sacramento Kings during the 2003 NBA Playoffs at Arco Arena on April 30, 2003 in Sacramento, California.  The Kings won 111-91.  NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this Photograph, User is consenting to the terms and conditions of the Getty Images License Agreement. (Photo by: Jed Jacobsohn/Getty Images)
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The Bucks are coached by one of the greatest point guards in NBA history, Jason Kidd. But Kidd invited another legend of the position to camp to work with his point guards. John Stockton, the NBA’s all-time leader in assists and steals, was at Bucks practice on Thursday working with Michael Carter-Williams, Matthew Dellavedova and Giannis Antetokounmpo.

Not a bad person to learn from, especially since the Bucks have one of the weakest point-guard positions in the league.