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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Steve Kerr admits trying pot to deal with back pain, says leagues should treat it like alcohol

OAKLAND, CA - JUNE 19:  Steve Kerr of the Golden State Warriors speaks to members of the media after being defeated by the Cleveland Cavaliers in Game 7 of the 2016 NBA Finals at ORACLE Arena on June 19, 2016 in Oakland, California. 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 Thearon W. Henderson/Getty Images)
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There are some inevitable changes to the American culture as the younger generation takes over from the old, things the march of time and demographics will change in spite of the beliefs and  frustration of older generations.

The legalization of marijuana use is one of them. The question is not if, but when?

Marijuana use in California was legalized in the November election, but it had been legal for medicinal use for years (under certain guidelines, such as a doctor’s prescription).

Steve Kerr has been living in California for years — he was based out of San Diego while working for TNT as an analyst, now as the Warriors’ coach he obviously lives in the Bay Area. He’s also been dealing with chronic back pain, which has required surgeries — that’s why he missed the first half of last season.

In a podcast with Monte Poole of CSNBayArea.com, Kerr admitted he tried marijuana to deal with his chronic back pain.

“I guess maybe I could even get in some trouble for this, I’ve actually tried it twice during the last year-and-a-half when I’ve been going through this chronic pain that I’ve been dealing with, and (I did) a lot of research, a lot of advice from people, and I don’t know if I would have failed a (league) drug test, if I’m subject to a drug test, or any laws from the NBA. But I tried it and it didn’t help at all, but it’s worth it because I’m searching for answers on pain. But I’ve tried pain killers and drugs of other kinds and those have been worse.”

Kerr also said he hopes the NBA and other professional sports leagues come around to treating marijuana as they do alcohol.

“I’m not a pot person… I tried it a few times and it didn’t agree with me at all. I’m not the expert on this. But I do know this: if you’re an NFL player, and you have a lot of pain, I don’t think there’s any question that pot is better for your body than Vicodin. And yet, athletes everywhere are prescribed Vicodin like it’s vitamin C, like it’s no big deal. There’s this perception in our country that over-the-counter drugs are fine but pot is bad. I think that’s changing, you’re seeing a change in these laws.. including California. But I would just hope that sports leagues are able to look past the perception. I’m sure the NFL is worried their fans are going to say “all the players are pot heads…” but I would hope the league comes to its senses rather than see these guys get hooked on pain killers.”

Kerr shouldn’t worry. The times, they are a changin’.

Report: Nets sign Donatas Motiejunas to four-year $37 million offer, Rockets have three days to match

Donatas Motiejunas, Kenneth Faried
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The Houston Rockets’ hand has been forced.

They had reportedly offered Donatas Motiejunas $7 million a year in a short-term deal, but pulled the offer after he didn’t sign before the date that would make him eligible to be traded this season.  Since then, the Nets — a team trying to rebuild but stripped of picks and assets — considered making a gamble on him.

Friday they did.

On paper, Motiejunas is a good fit with the Mike D’Antoni Rockets. Two seasons ago he shot 36.8 percent from three, and it is easy to see where in the transition scrambles that the Rockets’ offense creates he could run to the arc or post up smaller defenders inside early in the clock. He could be a nice reserve big in Houston.

Which is why they likely match. But now the clock is ticking.

Report: No additional fine, punishment for Draymond Green after kicking flagrant

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Draymond Green picked up a flagrant foul after flailing his legs – this time catching James Harden in the face — and once again it’s become the topic of the day in the NBA.

If you didn’t see it (video above), Kevin Durant missed a three and Green made a good hustle play to get the offensive board and go back up, where he was fouled by James Harden. The foul threw Green off-balance and, as he does, he flailed his legs up, and his right leg caught Harden in the face. The replay center reviewed the play and called the original common foul on Harden, but a Flagrant 1 on Green for the kick. It mattered because it was overtime of a close game and that both evened out the free throws and gave Houston the ball again.

However, the league didn’t see this as the kind of intentional, malicious foul that gets extra attention, according to Chris Haynes of ESPN.

That outcome seems about right to me. This was not the Steven Adams situation. Green went up, was fouled by Harden which did disrupt his balance, and he threw his leg up. Whether he did that intentionally, just instinctively looking to draw a foul, or if it was simply a move to keep his balance is irrelevant — he got his foot up high enough to hit James Harden in the face, that’s a flagrant foul. It wasn’t severe enough to warrant a suspension or fine in my opinion, but players are responsible for their bodies on the court and if you kick a guy in the face that comes with consequences. Like a high boot in soccer, there is no room for debate here.

Is Green being watched for this more than other players? Duh. Of course he is, this is seven incidents I can think of without bothering to go to Google. Yes, other players do it too, but Green has the reputation. And the league is cracking down on it. Hence the flagrant.

PBT Extra: Cavaliers hit mini-malaise, schedule maker isn’t helping things

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The Cleveland Cavaliers have gotten smacked around two games in a row — first in Milwaukee and then by the Los Angeles Clippers on nationwide television — and they haven’t shown a lot of fight in either. Before that they had to come from behind and barely beat the Sixers. That’s an aberration, a championship hangover, we know the Cavaliers have fight — they came back from down 3-1 in the Finals. But they are in a mini-slump.

The schedule maker isn’t making things easier — they have a back-to-back against the Bulls the night after that big Clippers game. Then the Cavs get a couple of days off and travel to Toronto.

The Clippers had to play Friday in New Orleans. Houston won a dramatic game against Golden State Thursday in double OT, then has to play Denver the next night.

It all comes together in this latest PBT Extra.