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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Report: Thunder signing Dakari Johnson two years after drafting him

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Two seasons ago, Dakari Johnson was the youngest player by more than two years on the D-League’s All-Rookie team. Last season, Johnson was the youngest player by more than a year on an All-D-League team – and he made the first of three teams.

Now, Johnson – who the Thunder drafted No. 48 in 2015 and whose rights they continued to hold – is finally moving up to the NBA.

Shams Charania of Yahoo Sports:

The Thunder have already used the full taxpayer mid-level exception, so presumably Johnson will get the minimum – $2,128,226 over two years. That, plus two years of meager D-League salary, will be Johnson’s return for granting Oklahoma City four years of his services.

He could have forced the Thunder’s hand either of the previous two years by signing the required tender – a one-year contract, surely unguaranteed at the minimum – a team must extend to retain a draft pick’s rights. Accepting the tender would have meant Johnson earning an NBA salary (and gaining a year of service) if Oklahoma City kept him past the preseason. Or, if they waived him, he would’ve been an unrestricted NBA free agent. He still could have developed with the Thunder’s D-League affiliate while available to any NBA team.

Instead, Johnson repeatedly rejected the tender, allowing Oklahoma City to maintain exclusive negotiating rights.

At least the Thunder helped develop him. A strong 7-footer, Johnson has improved his mobility and skill level. He’s still an old-school center in a league moving away from that style, but he’s now more equipped to keep up.

Whether he’s ready enough is another question. Johnson will fall behind Steven Adams and Enes Kanter on the depth chart. At just 21, Johnson is still a decent developmental prospect.

Johnson gives the Thunder 16 players on standard contracts, one more than the regular-season maximum. They could waive Semaj Christon, whose salary is unguaranteed, but I’d be leery of having only Raymond Felton behind Russell Westbrook at point guard. Nick Collison at least provides insurance at center.

So, there’s no guarantee Johnson sticks into the regular season. One thing working in his favor: His salary will be luxury-taxed at the rookie minimum, because the Thunder drafted him. Christon or any other player acquired through free agency would be taxed at the second-year minimum.

No matter how it shakes out, Johnson is at least finally getting significant money in his pocket.

Raptors coach Dwane Casey: DeMar DeRozan to play some point guard

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The Raptors gave away backup point guard Cory Joseph to save money. So, who will play behind Kyle Lowry?

Presumably, Delon Wright and Fred VanVleet will each slide up a spot on the depth chart. The third-year Wright looks ready to join the rotation, and he deserves at least the opportunity.

But Toronto also has another – unexpected – option at point guard: DeMar DeRozan.

Raptors coach Dwane Casey, via Bryan Meler of Sportsnet:

“DeMar DeRozan, have him handle the ball a bit more as a point guard, a facilitator, a passer. Kyle Lowry moving the ball a bit more, spacing up. We don’t want to give our whole ‘what we’re going to try to do next year’ away, but again it comes down to passing the basketball and better spacing more so, than we know, one-on-one play.”

“Everyone and their brother knows we want better ball movement,” said Casey.

DeRozan didn’t play point guard at all last season.* So, this is a pretty big shift.

*Defined as playing without Lowry, Joseph, Wright or VanVleet.

Known as an isolation player, DeRozan has quietly improved as a distributor. I don’t think his ability to run an offense is at a point-guard level, but I’m also not sure that’s the point.

The Raptors are trying to change their style and promote more ball movement. This could help in the long run.

I supported the Timberwolves playing Zach LaVine at point guard as a rookie even though it was clear he should be a shooting guard. Playing point guard was a crash course that helped him develop skills useful at shooting guard, skills he couldn’t have as easily developed while playing off the ball.

The same could be true with DeRozan. Some rocky minutes at point guard could better equip him to play with Lowry in better-passing units come playoff time.

It was more conventional to play a 19-year-old on a bad team out of position to focus on skill development than it is for a 28-year-old on a good team. But he we are.

The Raptors have achieved enough success in the regular season and not enough in the playoffs. Experimenting during the long regular season is a good plan.

Lakers meet with Derrick Rose, Ian Clark about backup point guard slot

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At a press conference this week introducing Kentavious Caldwell-Pope, Magic Johnson said that the Lakers wanted to find a backup point guard in the next week or so.

Thursday the Lakers took a couple of steps down that road, meeting with both Derrick Rose and Ian Clark.

Both men would serve as the backup to, and potential mentor for, Lonzo Ball. The questions come down to which man better fits that role, and of course money.

Rose put up solid numbers last season in New York — 18 points per game, a PER of 17 — and statistically appeared to be an average NBA point guard. However, he’s still a defensive liability, cannot space the floor as a shooter (21.7 percent from three last season), and he’s not versatile offensively.

Rose is thought to be choosing between the Lakers and Cavaliers, both teams offering one-year contracts (Chicago has been mentioned is a highly unlikely reunion). Cleveland can offer the chance to chase a ring and play with LeBron James, but only a veteran minimum contract of $2.1 million. The Lakers can offer the same minimum contract or the room exception of $4.3 million (it’s not known if the Lakers put that larger offer on the table, but it seems plausible to likely). Rose has to choose what he wants, what he prioritizes, in neither case is he going to start or be part of the long-term plans — this is a one-year choice.

Clark played for Luke Walton in Golden State, is younger and more athletic than Rose, shot 37.4 percent from three last season, and is coming off his best season playing almost 15 minutes a game and winning a ring with the Warriors. He’s not as good as running the offense as Rose, but last season he cut down on his turnovers and improved his defense, taking steps forward with both. If things work out, he could stick with the Lakers beyond this season, but they will only offer a one-year contract for now.

Los Angeles has other options out there on the point guard market — Brandon Jennings, Ty Lawson, Deron Williams — but the Lakers seem to have narrowed their choice down to Rose or Clark. Once they land the backup point guard, the roster will

Shaq calls his absurd light-up shoes the real Big Baller Brand

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Because 7’1″, 350-pound Shaquille O’Neal needed an impossible-to-ignore pair of light up shoes to call attention to himself…

Shaq posted a video of himself on Instagram wearing some outrageous light-up shoes — then in the comments decided to take another dig at Big Baller Brand.

Boy was shining wasn't he #whatarethose #shineonem #feetwork #shaqshoestherealbigballerbrand

A post shared by DR. SHAQUILLE O'NEAL Ed.D. (@shaq) on

So how much do those shoes cost? More or less than ZO2?

One of the things I enjoyed about Summer League was that as Lonzo Ball played better and better, the spotlight shifted more to his play and more away from his father. Think what you will of LaVar Ball — marketing genius or loud-mouthed dad — personally I’m just weary of him. I like Lonzo’s play, I don’t need the rest.

However, between Shaq and Charles Barkley, I think there’s going to be a lot of LaVar/Big Baller Brand talk on Inside the NBA next season. Those two can’t help themselves.