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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Associated Press
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Is there much demand for Hassan Whiteside around the NBA marketplace?

The pro-Whiteside camp can point to some raw numbers: He averaged 14 points and 11.4 rebounds a game this season (and 17 and 14 a season ago), he shot 54 percent from the floor, and had a PER of 24.1.

However, his shortcomings were on full display in the playoffs. In the first two games, when Philadelphia played small, Whiteside didn’t have a place on the court and saw limited minutes. When Joel Embiid returned things got worse — in the three games matched up against Embiid, when Whiteside was on the court the Heat were outscored by 11.9 points per 100 possessions. Whiteside played just 10 minutes in Game 5, where he was 0-of-4 from the field, picked up three fouls, and was -14. All through the series, Whiteside complained about his lack of minutes.

Whiteside and Erik Spoelstra are not on the same page, and the Heat would like to move him in a trade… but good luck with that. From Barry Jackson of the Miami Herald.

The Heat is expected to explore a Whiteside trade, with the center due $24.4 million and $27.1 million in the final two years of his contract.

In a tight financial market, the Heat are going to struggle to find a team with the space (or willing to create the space) to take on $51.5 million over two seasons. Even if they do, the Heat are going to have to attach sweeteners — multiple first round picks, or a pick and young players that interest teams (Kelly Olynyk or Bam Adebayo, for example). It’s going to be a lot to give up to get out of that contract. Maybe in the summer of 2019, when the market loosens up and Whiteside is an expiring contract, they more easily can find a deal. This summer it would be difficult.

But expect the Heat (and Whiteside’s agent) to look for a trade. It’s time to part ways, it just may not be that simple to do.

PBT Podcast: What went wrong and what’s next for Trail Blazers?

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It was embarrassing, and left both fans and players of the Trail Blazers angry and frustrated — Portland was unceremoniously swept out of the playoffs by the New Orleans Pelicans.

Now what happens in Portland? Is Terry Stotts in danger as the coach? What about GM Neil Olshey? Would they consider trading C.J. McCollum? Is there any way to offload the contract of Evan Turner?

Kurt Helin and the Northeast’s own Dane Carbaugh of NBC Sports break it all down in this latest podcast, and Blazers fans may not like the answers. The pair also touch on other series around the league, like do the Pelicans have a shot against the Warriors? And, as required by NBA law, they touch on the Sixers run.

As always, you can check out the podcast below, listen and subscribe via iTunes at ApplePodcasts.com/PBTonNBC, subscribe via the fantastic Stitcher app, check us out on Google play, or check out the NBC Sports Podcast homepage and archive at Art19.

Pacers head to Cleveland looking to put pressure back on Cavaliers

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CLEVELAND, Ohio (AP) — The Indiana Pacers are in no better position to pull off a historic upset in this first-round playoff series with the Cleveland Cavaliers than when they awoke Sunday morning.

The Pacers had a chance to put the Cavs, at the time reeling with playoff inexperience and the crushing weight of expectations with LeBron James, squarely behind the eight ball in this series by winning Game 4.

But Indiana fell behind by a huge deficit in the first half for the second consecutive game, erased it in the third and early fourth quarters again, but couldn’t sustain the momentum. Kyle Korver and James made enough plays down the stretch for the Cavs to win, 104-100, tying this series at 2-2 with Game 5 on Wednesday in Cleveland.

James has never lost a first-round series in 12 previous playoffs. Now, he has two of the next three games at home to try and keep his streak alive.

“I think just tying the series up and coming back home is something we feel good about,” said Kevin Love, who like every other Cav not named James has mostly struggled in this series. “We feel like it’s a best-of-three type series and at the end of the day, if it comes to it, we have two games at home. We like our advantage and we’re going to use that to our advantage (Wednesday) night.”

The Pacers trailed by 17 at halftime of Game 3 but steamrolled the Cavs in the second half and pulled out a 92-90 win behind 30 points from Bojan Bogdanovic, a playoff career high. They were down 10 through two quarters in Game 4 but fought back and were ahead 93-91 with 3:49 remaining before Korver connected on two deep 3s.

Indiana won Game 1 behind a playoff career-high 32 points from Victor Oladipo, who has struggled since (19-of-53 shooting in the last three games). Domantas Sabonis played a big role in the Pacers’ comeback Sunday, scoring a playoff career-best 19 off the bench.

The Pacers are getting the best night of someone’s playoff career almost each game of this series, and it’s been good enough for two wins. Then again, the Cavs’ two wins were by a combined seven points, and outside of James (32.5 ppg this series) almost no one is scoring.

Love is the next closest at 12.0 points in this series and JR Smith is third with 10.0 points.

“We’re not losing confidence,” point guard Darren Collison said, according to the Indianapolis Star. “This team is the defending Eastern Conference champions. Whatever you want to say about them, this is a very good team. They’ve been through a lot over the last few years. We’re fine. There’s no need to overreact or panic. We’re going to go into their building and we’re going to give the same effort.”

The Cavaliers say point guard George Hill (back spasms) is questionable to play in Game 5. He missed Game 4 with the same injury — four injections before the game were not enough to ease the pain to the point where he could play.

Jose Calderon started for Hill on Sunday and scored five points in 19 minutes. The Cavs are 24-9 this year (regular season and playoffs) when Calderon starts.

Hill is the only player on either team listed on the injury report. But Love suffered an injury to his left thumb in Game 1 and it’s affected him. He’s shooting 17-of-47 in the series with 11 turnovers. Catching and gripping the ball have been obvious problems.

“I’ve been able to get up a lot of shots,” Love said. “I think initially it was painful and in the few days that followed, but now it’s kind of subsided and I’m just getting my feel back in my left thumb.”

Report: Kawhi Leonard to return to San Antonio around exit interviews. Then…

Associated Press
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Nobody is sure how the Kawhi Leonard situation is going to play out with the Spurs. As is the nature of the NBA, the GMs of other teams are starting to circle the Spurs like vultures, on the chance that this time Gregg Popovich cannot smooth out the relationship with his star player and needs to trade him. Leonard spent the playoffs away from the team, working out and talking to doctors in New York while “his group” shielded him from attempts from San Antonio to reach out.

Now has come the time for the sides to talk, and that will happen soon reports Jabari Young of the San Antonio Express-News.

What happens during and after that meeting is anyone’s guess.

The Spurs will only move Leonard as a last resort, and they have two things on their side. First, Gregg Popovich, who has maintained a healthy relationship with his star pupil through all of this. LaMarcus Aldridge told Popovich he wanted to be traded last summer, and over the course of some dinner meetings and self-reflection, Popovich was able to both keep Aldridge in the fold and put him in positions to be an All-NBA level player this season. The key is that both sides were willing to talk with an open mind, are Leonard and his advisors open to that?

Second, the Spurs have the ultimate hammer — the $219 million designated veteran extension (the contract James Harden and Russell Westbrook signed this year). Put that on the table and Leonard will sign it. The question is will the Spurs put it out there? Probably not if Leonard makes it clear he doesn’t want to be in San Antonio any longer. That’s when the trade talks start to gain traction.

But we’re not there yet. Not even close. Let the meetings play out first.