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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Nikola Mirotic, Bobby Portis lead way, Bulls blow out Kyrie-less Celtics 108-85

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CHICAGO (AP) — Nikola Mirotic and Bobby Portis are starting to draw attention for their play together instead of their fight with each other.

Mirotic scored 24 points, Portis added a career-high 23 and the Chicago Bulls blew out Boston 108-85 on Monday night with Celtics star Kyrie Irving sidelined because of a bruised left quadriceps.

Owners of the NBA’s worst record, the Bulls (6-20) built an 18-point lead in the second quarter against the Eastern Conference leaders. And when Boston cut it to 12 in the fourth, the Bulls simply pulled away for their third straight win.

Leading the way were two players who made headlines for all the wrong reasons before the season started.

Their fight at practice left Mirotic with facial fractures, causing him to miss the first 23 games. Portis served an eight-game suspension.

But the two have played well together the past two games.

“We need to give the credit to (coach Fred Hoiberg),” Mirotic said. “Fred is the one who is making us play. He’s the guy who is calling the plays for us and putting us in the right spots to play.”

As for the fight?

“Man, that situation’s over,” Portis said. “Everybody’s talking about that. But that doesn’t matter anymore. We’re just trying to win games.”

Mirotic made his first start of the season with leading scorer Lauri Markkanen sidelined because of back spasms and shot 9 of 14 with eight rebounds. Through three games, the 6-foot-10 forward is averaging 16.3 points.

Portis shot 10 of 15 and nailed all three 3-pointers.

Al Horford scored 15 for Boston (23-6). Jaylen Brown, Marcus Smart and Terry Rozier added 13 points apiece in the Celtics’ most lopsided loss of the season.

“Sometimes you get your butt kicked. It was simple as that,” coach Brad Stevens said. “Chicago dictated the whole game. They played harder than we did. They played with more presence than we did. They played more competitive than we did. They played with more authority than we did. You’re not going to win many games when you play like that.”

 

Russell Westbrook threw it down all over Michael Kidd-Gilchrist

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A rough night for the Thunder will not stop the Russell Westbrook highlights.

The Thunder had another poor game and fell to a Hornets. Westbrook tried to push the team back, but the Thunder defense that has kept them in games all season was not good enough against Charlotte, and the OKC offense was once again up and down.

Westbrook had 30 points on 22 shots on the night, and none of them were as impressive as this transition throwdown on Michael Kidd-Gilchrist.

Jahlil Okafor excited about fresh start with Nets

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NEW YORK (AP) — Jahlil Okafor finally got the fresh start he wanted.

Okafor was the consensus No. 1 high school player in his class, won a national championship at Duke, and averaged 17.5 points and seven rebounds in his rookie campaign for the Philadelphia 76ers.

Then things changed drastically.

Okafor struggled with injuries and a logjam at his position in his second season.

“When I first got drafted there, we already had Nerlens (Noel) there, Joel (Embiid) was there, so we’re trying to have three starting centers on the same team,” Okafor said Monday at his introductory news conference with his new team, the Brooklyn Nets.

“It just never really was the right fit.”

The 76ers traded Okafor along with seldom-used guard Nik Stauskas and two draft picks to the Nets on Thursday. Philadelphia got forward Trevor Booker from Brooklyn.

Okafor also had off-court problems during his time in Philadelphia. He got a speeding ticket for driving 108 miles per hour and was suspended by the 76ers for two games after in an altercation outside of a Boston nightclub with a heckler.

“Speeding obviously is illegal,” Okafor said. “I know that’s not what you’re supposed to do. I guess you just learn how the page can turn on you and how everything can flip. I can’t really say I learned anything, because you know going in that’s not right. You just learn from your mistakes, but (it was) a tough thing that I went through, I got past, and I’m looking to better times now.”

Okafor, the third overall pick in the 2015 draft, joins D'Angelo Russell, the second overall pick in the same draft class, on the Nets.

“We’re just very excited to get on the court together,” Okafor said. “You never would’ve thought the number two and number three picks would be playing on the same team a few years after, but like I said, everything happens for a reason and I’m really excited.”

Russell also had problems on and off the court with the team that drafted him. He was criticized for recording a video of former Lakers teammate Nick Young that aired sordid details about Young’s private life. The Lakers gave up on Russell and drafted Lonzo Ball as his replacement.

“I feel like we’re similar in that we have a lot to prove,” Okafor said. “I know he’s working his (butt) off as well. Right now he’s rehabbing, trying to get back on the court. I think we both have a chip on our shoulder and we have a lot to prove. We’re definitely similar in that regard.”

Okafor understands he has areas to improve, mainly defense and rebounding.

“I’m not a perfect player,” Okafor said. “I’m 21. There are things that I need to work on, that I have worked on and that I’ll continue to work on.”

He’s excited about fulfilling his potential with a new team.

“I feel really motivated right now, but I’ve always been motivated,” Okafor said. “This is the first time where people are against me in a sense because I’ve always been the hyped-up guy. It’s something new for me to experience, so I’m glad that I am experiencing it.”

 

Report: Celtics’ Marcus Morris to miss “extended time” to let knee heal

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Marcus Morris missed the Celtics’ first eight games of the season in an effort to get healthy. Upon his return he’s been solid, first as a starter, then coming off the bench, but his left knee continued to be an issue.

Morris was out Sunday when the Celtics beat the Pistons, and he’s going to miss more time trying to get a troublesome left knee right, reports Shams Charania of The Vertical at Yahoo Sports.

How much time is “extended time?” Probably at least a couple of weeks.

Morris has averaged 12.1 points and 5.5 rebounds a game this season, with a true shooting percentage of 52.5, which is right around the league average.

This could mean more run for rookie forwards Semi Ojeleye and Daniel Theis, both of whom have played well in limited minutes.