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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Michael Jordan to Klay Thompson: “Go ahead and break” Bulls’ 72-win record

CHARLOTTE, NC - NOVEMBER 25:  Owner of the Charlotte Hornets, Michael Jordan, watches on during their game against the Washington Wizards at Time Warner Cable Arena on November 25, 2015 in Charlotte, North Carolina.  NBA - 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 Streeter Lecka/Getty Images)
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Barring a major injury, it seems almost inevitable at this point that the Warriors will surpass the 1996 Bulls’ record of 72 wins in a season and vault themselves into the conversation of the greatest NBA teams in history. All year, members of that ’96 Bulls team have weighed in comparing the teams, but one guy who hasn’t given his thoughts publicly is Michael Jordan.

Apparently, during All-Star Weekend in Toronto, Jordan gave Klay Thompson his blessing for the Warriors to go for 73. Via CSN’s Rosalyn Gold-Onwude:

Not that the Warriors need anybody’s permission to go after the record, obviously. But it had to be cool for Thompson to hear directly from Jordan that he respects what the Warriors are doing and wants them to break his own record. In all likelihood, they’ll do it.

Report: No suitors for Boston’s David Lee. So far.

Boston Celtics' David Lee comes down after dunking during the second quarter of an NBA basketball game against the Brooklyn Nets in Boston, Saturday, Jan. 2, 2016. (AP Photo/Michael Dwyer)
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The Celtics are rumored to be involved in a lot of trade talks that in reality are going nowhere — Kevin Love, Dwight Howard, Al Horford. The buzz around the league is none of those deals are coming together, in part because Boston is protective of its picks (particularly things like the 2016 unprotected first round pick of the Brooklyn Nets).

What the Celtics would love to talk about is finding a new home for David Lee. But that is proving difficult, reports Mark Murphy of the Boston Globe.

Lee, who has fallen out of Brad Stevens’ rotation, and would welcome a move to a playoff team that has a role for him, is not drawing suitors.

“David Lee was tough for Golden State to move all of last year,” said the source. “And it finally came down to him being moved for Gerald Wallace. David Lee has no value. It’s his contract. David Lee’s value comes in if they get one of these big name players.” … Isaiah Thomas has been doing his part when it comes to selling players on the virtues of being a Celtic.

Lee is making $15.5 million this season. He’s always mentioned in those superstar trade rumors with Boston because they can use his salary to help match a more expensive players’ contract. But on his own, that’s been a much tougher sell.

Hopefully, the Celtics can find a taker; Lee deserves to be in a place where he has a chance to at least contribute a little. He’s not a starting caliber player anymore, but we saw in the NBA Finals last season in the right circumstance he can play a key role.

Craig Sager and his flashy suits return to All-Star weekend

Craig Sager
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TORONTO (AP) — The All-Star game in New York was a little less colorful last year.

Craig Sager, the TNT sideline reporter known for wearing flashy suits, missed the NBA’s annual midseason gala for the first time since he started doing them in 1988. Another bout with the leukemia he’s been battling for the last few years resurfaced, and Sager was forced to sit out while undergoing more treatments.

Sager considers the All-Star festivities the most important weekend of the season for him, and so it pained him to have to watch on television while receiving his treatments.

“It was hard for me not to be there, but I had to address my health,” Sager said. “To be able to get that in remission and be able to go through this year, it’s going to be extra special for me. I’ve really been looking forward to this a long time.”

That’s right. Sager is back for All-Star weekend in Toronto this year.

He spent the week leading up to it in Houston receiving his monthly treatment, which included a blood transfusion, to make sure he was healthy enough for the trip. Once he arrived in Canada, he was easy to spot.

“I just saw him,” Spurs coach and longtime foil Gregg Popovich said after the Western Conference team practiced on Saturday. “His suit spoke to me. It blinded me for a second.”

It’s been an emotional run for Sager, the longtime fixture at NBA games. He has needed two bone marrow transplants and still has to make those treks to Houston once a month. He has returned to the sideline for games this season and is feeling so well that he was scheduled to do both the Saturday night activities that include the 3-point shootout and the dunk contest as well as the game on Sunday.

“I feel great. Got my weight back. Got my strength back,” Sager said. “I’m back to playing golf.”

Two of his youngest children – daughter Riley and son Ryan – will be with him on the court this weekend serving as a ball boy and ball girl.

And of course, Sager will do a round with Popovich on television during a quarter break on Sunday. The two have turned the sideline interview into a passion play,

“He’s been an iconic figure in the NBA. He does a great job,” Popovich said. “His sense of humor is obvious. we have a lot of fun going back and forth with that. To have him back where he belongs, obviously we’re happy for him and his health. But for the league it’s great too, because he’s a fixture that everybody enjoys.”

Sager called the support he has received from Commissioner Adam Silver, coaches, players and fans “humbling” and said he was looking forward to coming back to his favorite event of the season.

“It’s been very uplifting, very therapeutic,” Sager said. “Very supportive on their part. That really has been very helpful to me, my treatment and my drive to get back.”

Kevin Hart, Draymond Green get in All-Star Saturday three-point shootout

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TORONTO — This is going to come up in the Golden State locker room.

Right before Klay Thompson and Stephen Curry put on a three-point shooting exhibition, actor/comedian/self-promotor Kevin Hart came out and challenged Draymond Green to a shooting contest. Green was ready to go. They did the three-point shooting contest, and Green put up a total of 12 (which would have been dead last in the actual three-point contest, for the record).

Then Hart stepped up — and tied him with 12 points.

Steve Kerr, if you’re ever looking for a lineup to go REALLY small….