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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Myles Turner says he’s staying focused, tuning out trade rumors

Minnesota Timberwolves v Indiana Pacers
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Myles Turner heard his name come up all summer in trade rumors, particularly to the Lakers in a massive Russell Westbrook swap. It never happened as the Lakers would not throw in two first-round picks to seal the deal. Since the season started, the trade rumors around Turner have not stopped, with the Clippers mentioned as having interest.

Turner is trying to ignore all of it.

That was especially difficult on a recent swing through Los Angeles, and Turner spoke to Law Murray from The Athletic about it.

“Nothing changes,” Turner told The Athletic.”Just go out there and focus on getting wins for this team. That’s just where my focus lies. You can’t pay attention to outside noise … doesn’t change anything, bro. All I can do is go out there and play my game.”

Every player says some version of that, but Turner has lived up to it. Able to play his natural spot at the five without Domantas Sabonis sharing the paint (Sabonis was sent to the Kings in a trade that brought back Tyrese Haliburton to Indiana), Turner is averaging a career-high 18 points and 8.5 rebounds a game, while shooting 39.7% from 3. Plus, Turner remains an elite rim-protector, averaging 2.6 blocks per game (second in the league).

Turner is playing the best basketball of his career, coincidentally as he heads into summer as a free agent.

Whatever team trades for him will have to pay him next summer impacts Turner’s trade market, as does the fact that the Pacers are a surprising 12-8 start — Indiana is reportedly not as eager to trade Turner. If a team wants to trade for him, they are going to have to overwhelm the Pacers.

Turner has hinted he likes the idea of a brighter spotlight than he has seen in recent years, but in the end money will talk. Turner has kept his head down and his play this season has earned him more of it.

Damian Lillard reportedly targeting Sunday for return from calf strain

Portland Trail Blazers v Cleveland Cavaliers
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How much the Portland Trail Blazers miss Damian Lillard was on clear display Tuesday night in maybe their ugliest loss of the season. The Trail Blazers led by 18 in the second half, Anfernee Simons was on his way to putting up 37, and they were facing a Clippers team without Kawhi Leonard or Paul George. Yet Portland came from ahead to lose. Their defense was bested by the unstoppable offensive weapon that is Nicholas Batum (32 points). Portland just let go of the rope in this one.

The Trail Blazers are now 1-4 with Lillard out with a strained calf (the second time this year). The good news for the Blazers is Lillard is targeting Sunday against the Pacers for a return, reports Chris Haynes of TNT.

Haynes is well connected with the Lillard camp, this is a report that can be trusted.

Portland is trying to keep its head above water and is now 11-10 on the season but has struggled this past week, with games at the Lakers and at the Jazz before Lillard’s targeted return.

Lillard is averaging 26.3 points and seven assists a game this season, showing the explosion we were used to seeing before he was slowed by an abdominal injury that required surgery.

Bulls extended coach Billy Donovan before season started

Denver Nuggets v Chicago Bulls
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Bulls’ fans are not thrilled with a 9-11 team sitting 11th in the East, outside the play-in.

Bulls’ management is not either, but they aren’t laying the blame at the feet of coach Billy Donovan — in fact, they extended him just before the season began, a story broken by Shams Charania of The Athletic and since confirmed by Bulls’ media relations staff to K.C. Johnson NBC Sports Chicago.

Why the extension? Because Donovan and head of basketball operations Artūras Karnišovas have a tight relationship, Johnson writes.

Karnišovas’ continued belief in Donovan centers on Donovan’s leadership and communication skills. The two men talk virtually daily and there’s never any misunderstanding in their shared, direct conversation — even when the subject matter becomes difficult.

And not everything has been or continues to be smooth sailing for the Bulls, who have played without Lonzo Ball since January and are off to a 9-11 start in a season with modest outside expectations.

No details about the length of the extension were made public.

This is a decision about stability. Donovan is a solid coach and the front office trusts him. That’s enough to get some extra years on your deal in Chicago.

The Bulls’ issues are not because of Donovan, it’s more a roster that has a “playoff team but not much more” ceiling — a ceiling that is lower this season due to injuries forcing constantly shifting rotations. The Bulls are especially hamstrung without the defense and transition play of Lonzo Ball (still out after another knee surgery). Chicago has defended well this season without Ball (10th in the league), but the offense is bottom 10 and misses the easy buckets Ball helps get with his passing and transition (plus he can knock down some 3s). Donovan has done a respectable job with the players he has.

That is good enough in Chicago to get a few more years.

Three things to know: Luka Doncic looks like an MVP, but can he keep this up?

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Three Things is NBC’s five-days-a-week wrap-up of the night before in the NBA. Check out NBCSports.com every weekday morning to catch up on what you missed the night before plus the rumors, drama, and dunks that make the NBA must-watch.

1) Luka Doncic looks like an MVP, but can he keep this up?

Luka Doncic vs. Stephen Curry.

The schedule makers gave us a showdown of early-season MVP candidates but also two guys who have had to carry a massive load this season, waiting for their teams to come together around them. Curry has gotten more of that lately as Klay Thompson has started to find his legs and some rotation shifts have improved play off the bench.

Luka is still on a Brunson-sized island waiting for help. Tuesday night that island got smaller when Spencer Dinwiddie got ejected for an elbow to the face of the Warriors’ Jordan Poole.

That just meant more Doncic, and he reminded everyone why nobody wants to play the Mavericks in the playoffs with a 41-point triple-double (12 rebounds, 12 assists).

Doncic was a force of nature, although Curry had his chance in the final 10 seconds but got called for traveling (a call the Warriors disputed).

The Mavericks got the 116-113 win. Tim Hardaway Jr. pitched in 25 points, including five 3-pointers for Dallas, but this was the Luka Doncic show.

Doncic has been asked to carry a massive load for Dallas this season. He has a usage rate of 38 through the first quarter of the season, a number that would rank in the top-10 all time (right around 1987 Michael Jordan and 2006 Kobe Bryant).

How long can Doncic do this without starting to wear down? Without risking injury? Sure those other players like Jordan and Kobe got through the entire season, but they also didn’t make the kind of playoff runs Dallas is hoping for. Coming off EuroBasket, Doncic entered this season in the best shape he has ever been in to tip-off an NBA campaign, but there have already been stretches where he has started to look worn down. Then there are nights like Tuesday when he carries the Mavericks to a win and looks unstoppable.

Doncic is young, but asking him to carry this load also puts a ceiling on how good this team can be. Curry is getting that help. Giannis Antetokounmpo is also putting up historic usage percentage numbers this season, but Khris Middleton will return to the Bucks and take on some of that load. The Mavericks touted Christian Wood as an answer, but he is coming off the bench and his defense does not have him in Jason Kidd’s good graces. It’s a one-man show more than ever in Dallas.

If the Mavs want to win in the postseason, it can’t just be the Luka show. But during the regular season, some nights that is enough. At least until he wears down.

2) Damian Lillard to return Sunday, not soon enough for Trail Blazers

The Portland Trail Blazers miss Damian Lillard (calf strain, his second this season) — they are 1-4 in the current five-game stretch without him, playing their worst defense of the season. The latest of those losses — a come-from-ahead loss to a Clippers team without Kawhi Leonard or Paul George — was maybe the team’s worst loss of the season. Anfernee Simons put up 37, the Trail Blazers led by 18 in the second half, and yet they collapsed against a team whose best offensive weapon was Nicholas Batum (32 points).

The good news for the Blazers is Lillard is due back on Sunday, reports Chris Haynes of TNT.

If you didn’t watch the late game on TNT, you missed a battle of two teams trying to keep their heads above water while their star (or stars) sit out injured.

Portland is still 11-10 on the season but has struggled this past week. What was ugly about Tuesday’s loss was the team just let go of the rope. This was a winnable game, but when it got tight they let go.

Powell scored 22 points in the fourth quarter and took over to get the 13-9 Clippers another win.

Los Angeles has done it against a soft schedule, but they keep finding ways to win until their stars return. Nobody is sure how good this team ultimately can be, but Tyronn Lue has got his squad defending and finding ways to win until everyone does get right. It’s an impressive coaching job.

3) Karl-Anthony Towns out weeks with calf strain (likely more than a month)

The MRI is in and Timberwolves big man Karl-Anthony Towns is out for weeks with a right calf strain, the team announced. Adrian Wojnarowski of ESPN reports Towns likely will miss 4-6 weeks.

Not good, but it looked a lot worse when it happened.

Towns has averaged 21.4 points and 8.5 rebounds a game, and while his stats are down this season — just 32.8% on 3-pointers — the team has struggled at times without him, particularly lineups with Rudy Gobert and Anthony Edwards together, an -11.8 net rating (in non-garbage time minutes, via Cleaning the Glass).

The Timberwolves are not off to the start they thought they would be, and if they don’t figure out a way to win without Towns the next month this season could get sideways on them.