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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Celtics top Cavaliers in Game 5, setting up Game 7 in Boston?

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LeBron James and a couple Cavaliers teammates left the court well before the Celtics dribbled out their 96-83 Game 5 win Wednesday.

The Cavs are already moving on.

Game 6 will be Friday in Cleveland, and the Cavaliers – down 3-2 in the Eastern Conference finals – must win to avoid elimination. The way Boston has played on the road, it’s even easy to look ahead to Game 7, which is scheduled for Sunday in Boston.

Still, the Celtics bought themselves leeway with their decisive win in Boston tonight. They led by double digits the final 20 minutes, breaking the Cavs’ momentum after two straight wins in Cleveland.

“It’s tough going on the road, playing against somebody else in their house with their crowd,” said Jayson Tatum, who had 24 points, seven rebounds, four assists, four steals and two blocks tonight. “So, we were just comfortable. We came back home and defended home-court like we have all playoffs.”

Boston is now 10-0 at home this postseason – but just 1-6 away. Fueled in part by that historic split, no game in this series has been close. All five have been decided by at least nine points, and the average margin of victory – 18 – is in the 97th percentile for largest ever in a 3-2 best-of-seven series.

So, just as two big Celtics wins in Games 1 and 2 didn’t deter the Cavaliers, this one likely won’t, either. The Cavs should be heavily favorited in Game 6.

Beyond, if it gets that far? That’s a much bigger tossup.

Teams up 3-2 in a best-of-seven series have won 85% of the time. But Boston is missing a key reason it secured home-court advantage, including a chance to break the 2-2 at home rather than on the road – Kyrie Irving. And LeBron James is downright scary in a Game 7, even on the road.

The Celtics at least took care of business tonight, showing a far greater sense of urgency than Cleveland. Brad Stevens changed his starting lineup, inserting Aron Baynes for Marcus Morris, and tightened his rotation to just seven players until garbage time. Boston ran the floor much harder than the Cavs, decisively outrebounded them and beat them to loose balls. Even in altercations, the Celtics had a man advantage.

LeBron (26 points, 10 rebounds five assists and six turnovers) never made his presence felt in the way usually necessary for the Cavaliers to win. Cleveland’s four other starters combined to score just 24 points, two fewer than LeBron did himself.

After Boston seized control early, the Cavaliers made few adjustments in strategy or effort – as if they’re saving those for later.

LeBron James says we don’t know full story of his upbringing, but he’ll reveal it after retirement

AP Photo/Ron Schwane
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LeBron James was on the cover of Sports Illustrated in high school – as a junior.

He has been in the spotlight ever since, somehow living up to the outsized expectations set while he was a teenager. His story has been told and retold – how he and his mom moved around Akron as she struggled to provide for him, how his athletic ability lifted himself and those around him.

But are we missing key details?

Upon passing Kareem Abdul-Jabbar for most shots made in the playoffs, LeBron reflected on his journey.

LeBron:

To know where I come from, you guys know a little bit of the story. But you guys don’t know the full story about where I come from and the struggle that I had. You guys know about the single-parent struggle, and y’all done heard that story. But there’s a lot more to it, which I’ll talk about when I’m done playing ball.

But to know where I come from, small city 35 miles south of here, and to hear I’m in the same category or talked about and jumping these greats in the playoffs — it’s like I was a kid and I watched the playoffs so much and I was like, I would love to be a part of that, that moment, that atmosphere. I think it’s pretty cool. You hear the scoring, the field goals made, and for a kid that really doesn’t care much about scoring.

Like with LeBron’s secret motivation a couple years ago, I’m totally intrigued. When LeBron decides to share, I’ll be all ears.

Larry Nance Jr., Marcus Morris and Terry Rozier exchange shoves after whistle (video)

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Marcus Morris fouled Larry Nance Jr. in Celtics-Cavaliers Game 5 tonight. Nance didn’t like that, got up and shoved Morris. Morris and Terry Rozier didn’t like that, and both shoved Morris.

All three received a technical foul, which seems fair.

Klay Thompson, Andre Iguodala questionable for Game 5

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Andre Iguodala missed the Warriors’ Game 4 loss to the Rockets with a leg injury.

It’s not certain he – or Klay Thompson, who played through a knee injury suffered in Game 4 – will be available for Game 5 tomorrow.

NBC Sports Bay Area:

Klay Thompson, who suffered a left knee strain during the first half of Game 4, is listed as questionable, the team announced Wednesday afternoon.

Iguodala missed Game 4 with a left lateral leg contusion and is questionable for Game 5.

Anthony Slater of The Athletic:

Warriors coach Steve Kerr on Iguodala:

He’s feeling a little better today, and he’s out on the floor. Not doing a whole lot, but making progress.

Kerr on Thompson:

Klay is moving around really well. I think Klay is going to be fine.

That sounds better than “questionable” for Thompson.

The Warriors need one, maybe both, of those two on the court. Golden State’s depth, especially on the wing, is looking shaky.

In Game 4, Golden State outscored Houston by 20 in the 31 minutes Stephen Curry, Thompson, Kevin Durant and Draymond Green played together. In the in the 17 minutes they played without even one of those stars, the Warriors got outscored by 23. Nick Young, who received more playing time when Thompson left the court area due to his injury, looked particularly overwhelmed.

James Harden‘s defense is a huge bellwether in this series. The Warriors spend a lot of focus trying to exploit him, and if that fails, the shot clock gets low before they move into another action. If Thompson is even just slowed, that’d make it easier for Harden to keep up.