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has gotten its hands on the books of the New Jersey Nets — from 2003 to 2006, so they are not new — and while they are outdated they also shed some light on how accountants for teams can turn small profits from teams into losses on paper.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

Knicks: Reggie Bullock has spine injury

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Reggie Bullock had his agreed-upon salary cut by more than half with the Knicks. He’ll reportedly miss at least a month of the regular season.

All because of a mysterious health issue.

The Knicks have finally disclosed what’s happening.

Knicks release:

Reggie Bullock underwent successful surgery today at the Hospital for Special Surgery in New York for a cervical disc herniation. The team will plan to provide an update on his rehab and progress around the start of training camp.

Bullock is a good shooter from the wing. New York could use him. Many teams could use him.

But Bullock must get healthy first.

At this point, we probably shouldn’t expect much from him any time soon. The best indication: how eagerly his agent praised the Knicks for their handling of this situation. Again, Bullock settled for less than half his initially agreed-upon salary.

Report: Suns signing Cheick Diallo to two-year contract

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The Suns went old in the draft, picking 23-year-old Cameron Johnson at No. 11.

Phoenix will go younger in free agency with 22-year-old Cheick Diallo.

Adrian Wojnarowski of ESPN:

Barring another move, the Suns have only the minimum available. Diallo will get $1,678,854 next season and $1,824,003 the following season.

The No. 33 pick in the 2016 draft, Diallo worked his way into the low end of the rotation during his three years with the Pelicans. He’s a hustle big, committed rebounder and athletic player. But at 6-foot-9 and 220 pounds, he’s not strong enough to bang with most centers. His skill level is low for power forward.

Phoenix will stick him behind Deandre Ayton, Dario Saric, Aron Baynes and Frank Kaminsky in the frontcourt. Diallo might receive situation minutes, but he must develop further to hold staying power.

Report: Chris Paul increasingly expected to start season with Thunder

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Last week, the Thunder had an expensive point guard who’s into his 30s and didn’t fit a team shifting into rebuilding without Paul George.

Same story now.

Oklahoma City traded Russell Westbrook for Chris Paul to acquire draft picks and shed long-term salary. Getting Paul as a player was of minimal concern. That’s why the Thunder worked with him to flip him. But a team like the Heat wanted draft picks just for taking the three years and $124,076,442 remaining on Paul’s contract.

So, Oklahoma City might hold onto Paul, after all.

Adrian Wojnarowski of ESPN:

The 34-year-old Paul is past his prime. But he’s still good. It’d be interesting to see him once again as his team’s best player after he spent so much time stuck in the corner watching James Harden.

Paul, Danilo Gallinari and Steven Adams could form the core of a solid team this season. Paul can run an offense, and Adams (pick-and-roll) and Gallinari (pick-and-pop) offer nice complementary skills. If Andre Roberson is healthy or if a young player like Shai Gilgeous-Alexander, Nerlens Noel, Terrence Ferguson or Hamidou Diallo takes the next step, Oklahoma City could make real noise.

The Thunder’s biggest challenge: They play in the loaded Western Conference. That makes it far more difficult to make the playoffs. But in terms of team quality, Oklahoma City could be in the thick of competitiveness.

If Paul and Gallinari stay healthy. That can’t be assumed, though Adams can do some dirty work to keep those two clean.

The Thunder have tremendous draft capital – so much of which is tied to the fates of the Clippers, Rockets, Heat and Nuggets. Oklahoma City could tank and improve its draft position further and sooner. But owning so many picks from other teams allows the Thunder to try to win now while simultaneously rebuilding. They don’t necessarily have to waste seasons in the basement just to build themselves back up.

It will probably be easier to trade Paul on Dec. 15. That’s when most free agents who signed this summer become eligible to be traded. Right now, too many teams have untradable players, making it difficult to match Paul’s high salary. Generally, the more of Paul’s contract the Thunder pay out, the easier it’ll be to trade him.

But if Paul declines sharply or gets hurt, his value could diminish even further. There’s risk in waiting, though an injured Paul might allow Oklahoma City to tank anyway.

The Thunder must also cut a few million of salary before the final day of the regular season to avoid the luxury tax. That’s a priority.

So, Oklahoma City will make some move – Paul or otherwise.

But it appears likely we’ll see Paul play for the Thunder. It’ll be a return to Oklahoma City after he played home games there with the New Orleans/Oklahoma City Hornets following Hurricane Katrina.

This isn’t the reunion Paul or the Thunder appeared to desire when the Westbrook trade was agreed upon. I still think it could be pretty cool.

Ben Simmons reverses course, withdraws from Australia’s Word Cup squad

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MELBOURNE, Australia (AP) — Ben Simmons‘ new contract extension with the Philadelphia 76ers came with bad news for Australian basketball fans: The Melbourne-born NBA All-star won’t play for the Boomers at the World Cup.

Hours after Simmons and the 76ers agreed to a $170 million, five-year contract extension on Tuesday, Simmons said he preferred to spend time with his new teammates in September instead of travelling to China for the Aug. 31-Sept. 15 World Cup.

“I wanted to let everyone know that after consulting with my representation, I’ve made the difficult decision to forego playing in the World Cup in China,” Simmons said in a statement.

“Ultimately, we decided it was best that I use the time in September to return to Philadelphia to acquaint myself with my new teammates and prepare for the upcoming NBA season.”

Simmons had been selected for Australia’s World Cup squad and had earlier indicated he planned to play the tournament in China.

He now plans to play only for the Boomers in two exhibition games against the United States in Melbourne on Aug. 22 and 24 at a stadium that is expected to be sold out – 50,000 fans – for each game. He also said the Olympics next year in Tokyo remain on his schedule.

“I will still be heading back home to Australia to host my camps as well as train and play with the Boomers in the upcoming exhibition games,” Simmons said. “I’m really excited about the talent we have on the Boomers squad, especially moving closer to 2020 where I will be honored and humbled to represent my country on the world’s biggest sporting stage at the Olympics in Tokyo.”

Simmons was the No. 1 overall draft pick in 2016. He made his NBA debut in the 2017-18 season and was the Rookie of the Year. He was an All-Star for the first time last season. He has averaged 16.4 points, 8.5 rebounds and 7.9 assists in his two seasons.

Australia’s World Cup lineup is set to feature San Antonio’s Patty Mills, Joe Ingles of Utah Jazz, Phoenix center Aron Baynes, Cleveland’s Matthew Dellavedova, former No. 1 draft pick Andrew Bogut, Detroit center-forward Thon Maker and Simmons’ 76ers teammate Jonah Bolden.