Lockout

[turk3d]

I don't think the owners have acted in bad faith or reneged though... the players and the League agreed to a time when the collective bargaining agreement would come to an end, and the end came. They (League + players) could have extended the old CBA, they could have agreed to a new one in advance of the expiration date, or one side *or the other* could have simply stopped business until a new agreement was in place.

They should have gotten a new agreement in place before the old agreement expired, but I'm not surprised they didn't do that, since there was really no compelling reason to get a deal done until there is a threat of the overall revenue pie shrinking. And in fact, a lockout is logically consistent with the owners' stance - they say they can't continue with the old agreement because they're losing too much money. If they then extended the old agreement and started handing out more "bad" salaries, that undermines their position that the old deal was so bad.

They didn't need to "lock" the players out (could have just kept on in the negotiations) just like the players didn't "strike". Lockouts and strikes have a very negative connotation when it comes to negotiations and basically set a negative tone to discussions. It basically establishes a "hardball" tactic and essentially puts somewhat of a bad taste in the oppositions mouth and makes things more confrontational rather than "friendlier". Seems more as if the owners are just trying to break the union rather than negotiating some form of settlement.

[Twinkie defense]

Forbes backpedals on NY Times blog numbers

Given that the NBA is saying that they are running at a net loss, as opposed to the NFL, which is saying they are seeing profits declining, the NBA is compelled to open their books as part of labor law, and have done so. The following numbers are audited figures. If the projected figures [i.e., final numbers for 2010-2011] are correct, the NBA will have lost $1.845 billion over the last 6 years, not turned a profit, as reported by Silver.

What is going to be required for the NBA to be sustainable is increased revenue-sharing. But, as outlined in Why System is Broken, that will only cure a fraction of the NBA’s problems, albeit significant.

For the NBA to get on any form of solid footing, there is going to have to be significant concessions by both the players and owners. When you see a trend of well over half your clubs running at a loss, there’s a problem that needs addressing.

Not so naive to think that there isn’t creative bookkeeping along the way, but depreciation of player salaries is not going to come close to consuming the figures. For one thing, the numbers are Net Income, and therefore are post-EBITA – unless someone like PricewaterhouseCoopers is in on the fix... I think you’d be hard pressed to say that the league isn’t losing money. Some markets are flourishing, but many are drowning in red, and markets, such as San Antonio that should be seeing fair profits, aren’t.

[turk3d]

Sonny Weems signs with Lithuania next year rather than accept his 1M QO which was extended to him by the Raptors. Another sign that the owners stand to lose more players who are in similar circumstances.

http://sports.espn.go.com/nba/news/story?id=6749443

[Sleepy51]

http://fivethirtyeight.blogs.nytimes.co ... um=twitter

We use the conventional and generally accepted accounting (GAAP) approach and include in our financial reporting the depreciation of the capital expenditures made in the normal course of business by the teams as they are a substantial and necessary cost of doing business.

We do not include purchase price amortization from when a team is sold or under any circumstances in any of our reported losses. Put simply, none of the league losses are related to team purchase or sale accounting.

Here is the actual 2005 & 2006 AUDITED financial statements for the NJ Nets.
http://goingconcern.com/2011/06/who-wan ... tements/3/
The auditors report is on page 2 of the pdf.
The consolidated statement of operations is on page 4 of the pdf.

-Depreciation and Amortization are the 2nd to last line item under operating expense, above Other expense, which includes interest expense, above a line item for Net Loss of $68MM.

Audited financial statements adhere to GAAP not EBITDA. The depreciation and interest expenses are part of GAAP accounting. http://www.understand-accounting.net/Fi ... ation.html

As far as Mr. Frank's misleading doubletalk, you can make the semantic claim that Roster Depreciation Allowance is not characterized as "purchase price amortization." The applicable tax code is based on the concept of depreciation of the ROSTER as livestock, not depreciating the franchise itself. The fact that the tax break is calculated based on acquisition cost does not change the fundamental nature of the allowance.

[Twinkie defense]

Forbes' Maury Brown - Forbes was the source of the more rosy outlook on the NBA's finances - says specifically that "depreciation of player salaries is not going to come close to consuming" the audited deficits reported by the League. In other words, even if there were no "accounting tricks," the League would still be sustaining losses. The losses aren't "paper" losses.

So I gather you're saying that you looked at one financial report from one team for one season, and you are right, while Forbes looked at all of the audited financial statements, for every team, for the entire duration of the expired CBA, but they are wrong.

And also that the players union is wrong, because they too have stated that there have been real losses.

I don't know why you're going so far out on a limb here buddy.

[Twinkie defense]

The real argument is not whether the League is profitable in their day-to-day operations. They aren't, either as a whole, or for the vast majority of teams, individually. San Antonio, who has a model, winning franchise, can't make a profit? That's BS if you ask me.

The real argument is who needs to sacrifice in order to get League financials on track, and keep alive the Golden Goose that the players are benefiting from. And the clear answer, for me, is both sides are going to have to sacrifice, if we want to see basketball this season.

[floppymoose]

For those who believe that the threat of European contracts put pressure on the League, I think you are mistaken. It seems obvious to me that the PLAYER, not the team, will bear the burden for any career-threatening injury sustained during the lockout.

Which is why it puts pressure on the league. The league may have been counting on players being unwilling to take risks in this fight. If the players show they are willing to takes risks in order to continue to make money and let the owners go #@$% themselves, that changes the situation.

[Twinkie defense]

Even if LeBron blows out both ACLs though, the League will continue.

[floppymoose]

It's all about whether the players can stand the pain. I'm about 99% certain the owners will largely cave after one season. What I don't know is whether the players will cave before then.

[Sleepy51]

The depreciation allowance accounts for a reported 250MM of the claimed loss.

That is ONE component of the circumstances that lead me to disagree with the claim that the league is losing money. The complete thought process that leads me to this conclusion is not based on ONE piece of information or one paraphrase or one bumpersticker mentality catchphrase. It is based on observing the WHOLE scenario involving NBA ownership and the whole scenario does not come down to the annual cash flow. The use of the depreciation tax break contributes to the sham but it is about more than that.

Year to year cash flow is not the determinant of profit or loss on an investment. I have already explained once what TOTAL RETURN is. As long as the capital appreciation exceeds cumulative annual cash flow over the holding period then you are in a gain position. The owners are positioning annual cash flows as the primary source of value in owning a franchise and that is NOT true. The primary source of value in owning a business of this size is the potential for capital appreciation upon exiting the business. You are not at a "loss" position unless you LOSE money on your overall involvement with the enterprise on a total return basis.

Investors at this scale frequently take short term losses (and gain tax advantages from them) by commuting annual income into long term capital gains. A sports franchise is an UNSUITABLE INVESTMENT for someone who depends on a positive annual cash flow and can not meet periodic capital calls and can not afford to hold the franchise until an opportune time to sell at a gain. Equity ownership is a speculative enterprise by nature. If you want certainty, buy a bond. If the league insists on pursuing this course of turning the league into a suitable investment for people (like Chris Cohan) who depend on annual cash flow, then this will be a competitively weaker league for the fans. The objectives, and most likely end result of this lockout is going to be a financial model that even further insulates inept owners from the consequences of failure. The owners probably are going to win something here, and the result is going to harm the competitive product for the fans.

The financial model works. The model doesn't work for guys who are bad at owning a team and those who NEVER should have been approved or solicited to buy teams to begin with. Overexpansion is a bigger problem than player salaries.

[Twinkie defense]

Well the company I work for has been owned by the same people for over 100 years. Another (family-owned) company I worked for has been in existence since 1807. Al Davis no doubt will be dead when/if the Raiders are ever owned by anyone other than the Davis family. Flipping a business may be the venture capitalist thing to do, but it would be a shame to say that the only way you can keep from absorbing millions of dollars of losses each season is by selling out. And I don't think that is in the best interest of the League, either.

Though of course, if you hold anything of value for 10, 20, 30 years, no doubt it will likely go up in value a lot. Part of that of course is inflation and expectations regarding the time value of money. You could pay $10 mil for a Picasso in the 1980s and sell it for $40 mil today... but at least you aren't paying millions in upkeep in the mean time.

[turk3d]

None of these NBA franchises have been owned for over 20 years more than likely. This is a way for owners to basically make money but not have to pay taxes (because they are able to write it off as losses). Guarantee that they are able to take money out of the business (either through salaries to their wives, families or friends, bonuses, etc.) but yet show the corporation at a loss, thus paying no income taxes on it.

And all the time having the equity in the company grow in preparation for an eventual windfall. And when they do obtain that windfall, they could have numerous other tax write offs in place (if they plan it properly) to offset even those gains. It's all part of the way the business game is played. The part that irks me is that they only enjoy this advantage because they are treated differently with regards to taxes as well as allowed to operate as a non-monopoly.

These guys aren't paying jack in terms of taxes which are sorely needed in our broken economy and don't give a darn about the game itself, just their pocketbooks. And the players are totally getting raped in terms of the taxes they are forced to pay (they're not only paying their fair share, but paying more than their fare share at 35% for most players. Now with Capital gains only at 15% that's all the owner pay when they cash in so they get to keep at minimum 85% of the appreciation.

[Twinkie defense]

I'm all for fixing tax loopholes and taking a chunk of sale profits through capital gains taxes. And also, making millionaires and billionaires pay a LOT of tax. If you're not a startup though I think you should have a fair chance of making at least a small profit (though not too much profit ) every year. It's The American Way! And I also don't want sale-related capital gains to be the driving force behind pro sports, because I think that will lead to decisions (like not investing in the business) that will only hurt the sport.

It's not in the fans' interest if the decisions the teams we love make are driven by purely economic motives like maximizing sale price, and I think the fact that so many teams are losing money makes these kind of decisions more likely, if we can't reset the system so that solid teams like the Spurs aren't losing millions every year.

Now if the Clippers lose money (which they aren't), I'm all for that.

[Sleepy51]

This is getting ridiculous.

The San Antonio Spurs were purchased in 1996 for $75MM.

Forbes has them currently valued at $404MM

NO ONE IS LOSING MONEY.

. . . except maybe the Hornets. The NBA taking the team into receivership because it was unsellable is a pretty good sing that that house is not in order. But when teams are selling for numbers that EXCEED Forbes book valuations by $90MM in the case of the Warriors for record sales prices, there's your indicator of the health of the investment.

[Twinkie defense]

Warriors are lucky, they're valuable because of US! Not every team has US. I do honestly hope the government took 50% of Cohan's profit though.

[turk3d]

Bill Simmons article, a good one:

http://www.grantland.com/story/_/id/674 ... -nba-world

[darthkiller]

This is getting ridiculous.

The San Antonio Spurs were purchased in 1996 for $75MM.

Forbes has them currently valued at $404MM

NO ONE IS LOSING MONEY.

. . . except maybe the Hornets. The NBA taking the team into receivership because it was unsellable is a pretty good sing that that house is not in order. But when teams are selling for numbers that EXCEED Forbes book valuations by $90MM in the case of the Warriors for record sales prices, there's your indicator of the health of the investment.

lolwut

[cali2wisco]

This is getting ridiculous.

The San Antonio Spurs were purchased in 1996 for $75MM.

Forbes has them currently valued at $404MM

NO ONE IS LOSING MONEY.

. . . except maybe the Hornets. The NBA taking the team into receivership because it was unsellable is a pretty good sing that that house is not in order. But when teams are selling for numbers that EXCEED Forbes book valuations by $90MM in the case of the Warriors for record sales prices, there's your indicator of the health of the investment.

That equates to roughly a 12% annual return, thats pretty modest. and thats the value for one of the the best NBA franchises over that specific time period.

Put yourself in their shoes (the owners), except pretend you are running an ice cream shop instead of a basketball team.

The price of milk has been steadily rising to the point where the cost of one cone of ice cream exceeds the price that anyone is willing to pay for it. Do you keep funneling money into a money losing enterprise? Nope, you shut your sh*t down until it becomes profitable to sell ice cream again.

If Deron Williams would rather make 2mil in Bumblefck Turkey than make 10mil (rather than 16 mil or whatever) playing in the USA, then let him do it until he and the rest of the players realize they are being a$$ (Please Use More Appropriate Word) and come running home.

[turk3d]

1) Williams is getting paid $5M not 2M

2) he's definitely getting insurance to protect himself should he get injured

3) these guys are basketball players and want to play basketball and the owners are preventing them from playing by locking them out.

4) there is a clause that will allow NBA players that sign overseas to terminate their play and return to the NBA when the NBA reopens it's doors.

He said most of this in an interview that was on TV the other day (don't remember who it was who aired it). The amount getting paid was what was released by the press earlier.

[Twinkie defense]

I've always wanted to live overseas, but it's not easy. If I was in the NBA I think I would definitely take advantage of the opportunity to live say in Italy for 6 months or a year. What an experience that would be.