One of the key tenets in David Stern’s woeful economic plight for NBA owners is the oft-repeated nugget that 22 of the 30 teams in the NBA are losing money with total losses totaling about $370 million per year.
Obviously, if 73.3 percent of the league’s franchises are losing money the league’s economic model really is broken.
But several revisionist blog posts have disputeds how widespread those losses really are.
ESPN.com’s Larry Coon provides an interesting primer on those operating losses that should be required reading for any NBA fan as the lockout begins.
NBA Players Association president Billy Hunter told ESPN.com
The players association contends that a significant portion of the NBA’s team losses are merely an accounting artifact, and doesn’t reflect an actual operating loss. ”There might not be any losses at all. It depends on what accounting procedure is used,” Hunter said. “If you decide you don’t count interest and depreciation, you already lop off 250 [million] of the 370 million dollars.”
Proving that point, Tommy Craggs of Deadspin analyzed the New Jersey Nets’ financial figures from 2003-06. Obviously, these aren’t the most up-to-date financial figures available, but they are representative of an NBA franchise.
Here’s what Craggs had to say about , which include a $27.6 million loss 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.”
There are obviously some franchises that are struggling to meet payrolls. But these stories are indicative that the NBA’s financial plight not me as dire as the league wants us to believe heading into the lockout.
Perhaps the most telling comment comes from Rodney Fort, a sports economist employed at the University of Michigan.
“The bottom line about the bottom line,” Fort tells Deadspin, “is that even if it looks like they’re losing money, it doesn’t mean they’re losing money.”
