Bucks’ Arena Deal follow-up

There have been a number of good pieces in the past day or two about the Milwaukee arena deal and the related nonsense issuing from NBA Commissioner Adam Silver about NBA teams “losing money.”

Dave Berri, writing for Vice, enumerates all the reasons to be deeply skeptical of Silver’s claim. But he notes:

But even if it wasn’t a myth, the NBA shouldn’t be complaining. Capitalism does not guarantee that every firm will make a profit. But professional sports leagues in North America–with caps on worker compensation, revenue-sharing and substantial subsides from government—seem designed to ensure that even very incompetent managers can find success and finish in the black whether their teams win or lose. If Silver is somehow telling the un-lawyered truth, and a number of NBA franchises are somehow, some way actually failing to make money—despite torrents of cash and rigged circumstances to make a casino owner jealous—he probably should be embarrassed to say so out loud.

NBA Players’ Association President Michele Roberts, in an understated response to the Commissioner, reminded the public that one can say one is losing money even when one isn’t.

From ESPN:

Roberts emphasized the union’s belief that calculations of basketball-related income, or BRI, which determines the parameters of the NBA’s salary cap, often omit proceeds generated from NBA facilities.

“New and renovated arenas around the league have proven to be revenue drivers, profit centers and franchise-valuation boosters,” Roberts said. “That has been the case over the past few years in Orlando, Brooklyn and New York, to name a few. In some instances, owners receive arena revenues that are not included in BRI.”

In the interests of sticking to a rule I’ve said before should be mandatory in any discussion of a major pro sports leagues finances, here again is former Toronto Blue Jays’ executive, and later President of MLB, Paul Beeston, on how to translate owners/commissioners claims of loss:

“I can turn a $4 million profit into a $2 million loss and get every national accounting firm to agree with me.”

Let me put that in bigger, bold font:

“I can turn a $4 million profit into a $2 million loss and get every national accounting firm to agree with me.”

There.

One more note for now: Decades ago, Bill Veeck, the legendary baseball owner convinced the Internal Revenue Service that the players on his roster were like farm cattle and should be treated accordingly in the tax code. Thus, the roster depreciation allowance was born. It has evolved over time but, in essence, it allows teams to write off a proportion of players’ salaries because the players are “depreciating assets.” Never mind that, at any one time, some players on a roster are clearly appreciating assets (except perhaps the Yankees and Knicks. Ba-dum-cha). Mike Trout and Anthony Davis, to take two scary examples, are likely to be better in three years than they are now.

But the accounting wrinkle is this – player salaries count both as expenses (according to somewhat arcane rules that do vary over time) and as depreciating assets, so that the team gets to count the same expense twice against their profits.

In Sports Finance and Management: Real Estate, Entertainment and the Remaking of the Business,  authors Jason Winfree, Mark Rosentraub and Brian Mills write that “one could argue that the sports industry has mastered tax loopholes.” One prime example, they note, is the roster depreciation allowance.

All discussions of league finances and players salaries should include these basic facts.

 

 

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2 comments

  1. Sigh, maybe someday the public will care about stuff like this but I don’t really see that happening in the near future.

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