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NBA releases books showing $1.85 billion loss over six years

Jul 6, 2011, 7:17 PM EDT

NBA Commissioner Stern holds a news conference before Game 1 of the NBA Finals basketball series between the Dallas Mavericks and the Miami Heat in Miami Reuters

The league office has been working hard in recent days to make its case that the NBA owners are losing money. Big money.

They have now released some audited net income numbers — money left after all the costs are put out — to Forbes in an effort to make a more definitive case.

The following numbers are audited figures. If the projected figures are correct, the NBA will have lost $1.845 billion over the last 6 years, not turned a profit, as reported (in the New York Times).

Those numbers show a handful of teams — the Lakers, Bulls and Knicks for example — turning profits while a majority of teams lose money. The largest league loss was for $370 million in the 2008-09 season, while last season was $300 million. The players union disputes those numbers still, we need to add.

We also need to remind you that the players are a fixed cost for the league — the players get 57 percent of the gross basketball related income that the league takes in. Every year. That may be a high percentage (although not wildly out of line with the NFL an MLB) but it is a known number. What are driving losses for the owners is a rise in non-player expenses (that is supposed to be up 43 percent in the last five years).

Forbes also talks about a fix, which involves compromise.

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.

With local television rights deals driving the economic disparity, the NBA owners are going to need to look at MLB’s revenue-sharing model closely.

In terms of the players, some ability to allow competitive balance has to come into play. Since owner can’t seem to self-regulate like Major League Baseball, then some adjustment of the cap has to be considered – other methods to allow cost certainty.

Compromise is the only way a deal is going to get done. But until there is real pressure — until the threat of lost revenue from games and lost paychecks gets closer — there is not motive to compromise. So we sit and watch two sides with their heels dug in for a summer lockout. And we hope when time for a compromise does come around, both sides are willing to do it.

  1. themohel - Jul 6, 2011 at 10:02 PM

    I have wondered how player salaries can be a fixed amount when there is a soft cap-like system that allows many teams to spend up to a luxury tax number (and even more if it wants to pay the tax). How does all this automatically result in a fixed amount payable to the players as a whole?

    • gentbaseball12 - Jul 6, 2011 at 11:58 PM

      Escrow system, see http://members.cox.net/lmcoon/salarycap.htm#Q15:

      “In order to keep salaries & benefits at or below the designated percentage, money is withheld from players’ paychecks and deposited into an escrow account. At the end of each season they compare the league-wide salaries & benefits to the designated percentage of BRI to see if there was an overage. If there was not an overage, then all of the money in escrow (i.e., the full value of their contracts) is given to the players. But if there was an overage, then the overage amount is returned to the owners (which lowers salaries back to the designated percentage), and the players get the remainder (if any). The amount withheld is a designated percentage of salaries.”

    • jjstrokes - Jul 7, 2011 at 1:26 AM

      So how exactly are player contracts with either Player-Options or Team-Options expensed as fixed costs?…. Now that’s a tricky one, eh?

  2. tashkalucy - Jul 6, 2011 at 10:12 PM

    Here we go…..

    The owners say they’re losing money, the players say they should open the book.

    A NY Times reporter working with Forbes shows how all the owners are making money.

    Owners respond the next day openin their books and showing figures that most teams are losing money.

    So next step is the players reps and the media will zero in on less then 5% of the line items and say they’re bogus.

    Here comes the back-and-forth finger pointing………

  3. valman61 - Jul 7, 2011 at 12:05 AM

    I’m an accountant and it’s all BS. Both sides are correct, they are legally and for tax purposes running at an operating loss, but those losses are primarily due to goodwill expenses, amortization, and bad loans the owners took at high interest rates to finance there acquisition. This is all smoke and mirrors, each side pointing toward worst and best case scenarios to analyze their pnl. It’s all for leverage. Right now the owners are trying to take it from the players before they negotiate by showing the the financial system of the league is broke. The players are trying to prove those losses are for non cash expenses which are GAAP ( generally accepted accounting principles) but don’t really hurt their net income on a cash basis. I can explain this all to you, but I’d rather get paid for my time.

  4. goforthanddie - Jul 7, 2011 at 12:40 AM

    “They have now released some audited net income numbers — money left after all the costs are put out”

    1-Some
    2-Audited

    Even more reason for the players to scream Shenanigans.

    • tashkalucy - Jul 7, 2011 at 8:42 AM

      Do you know what “audited” means?

      It doesn’t appear so.

      • LPad - Jul 7, 2011 at 10:15 AM

        the story doesn’t clarify whether or not the books were “independently audited” also they showed them to Forbes after costs were taken out. So it is almost like being in a math class and giving answer, but not showing how you got that answer.

        I think the real problem of this story is that they showed them to Forbes and not the players union. How can two sides negotiate in good faith if one side has doubts about the numbers the other side is using? I’m really surprised that nowhere in the NFL’s or NBA’s collective bargaining agreements that the leagues aren’t required to show the unions the books for each team after they have been independently audited by an auditor agreed upon by the two sides.

        I know that the NFL owners don’t want to show the other owners how much they are making because of revenue sharing, which is a whole another story in itself? But, the NBA barely has revenue sharing and if they did open their books every year maybe they wouldn’t have to wait 11 years to address the fact that they are losing a significant amount of money every year.

    • savocabol1 - Jul 7, 2011 at 9:04 AM

      Apparently you need to go take an accounting class goforthanddie. When numbers are audited, it means that they have been proven by an accredited accounting firm who backs the numbers. Just because they didn’t release all of the financial statements doesn’t mean they are hiding anything. No accounting firm will audit financials unless they are given everything.

      • goforthanddie - Jul 7, 2011 at 3:59 PM

        Yeah, I do know what “audited” means. It means the owners had someone go through and arrange the numbers in a manner that pleases them.

        In a negotiation like this, it would make more sense (to me, anyway) to have a truly independent third-party go through the ALL raw data, as opposed to having someone picked by the league to release a partial analysis that SURPRISE! favors the owners.

        Do you really think the owners chose a fair and impartial auditor? Sorry, I don’t. If the league were truly losing as much money as it claims, it would have shut down years ago. If teams were losing cash hand over fist, you’d have a Hell of a lot more owners trying to sell. Billionaires usually don’t get that way by riding bad investments.

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