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Books show Nets with $44 million loss in 2008-09 season

Jul 7, 2011, 5:53 PM EDT

Image (1) nets-logo-thumb-250x272-11291-thumb-250x272-11292.gif for post 3621

Did NBA teams lose money last year? And if so, really how much?

In the absence of the owners and players union sitting down and actually talking, the question of loss has become the talking point of the NBA lockout. There has been plenty of back-and-forth between the NBA and the players union — and we can throw in the New York Times — about this subject.

Darren Rovell at CNBC did something smart — when Bruce Ratner’s Nets Sports & Entertainment LLC owned the Nets, the books were public. Still are. So Rovell went and looked at them and broke down the year before the team was sold to Mikhail Prokhorov.

What he found is that while the reported loss by the team that year was $77 million, wipe out the amortization — which the league says it does not include in it’s loss numbers — and the loss falls to $44 million.

But that’s where the controversy starts on how the owners and players define losses and responsibility for those losses.

I said that there were two other numbers, which could be disputed. Let’s look at those. The first one is depreciation, which in this sense is the allocation of costs distributed over a certain period of time. In this case, the reported depreciation by Nets Sports & Entertainment is $2,041,611.

The players association says that depreciation shouldn’t be included in the losses. The owners say it absolutely should because it does reflect the cost of expenses that could be related to growing revenues. If the players get a certain percentage of revenues, the owners claim they should be responsible for some of the costs to get to those higher revenues.

The other disputed number is interest. The Nets for the 2008-09 season had $13,412,981 in interest. The players association again says that that shouldn’t be included in the losses. With depreciation, the actual loss might not be taken in the year it is credited to. With interest, the ownership is actually writing a check. The players can argue they shouldn’t share in this, but there’s no debate that that is a real loss.

I tend to side with the players on interest — it is not their responsibility if an owner took out loans to buy a team. But for fun, even if you wipe depreciation and interest off the books, the Nets still lose in the neighborhood of $28.5 million. That’s a chunk of change. You can see why an owner would be frustrated.

There needs to be some balance in the system. Should some of that kind of loss be covered by revenue sharing from larger market owners? Yes. Should a reduction in players’ salaries (via a reduced share of basketball related income) be part of it? Yes. But the Nets were bad and played in a bad building, and if an owner loses money because of that I have a hard time thinking the players should cover too much of the losses.

  1. timmytoad - Jul 7, 2011 at 7:11 PM

    Finally a well written article about the subject. Being a CPA that specializes in M&A transactions I have found most articles about this topic very frustrating. The key on whether a team is making any money is how much EBITDA they earn (Earnings before Interest, Taxes, Deprecation and Amortization) not Bernie Madoff’s definition of EBITDA (Earnings before I Tricked a Dumb Auditor). If the EBITDA is negative then the team has a true cash loss and some teams will go bankrupt with long-term EBITDA losses.

    The problem is that certain owners have so much money that losses do not matter to them and this drives up the salaries (Mark Cuban). The revenue split with the players should be a percentage where the owners get a positive EBITDA and some return for their investment. There also needs to be a firmer cap to prevent billionaire owners that do not care about cash flow from skewing the salary pool.

  2. craigw24 - Jul 7, 2011 at 7:40 PM

    Nice summary Kurt.

    I do agree with everything you said, which points to the players giving some of their % of BRI. I also agree they should compute this after some deductions – like investments in broadening the base of NBA popularity, as this benefits both owners and players.

    However, the owner’s current position and some owners apparent extreme positions seems to be way out-of-line with your thinking. The owners absolutely have to get their revenue sharing plan complete before coming to the players with any requests for givebacks. Any plan that doesn’t proceed in this fashion only points to the owners trying to break the player’s union.

  3. Dre - Jul 8, 2011 at 3:54 PM – Arturo checked out how teams can benefit hugely from amortization on player salaries.

  4. accfanto - Jul 8, 2011 at 3:54 PM

    It also stands to reason that if revenue sharing is to solve at least part of the current impasse, that the owners have the power to set economic standards for teams that have no hope of profitability even with revenue sharing and player concessions. By that, I mean contraction. The players then will have a decision, the same one autoworkers had at GM and Chrysler – to make deeper concessions to save those jobs, or allow some jobs to disappear so they don’t have to make those greater concessions.

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