http://sports.espn.go.com/nba/columns/story?columnist=coon_larry&page=NBAFinancials-110630 - Larry Coon's take (courtesy kby from the ex-nytimes forum)
basically he's saying that the teams that are claiming the biggest losses and affecting the perception of how far in the red they are is about recently purchased teams like the nets and hornets who are in debt and using it to show them as worse off.
But these statements also illustrate the accounting practices to which Hunter and the players association take issue. Brooklyn Basketball (the Nets' parent company) paid $361 million for the team. In order for the balance sheet to balance, it had to show assets in that amount. Some of these are real, physical assets; accounts receivable; and the like. Other parts are "intangible" assets, which represent the amount the buyer paid above the value of the tangible assets. These assets (but not the franchise itself) are amortized over their "useful lives," with a portion of their value (a total of $200 million for the Nets) counted as an operating expense each year. For the Nets this expense added up to $41.5 million in 2005 and $40.2 million in 2006.In other words, $41.5 million of the Nets' $49 million operating loss in 2005, and $40.2 million of its $57.4 million in 2006, is there simply to make the books balance. It is part of the purchase price of the team, being expensed each year. This doesn't mean they cooked their books, or that they tried to pull a fast one on the players. It is part of the generally accepted accounting practice to transfer expenses from the acquisition to the profit and loss over a certain time period. However, it's an argument that doesn't hold water in a discussion with Hunter and the players association, who would claim that the Nets didn't really "lose" a combined $106.4 million in those two years, but rather that they lost $7.5 million and $17.2 million, respectively.
The Hornets' statements show that despite their hardships, the team would have turned a reasonable operating profit in 2009 had it not been for the interest expense on their crushing debt. Despite operating on such a thin margin, the team loaned Shinn and his company $35 million at a low interest rate -- while at the same time borrowing $100 million at higher interest rates. While there is no reason to suspect it wasn't for legitimate reasons, the loan still contributed to the team's cash flow issues. Here the players would argue that it isn't their responsibility when teams mismanage their franchises, nor for the portion of debt that is unrelated to the actual basketball operations of the teams.
In either case their argument is the same: some issues simply aren't the players' problem. Unless the players can share in the profit when a team is sold, they don't want to be burdened with the costs associated with buying the team in the first place. And if they don't have a say in the team's management decisions, they don't want to pay the cost when those decisions go awry.
still don't get it? neither did i, since i'm not an accountant or lawyer...
here's ex-uk member kam's explanation from that forum:
The following is my understanding based on one semester of Accounting I took at Rutgers, but I don't know if it actually explains things or just shows off what little I remember about balance sheets.Balancing a balance sheet is like balancing your checkbook and making sure the debits match the credits.
When any business purchases an asset like a building or a piece of machinery or a patent, that thing has a generally accepted useful life. Over time, the value of that building or that piece of machinery or that patent declines. For example, you own a delivery business. You just bought a delivery van for 20,000. Thats 20,000 you've credited to your business. In 5 years, the van will still be an asset, but it will have a lesser (depreciated) value on the books. As a GAAP (generally accepted accounting principles) practice, you can amortize or debit the 20,000 over the useful life of the asset, so that if the van has a depreciation schedule of 5 years, you can expense the cost of purchasing the asset over the 5 years either evenly with straight line depreciation (4000 per year) or following a modified depreciation schedule called MACRS 5 or MACRS 7 which depreciates the value of the asset unevenly, as asset value tends to depreciate slower over time. At the end of the 5 years, the vehicle you have bought (credit 20,000) and depreciated will has a salvage value (20,000 - depreciation) or a book value because you can still sell the asset. Say you sell the asset for book value after 5 years. WHen reviewing the balance sheet, you will see 20,000 went into the business and the business got $20,000 back over the 5 years in lifetime depreciation and salvage value. Sometimes a business can sell the asset back for higher than book value (so you got more than $20,000 out of that vehicle when all was said and done) but then they have to pay taxes on the windfall amount.
businesses have capital spending costs and operating costs.
buying the team is capital spending. paying salaries and keeping the lights on is an operating expense.
the players are saying... we don't care that you financed yourself out the ass to buy the team. The costs of financing your debt are of no concern to us so don't claim that as an operating loss. your capital losses are your own, and you can try to recoup them when you sell the team, as we the players don't see any of the profits of the team sales.
in short, the owners are including cost of capital when they claim operating losses of 350 mil.
Operating losses are closer to 150 mil not the total 350 mil the owners claim.
Now if this were corporate america where shareholders get paid when the business gets sold, its perfectly acceptable practice to include depreciation and other capital budgeting items on a balance sheet.
But in the nba the players don't share the profits when the team gets sold. they aren't shareholders at all. so they argue the NBA shouldn't be using those GAAP principles.
players are right, but to the outside world, the owners LOOK right.
Forum Po Po and #33 for a reason...
7/1/2011 10:52 AM LAST EDITED: 7/1/2011 10:53 AM
