On one side are owners. But do small market and big market owners really have the same interests? Do rich owners who own the team for a toy, and owners who actually want to make money on it have the same interests?

Do star players, average players, and career scrubs have the same interests? Do players currently playing for small market teams have the same interests as ones playing for big market ones?

For a compromise to occur, the sides need to actually understand their own needs and what is important to them. Instead, players have lumped themselves together and so have the owners, all in the name of leverage. So instead of a constructive value-driven negotiation, what we have is a negotiation that is driven by power and power alone. Things have deteriorated to the most ineffective negotiating approach right from the get go.

At the end what will result is an agreement that will be far from optimal for either side, which should not be surprising since neither side is actually concentrating on its respective value propositions.

The current NHL is a great illustration as to what will happen. A once glorious professional league that has sunk into near obscurity.

eViL wrote:

OasisBU wrote:

knickstorrents wrote:

OasisBU wrote:If I buy a business for $1000 of all borrowed money, and the business makes $100, $80 goes to the cost of operations and $20 goes to the cost of servicing the money I borrowed to make the purchase, then my business is not profitable unless I go out and find a more favorable loan. Why should I have to pay the players a share of $20 of profit that doesn't exist?

Are you intentionally trying not to make sense?

Someone else please try to explain.

I'm not sure what you are missing since I am using your example. If a company was purchased through financing, whether it be publicly traded or privately held, the cost of borrowing that money is a business expense and counts against net income (profitability).

If you have to borrow money to buy a team, the cost of borrowing that money negatively affects the profitability of the business.

It does not matter if the players don't believe GAAP should be used here, it's perfectly legal and it is not hiding any profits.

The players argument is that the value of the franchise increases while the team operates at a loss, so they want a piece of the profit from the sale. This argument is BS because they are not owners, they did not leverage themselves and put their assets on the line, so they should not participate in the sale of the team. They want to turn this into a players owned league.

Nothing is stopping them from buying stock in the publicly traded teams like MSG and the Celtics. I really don't think the players have a valid argument here.

aren't the players arguing that, by counting the cost of borrowing money to purchase the team, the owners are passing on the downside to the players, and reducing their salaries, but they don't get to see any of the upside when the team gets sold? i can see why they'd be pissed.

Yes and the owners are arguing that borrowing money to purchase an fund a franchise is a business expense that directly impacts profitability so the players argument is baseless. They want a % of operating profit but those $ are used to pay for things like taxes and interest.

Think of it like this - if you earned $100 as a contractor and had to share your profits with me (20%). You need to pay your Federal and state income taxes (assume 35%), plus 15% social security and Medicare. So already $50 is gone.

Now I come in an argue that my 20% should come from the $100 in revenue an not the $50 in profit - netting me $20 instead of $10 (20% of $50). So I am asking for % of revenue versus % of profit after tax - option 2 is obviously what you would go for.

Now let's complicate this further and layer on the fact that you borrowed money to start the business and owe $30 in interest for every $100 you earn. You really only have $50 after taxes left - so if you pay me $10 (20% of $50) you are left with $40, and after paying interest you make $10.

That's a profit margin of 10% - now if you pay me after interest I am only getting $4 (20% of $20) leaving you with $16. That's a pretty big difference isn't it?

Which do you think is more fair?

This may be confusing but I am typing on my phone so trying my best to make it simple.

OasisBU wrote:Yes and the owners are arguing that borrowing money to purchase an fund a franchise is a business expense that directly impacts profitability so the players argument is baseless. They want a % of operating profit but those $ are used to pay for things like taxes and interest.

Think of it like this - if you earned $100 as a contractor and had to share your profits with me (20%). You need to pay your Federal and state income taxes (assume 35%), plus 15% social security and Medicare. So already $50 is gone.

A better example would be I buy a business that has contractors working in it. The business WAS profitable before I bought it, but because I had to borrow money to buy it from the previous owner, the business NOW loses money.

Is the cause of the business LOSING money the loan I had to take out to buy it from the previous owner, or is it because the business is not healthy?

For the purposes of a salary negotiation with the contractors (players), when the owner is saying the player's salaries are the cause of the business not being profitable, it is unfair to lump in other expenses that players have nothing to do with to show/hide profitability.

OasisBU wrote:

knickstorrents wrote:

OasisBU wrote:Yes and the owners are arguing that borrowing money to purchase an fund a franchise is a business expense that directly impacts profitability so the players argument is baseless. They want a % of operating profit but those $ are used to pay for things like taxes and interest.

Think of it like this - if you earned $100 as a contractor and had to share your profits with me (20%). You need to pay your Federal and state income taxes (assume 35%), plus 15% social security and Medicare. So already $50 is gone.

A better example would be I buy a business that has contractors working in it. The business WAS profitable before I bought it, but because I had to borrow money to buy it from the previous owner, the business NOW loses money.

Is the cause of the business LOSING money the loan I had to take out to buy it from the previous owner, or is it because the business is not healthy?

For the purposes of a salary negotiation with the contractors (players), when the owner is saying the player's salaries are the cause of the business not being profitable, it is unfair to lump in other expenses that players have nothing to do with to show/hide profitability.

Corporations do this all the time - they acquire businesses and lever them up - the interest still counts against profitability.

If the NBA follows GAAP, then this is perfectly legal and not considered shady. So if you side with the players you are basically saying GAAP is wrong.

nobody is saying GAAP is wrong. they are saying that the numbers as presented, while acceptable for normal businesses, do not support the owners argument that player's salaries need to decrease. is the NBA losing money because players are being paid too much? or is it because the owners are way leveraged? if it's the former, then sure, adjust the salaries. if it's the latter, then why should the players be the ones to lose out?

knicks1248 wrote:

knickstorrents wrote:

OasisBU wrote:Yes and the owners are arguing that borrowing money to purchase an fund a franchise is a business expense that directly impacts profitability so the players argument is baseless. They want a % of operating profit but those $ are used to pay for things like taxes and interest.

Think of it like this - if you earned $100 as a contractor and had to share your profits with me (20%). You need to pay your Federal and state income taxes (assume 35%), plus 15% social security and Medicare. So already $50 is gone.

A better example would be I buy a business that has contractors working in it. The business WAS profitable before I bought it, but because I had to borrow money to buy it from the previous owner, the business NOW loses money.

Is the cause of the business LOSING money the loan I had to take out to buy it from the previous owner, or is it because the business is not healthy?

For the purposes of a salary negotiation with the contractors (players), when the owner is saying the player's salaries are the cause of the business not being profitable, it is unfair to lump in other expenses that players have nothing to do with to show/hide profitability.

good analogy..

I agree it's a good analogy but it still doesn't change in my mind that the profitability should be based on net income regardless of whether a loan is involved.

The cost of purchasing the team is real, the loan is real and is a business expense, and the owners are the ones putting their assets on the line and taking all the risk.

I side with the owners on this, you cannot discout what they bring to the table as Martin said earlier. The players dent create the league, they don't finance it, they are the product and get paid very well to do their job. I'm not sure a player owned league or a situation where they made even more money would be a good thing.

Solace wrote:

OasisBU wrote:

knicks1248 wrote:

knickstorrents wrote:

OasisBU wrote:Yes and the owners are arguing that borrowing money to purchase an fund a franchise is a business expense that directly impacts profitability so the players argument is baseless. They want a % of operating profit but those $ are used to pay for things like taxes and interest.

Think of it like this - if you earned $100 as a contractor and had to share your profits with me (20%). You need to pay your Federal and state income taxes (assume 35%), plus 15% social security and Medicare. So already $50 is gone.

A better example would be I buy a business that has contractors working in it. The business WAS profitable before I bought it, but because I had to borrow money to buy it from the previous owner, the business NOW loses money.

Is the cause of the business LOSING money the loan I had to take out to buy it from the previous owner, or is it because the business is not healthy?

For the purposes of a salary negotiation with the contractors (players), when the owner is saying the player's salaries are the cause of the business not being profitable, it is unfair to lump in other expenses that players have nothing to do with to show/hide profitability.

good analogy..

I agree it's a good analogy but it still doesn't change in my mind that the profitability should be based on net income regardless of whether a loan is involved.

The cost of purchasing the team is real, the loan is real and is a business expense, and the owners are the ones putting their assets on the line and taking all the risk.

I side with the owners on this, you cannot discout what they bring to the table as Martin said earlier. The players dent create the league, they don't finance it, they are the product and get paid very well to do their job. I'm not sure a player owned league or a situation where they made even more money would be a good thing.

I agree with you. I think the players are being unreasonable in this case. To dismiss the cost of the team as a legitimate expense is absurd. You might argue the amortization schedule, but the expense is legitimate. It's going to be interesting. Obviously, the one concern as a Knicks fan is that we get an even worse cap situation with even less possibility of player movement. IMHO, the inability of star players to move easily is crippling the league in some ways, also. I think they should reduce salaries, but also teams should not have a cap, just luxury tax. It's good for the league to have star teams in major markets. It's just how it works.

But is it the players fault if the owners over pay for a franchise?

If teams lose money, why does anyone with billions buy them - they should be savvy enough to see it as a losing proposition, and move on.

knickstorrents wrote:

Solace wrote:I agree with you. I think the players are being unreasonable in this case. To dismiss the cost of the team as a legitimate expense is absurd. You might argue the amortization schedule, but the expense is legitimate. It's going to be interesting. Obviously, the one concern as a Knicks fan is that we get an even worse cap situation with even less possibility of player movement. IMHO, the inability of star players to move easily is crippling the league in some ways, also. I think they should reduce salaries, but also teams should not have a cap, just luxury tax. It's good for the league to have star teams in major markets. It's just how it works.

How is it legitimate when the owners are claiming that player salaries are causing teams to lose money, when it is actually many factors, with a major factor being the interest owners are paying because they are borrowing money to buy the teams instead of using their own cash?

It's a shell game. You should not be buying the lies the owners are selling, there are many factors involved, and the fact that there are profitable teams that are heavy into the luxury tax should make it clear to you that it's not salaries that are causing teams to lose money, but the owners using loans, and over-expansion of the league into small markets that is causing teams to lose money.

Some small markets simply shouldn't have teams, period. When the owners voted to expand the league (and pocket the expansion fees) they made a mistake, and now they are trying to correct their mistake on the backs of the players.

I guess you need to think of it from the perspective of an owner. I think the majority of owners buy a team to make money. However, with the cost of buying a team combined with the salaries of the players, it's increasingly difficult to turn profit without then reselling the team. But, with that being the general trend, eventually you'll reach a stage soon, if we're not already there, where there isn't a profit to be made by buying an reselling a team. The owners purchase teams for the potential yearly profit they can get. Many of the teams are not turning profit.

The issue of the cost of buying team goes as follows: After x amount of years, you expect to have made enough profit to cover this cost. What this amount of expected years varies, of course. Under the current scheme, for the majority of teams, this number is very high or infinity, because they're losing money. Also, I don't think a lot of owners go into buying a team thinking that they should need to sell it again in 5-7 years.

I am not in the position where I think either the owners or players are 100% correct. I think both sides are, quite honestly, extremely greedy and have been for a long time. There will have to be serious concessions from both sides. All I was commenting on was I think it's valid to include a standard business calculation for a situation when you discuss whether you're profitable. Clearly, most of the teams aren't turning profit, using this valid calculation, and player salaries are a major factor. I agree it's not the only factor, but it's one that's reasonable to try to control.

In my mind, the biggest problem with player salaries right now is I think, about 20 years ago, we had a situation where stars were paid well and role players were paid like role players. Now we have a situation where stars are paid like Gods and role players are paid like stars. In my mind, the main cause of this is the guaranteed contracts. A player looks good in a contract year, gets overpaid, and then regardless of performance, gets paid for x years. Reduce/eliminate that practice and the NBA financial crisis is over. If you don't agree that this is the most obvious problem, I have two words for you: Eddy Curry.

Solace wrote:Clearly, most of the teams aren't turning profit, using this valid calculation, and player salaries are a major factor. I agree it's not the only factor, but it's one that's reasonable to try to control.

In my mind, the biggest problem with player salaries right now is I think, about 20 years ago, we had a situation where stars were paid well and role players were paid like role players. Now we have a situation where stars are paid like Gods and role players are paid like stars. In my mind, the main cause of this is the guaranteed contracts. A player looks good in a contract year, gets overpaid, and then regardless of performance, gets paid for x years. Reduce/eliminate that practice and the NBA financial crisis is over. If you don't agree that this is the most obvious problem, I have two words for you: Eddy Curry.

maybe you missed the earlier posts or articles, but there is evidence that what you are believing to be a significant problem -- player salaries -- is not so clearly to be the largest problem, and that the league as a whole is profitable.

PresIke wrote:http://fivethirtyeight.blogs.nytimes.com/2011/07/05/calling-foul-on-n-b-a-s-claims-of-financial-distress/

...independent estimates of the N.B.A. financial condition reflect a league that has grown at a somewhat tepid rate compared to other sports, and which has an uneven distribution of revenues between teams — but which is fundamentally a healthy and profitable business. In addition, it is not clear that growth in player salaries, which has been modest compared to other sports and which is strictly pegged to league revenue, is responsible for the league’s difficulties.

In fact, because of a little-known provision in the labor agreement, players must return a portion of their salaries if they exceed 57 percent of league revenues, as has happened in several recent seasons. As I will discuss at more length later, the portion of revenues earned by N.B.A. players is similar to that of the other major sports leagues and has been stable over the past decade.

Growth in non-player expenses has outpaced that of salaries, having increased by 13 percent over five years and 43 percent over 10 years. Although some of this undoubtedly reflects sound business ventures, like the league’s investments in digital media or efforts to expand the game internationally, they have nevertheless had a reasonably large effect on the league’s bottom line. Had nonplayer expenses been the same in 2009-10 as they were in 1999-2000 (adjusted for inflation), the league would have made a record profit that year.

Even as it stands, however, the Forbes data suggests that the league is still profitable...

The N.B.A.’s operating margin (operating income divided by revenues) was about 5 percent in 2009-10 and has been about 7 percent during the life of the current labor deal.

A 5 percent or 7 percent profit is not dissimilar to what other businesses have experienced recently[/b]. Fortune 500 companies, for instance, collectively turned a 4.0 percent profit in 2009 and a 6.6 percent profit in 2010 (both figures after taxes). Profit margins in the entertainment industry, in which the N.B.A. should probably be classified, have generally been a bit lower than that.
[b]
So why are N.B.A. owners seeking such significant reductions in player salaries, reportedly to about 45 percent of league revenues? The simple reason is that they think they can — and this reflects an awful lot of money.

N.B.A. Lays Off 11 Percent of Staff
By HOWARD BECK
Published: July 14, 2011
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The layoffs came exactly two weeks after the N.B.A. locked out its players and froze operations. League officials said the two events were unrelated, although they are clearly intertwined, with the N.B.A. saying it has annual losses of $300 million and searching for cost savings.

“The layoffs are not a direct result of the lockout but rather a response to the same underlying issue — that is, the league’s expenses far outpace our revenues,” the N.B.A. spokesman Mike Bass said.

The layoffs were framed as part of a broader effort to cut expenses by about $50 million, in all areas of the business. The cuts would have been made irrespective of the lockout, Bass said, and there are no plans to rehire the laid-off employees when the dispute is over.

The league has been retrenching since the onset of the recession in 2008 — reducing its work force, consolidating international offices and turning over digital operations to Turner Broadcasting.

Even before this week’s layoffs, the N.B.A. had cut 275 positions at the team and league level since October 2008. That month, Commissioner David Stern, citing a “wobbly” economy, announced the elimination of 80 jobs, about 9 percent of the league’s domestic work force at the time.

That same year, the N.B.A. handed management of its digital properties — including its Web site and television station — to Turner Broadcasting, and moved the operations to Atlanta.

More recently, the N.B.A. consolidated its overseas operations, shutting down offices in Paris and Tokyo. It is now conducting all European business from London and its Asian business from Hong Kong.

http://www.nytimes.com/2011/07/15/sports/basketball/nba-lays-off-11-percent-of-staff.html?_r=1&src=tptw