Blog Entry

Report: Nets books show major losses

Posted on: July 7, 2011 5:08 pm
Edited on: July 7, 2011 6:05 pm
Posted by Royce Young

The NBA hasn't just been fighting the Players Association over a new Collective Bargaining Agreement. It has also been fighting a pretty major PR battle against the media and public over how truthful all these claimed losses are.

The league says 22 of 30 its 30 teams lost money last season. The league says in total, it lost about $370 millon, give or take. The league says owners are currently operating in a broken system that makes it extremely difficult to turn a profit, especially if you're not in a major market.

Some are having a hard time believing that. After a NY Times piece earlier in the week questioned how true some of the league's claims were, things only ratcheted up another notch. The league responded with a rebuttal, providing more facts and numbers in an attmept to quell some of the skepticism. The league claims $1.8 billion in losses over the past six years, but as many have noted, it's kind of hard to just take the league's word for it. We need to see stuff. Like open books.

Well, CNBC's Darren Rovell got ahold of the New Jersey Nets' books from last season and according to the report, the Nets suffered substantial losses over the past few years. (Click here to read the entire document.)
For the 2008-09 season, the documents reflect that the Nets lost $77,227,184. The team earned $78,783,677 in operating income, including $26 million in ticket sales and $32.5 million in total broadcast revenues. Operating expenses were $147 million, off mainly $66 million in salaries and $33.3 million in "amortization of intangible assets." When the team's $13.3 million interest expense is added, the Nets loss for the 08-09 season hits $77.2 million.

So there's that. According to the audited books, the Nets lost almost $80 million for the 2008-09 season. That's a lot of money. But there's still some skepticism over it all because sometimes bookkeepers are creative with their accounting. Rovell explains:

Now let's break it down for you. Assuming the operating income is accurate, there are three questionable line items within the operating expenses that are worth exploring. The most important is the $33.3 million amortization, since it's the largest number and often the number that the players union says is creative accounting.

So let's explain it first and then how it's reported. When a person buys a team, the price paid is distributed throughout various expense lines, the amortization line is one of those places. It's not voodoo accounting, it's actually part of generally accepted accounting practices. But the point is, that the NBA doesn't include that line item when it breaks out the losses to the union. So subtracting that number, the Nets loss that season, as the owners reported to the union, is probably closer to $44 million.

Rovell also notes that two other numbers could be disputed. That includes the $2 mllion in depreciation and the $13.4 million in interest. The union claims neither of those should be included in losses. But while the players dispute those being included, reality is, those are real losses. The value of the franchise is part of it all because it reflects the cost of expenses related to growing revenue. In terms of interest, that's actual money out of the owner's pocket so of course it should be included. It might not be a "real" loss in the same terms of expenses being more than revenue but as part of the whole pie, it counts.

One more note by Rovell to wrap it up though:

Finally, let's explore the bigger number. For the 2008-09 season, NBA owners told the players they lost a single-year record $370 million. Not only that, a record 24 teams lost that amount of money. Consider that amount of money an aggregate loss. Sources have told me that those 24 teams lost approximately $485 million, which leaves the six profiting teams with a net gain of $115 million.

So now take the Nets loss of $44 million that year. That means that the Nets share of the losses were nine percent of the total losses. If all teams used generally accepted accounting practices, is it possible that 23 other teams lost an average of $19.1 million that year? Of course it is.

What we have is another team where the financial picture is becoming clear. But that doesn't mean it's still not blurry. This is one of 30. There's a reason the league is locked out and it's because the players aren't buying everything the owners are selling. Like I've said before, the system has issues. No one would deny that. The players accept that as they've flexed on being willing to roll back their percentage of Basketball Related Income.

The matter is how deep the problem goes and how much give there has to be to fix it all. But the more information there is, the better things will get. Better PR for the league, better information for the public to digest, more pressure to make something happen.


Since: Jun 25, 2009
Posted on: August 10, 2011 8:48 pm

Report: Nets books show major losses

I'd like to see the team's tax statements. I bet that a lot of these losses result in tax deductions which aren't recorded in the ledger.

Even if you're right it doesn't matter at all.  Do you understand how a tax deduction works?  Yeah, might be certain things an NBA owner could use as a tax deduction against the profits of another business, thus saving himself some taxes on those profits at the end of the year.   But it's not a dollar for dollar credit and they certainly can't write off all the losses of an NBA team.   

Maybe a 77 million dollar loss after some fancy accounting and writeoffs becomes an actual 60 million dollar loss.  Maybe a 20 million dollar loss by another team ends up being a 15 million dollar loss.   Either way, you're argument is moot because the owners aren't in the business to lose as little as they can.  They are in the business to PROFIT EVERY SINGLE YEAR just like the players, their employees do.

Every  NBA owner should profit in a season at the very least as much as their highest paid employee or player.   If not, then what's the point of even owning anything?  It's flat out stupid..... 

Since: Apr 3, 2008
Posted on: July 8, 2011 12:41 pm

Report: Nets books show major losses

Sports economics is way off the real economy, fact is just like most things have depreciated 40-50% like the dollar, home values, high unemployment etc....  Sports economics have not adjusted, attending an NBA game with OK seats is at least 500 for 2 people, salaries are still high, owners think their teams are worth over 250mill etc.. Realistically all these values should be decreased by 40% to get with the times and yes that means the owners teams are worth less and the players will need to make less as well.  Untill the sports economy adjusts to the real economy their will be issues.

Since: Apr 15, 2008
Posted on: July 8, 2011 11:03 am

Report: Nets books show major losses

No need for me to write up a big pargraph making myself sound smart when In reality The New Jersey Nets lose money because no one goes to the games, how many people go out & spend money on a Kris Humphries jersey? Who is going to buy season tickets for a team whose plan all along was to move to another city in Jersey, then move to New York? Are you going to invest time and money, take your children to go see a team who isn't even going to be around?

They were supported when they competed, managment decided to dump off all there players, what do you expect?

Since: Sep 19, 2008
Posted on: July 8, 2011 9:00 am

Report: Nets books show major losses

Honestly how many people really side with the players in this argument?  I don't see where the players have any leverage whatsover.  Everyone outside of the players themselves see that their salaries are the most ridiculous in professional sports.

If the owners are losing money (and I believe that they truly are) then why would they want to continue down that path?  I would lock out the players too.

If I were the owners I would stand my ground and force the players to give in.  It is all about money and if the owners of these teams are losing money then obviously something needs to be changed.

And how can the players dictate what losses they feel need to be added or subtracted to the bottom line when it comes to reporting losses?  That seems insane to me that they even think that they get a say in the financial statements of teams.

Since: Dec 5, 2006
Posted on: July 8, 2011 2:50 am

Report: Nets books show major losses

Kudos, Royce, for sharing pieces of an article that hold up to scorn most of the media before this. The NY Times has egg on their faces. Forbes had to publish a revised article. And our own dear writers have mostly taken the position of the players and scorned the owners' statements. Now comes the proof. The NBA has been straight shooters all along. The model is busted, Saying revenue sharing will fix it is silly because there is still a $340M loss no matter how you spread it to the teams. (For the record I do believe revenue sharing will help to restore competitive balance in the league.)

The accounting used in these financial statements is that which is required throughout the USA. The independent auditors have rendered an opinion that they present fairly the financial position and the results of the league's operations. It does not get any better than that. The tax returns were also examined by this author and found to support the statements (of course they must.)

As it stands now, the owners have captured the high ground. They have demonstrated that the CBA just expired did not give them any chance to make a profit. Uning Forbes valuations, the average franchise was worth $356M and a decent investment of that amount should return at least $35M before taxes. It is not happening and the players are foolish to so badly underestimate the resolve of these businessmen to repair a broken system. For the sake of all of us I am hoping that those players demand a return to the table by their negotiators with instructions to make the league profitable once again. The sooner the better. Players and fans are the big losers if they fail to realize the requirements.

Since: Oct 1, 2006
Posted on: July 8, 2011 1:45 am

Report: Nets books show major losses

The NBA is not too dismilar to the MLB...You have a few teams that can spend a bunch, and alot that can't....Ofcourse the agents and players are saying pay us more, and the owners are saying why?

I side totally with the owners....The NFL is so much better then the NBA and MLB and revenue sharing is the key....Give all teams a LEGITIMATE shot at CONSISTENTLY competing, then it will be worth watching...

The NBA without major changes could flop in a hurry, because half the teams could go belly-up if they don't....Revenue sharing, hard-cap, enough b.s. contracts to move other players ect....Obvious, sensical, logical steps, that both baseball and basketball need to do..

Since: Aug 23, 2006
Posted on: July 8, 2011 1:38 am

Report: Nets books show major losses

That is a dumb statement. You must be a government worker. Attack the men who take a chance on a business that is losing money. Last I checked the players still got their paycheck. Wonder what will happen 10 years from now when the owners are finally turning a profit. Players will probably say that they are partners in the business.

Since: Jul 8, 2011
Posted on: July 8, 2011 12:38 am

Report: Nets books show major losses

I'd like to see the team's tax statements. I bet that a lot of these losses result in tax deductions which aren't recorded in the ledger.

Since: May 6, 2009
Posted on: July 7, 2011 7:46 pm

Report: Nets books show major losses

Not a real big shock here. The team has been down hill since Jason Kidd was traded to the Mavs.

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