Here's what I've learned about the average NBA team balance sheet: the theory of relativity is slightly less complicated. And that's a big reason why little progress has been made towards a new collective bargaining agreement.
The battle of number-crunchers has escalated since the league announced a the lockout. Deadspin.com tipped things off by publishing several years' worth of financial paperwork from the New Jersey Nets, though their initial analysis mis-characterized a couple of important points. ESPN salary cap guru Larry Coon and sports analyst turned political blogger Nate Silver followed suit. Their columns each attacked the numbers differently, but all three reached the same conclusion: the NBA is in better financial shape than David Stern would have you believe.
Or is it?
The league fired back at Silver, claiming the Forbes Magazine and Financial World numbers used in Silver's analysis were flawed. Meanwhile, Forbes' SportsMoney blog published their own breakdown, coming to the conclusion that the league lost $1.5 billion over the last five years. And CNBC's Darren Rovell analyzed the New Jersey Nets' audited financial statements and found massive losses - $77.2 million during the 2008-09 season alone.
Rovell did point out that a big portion of that loss - $33.3 million - was due to "amortization of intangible assets." That's a portion of the price the then-owners paid to acquire the team. The players don't believe such charges should be counted when considering a team's profitability, but according to generally accepted accounting rules (GAAP), the team is reporting them properly.
The union has similar objections to charges for interest and depreciation, but those are listed appropriately according to standard accounting practice as well. And those claims of fuzzy math and deceptive accounting fall a bit flat when you learn that the "fuzzy" and "deceptive" bits are used by every corporation in America.
How to Resolve the Profit/Loss Battle
Clearly, this lockout isn't getting solved until the players and owners can agree on how they'll split the money. And they can't split the money until they decide how much money they've got.
I propose the following:
- Remove amortization of purchase price from the equation. The players don't get any benefit when a team is sold -† Karen Davidson isn't going to cut Rip Hamilton a check when Tom Gores completes his purchase of the Pistons, is she? So the players shouldn't be expected to help out with that expense. Amortization charges should come out of the owner's end exclusively.
- Leave interest and depreciation charges alone. Interest and depreciation, on the other hand, are usually legit operational expenses related to keeping a team running and putting fannies in seats.
- Use the new balance sheets - without amortization charges but with interest and depreciation - as the basis for the revenue discussion.
Make sense? And I don't even have a degree in finance.