Just saw this on Deadspin. Warning: it kinda made my head spin, and I probably do a bad job explaining it, but it seems like one of the most relevant pieces of info to the NBA and NFL lockouts that is not commonly known.....
http://deadspin.com/5816870/exclusive-how-and-why-an-nba-team-makes-a-7-million-profit-look-like-a-28-million-loss
In the example the give, the Nets claim a $28 million loss while deadspin with the help of a sports economist says they actually turned a possible $7 million profit due to IRS accounting rules. Very strange accounting if you ask me... but it's really advantageous to a team owner and seemingly in any sport beyond basketball.
The gist of the story is an baseball owner back in the 50's convince the IRS that teams should be able to write off players as depreciating assets ('roster depreciation allowance'). Can't quite wrap my head around the concept or how it should affect accounting exactly, but in practice it appears that teams can double count some salaries - first as actual salaries, then as a write off for a depreciating good. In the year deadspin references, the Nets write off $25 million off of revenues for dekembe mutombo sucking. The claim is that is the actual cash buyout to deke that is counted as salary, but the fact that a team's 'assets' are its players and when one is not playing the market value of the team team depreciates. IRS rules allow a team to depreciate the full 100% value of a sports team over 15 years (wouldn't that would mean tax on a higher gain when sold though?)
Anyway, in the year of 2004 the nets claimed a 27 million loss. Of which 25 million was fictitious. deadspin also goes on to say if the ownership is arranged so that losses can be passed on to personal income tax, the player loss of 25 million could mean an extra ~$8 milllion in tax savings for someone who is wealthy enough to be in the 33% tax bracket and pull in enough income. I'm thinking if the team depreciates to zero, the owner nets the difference in capital gains vs personal income tax rates, or is that wrong?
So the Nets can't claim a $25 million loss every year (in 2005, it seems that claimed a $1 million loss... they don't say what rhyme or reason these 'RDA' writeoffs have), but in regards to the NBA lockout, the players union is claiming that $250 million out of the $370 million the NBA owners are claiming are an accounting trick and just depreciation and interest. http://sports.espn.go.com/nba/columns/story?columnist=coon_larry&page=NBAFinancials-110630
Bottom line would seem that owners lose less money than they claim by a good amount. NFL too. (I wonder if there are any specific examples of how RDA works in the NFL where there are even more roster moves, non-guaranteed salaries and early escape clauses from long contracts).
I am kinda still hoping for an extended NFL lockout to increase demand and interest in Cal football, p12 football and college football as a whole, but we'll see....
http://deadspin.com/5816870/exclusive-how-and-why-an-nba-team-makes-a-7-million-profit-look-like-a-28-million-loss
In the example the give, the Nets claim a $28 million loss while deadspin with the help of a sports economist says they actually turned a possible $7 million profit due to IRS accounting rules. Very strange accounting if you ask me... but it's really advantageous to a team owner and seemingly in any sport beyond basketball.
The gist of the story is an baseball owner back in the 50's convince the IRS that teams should be able to write off players as depreciating assets ('roster depreciation allowance'). Can't quite wrap my head around the concept or how it should affect accounting exactly, but in practice it appears that teams can double count some salaries - first as actual salaries, then as a write off for a depreciating good. In the year deadspin references, the Nets write off $25 million off of revenues for dekembe mutombo sucking. The claim is that is the actual cash buyout to deke that is counted as salary, but the fact that a team's 'assets' are its players and when one is not playing the market value of the team team depreciates. IRS rules allow a team to depreciate the full 100% value of a sports team over 15 years (wouldn't that would mean tax on a higher gain when sold though?)
Anyway, in the year of 2004 the nets claimed a 27 million loss. Of which 25 million was fictitious. deadspin also goes on to say if the ownership is arranged so that losses can be passed on to personal income tax, the player loss of 25 million could mean an extra ~$8 milllion in tax savings for someone who is wealthy enough to be in the 33% tax bracket and pull in enough income. I'm thinking if the team depreciates to zero, the owner nets the difference in capital gains vs personal income tax rates, or is that wrong?
So the Nets can't claim a $25 million loss every year (in 2005, it seems that claimed a $1 million loss... they don't say what rhyme or reason these 'RDA' writeoffs have), but in regards to the NBA lockout, the players union is claiming that $250 million out of the $370 million the NBA owners are claiming are an accounting trick and just depreciation and interest. http://sports.espn.go.com/nba/columns/story?columnist=coon_larry&page=NBAFinancials-110630
Bottom line would seem that owners lose less money than they claim by a good amount. NFL too. (I wonder if there are any specific examples of how RDA works in the NFL where there are even more roster moves, non-guaranteed salaries and early escape clauses from long contracts).
I am kinda still hoping for an extended NFL lockout to increase demand and interest in Cal football, p12 football and college football as a whole, but we'll see....