Tom Liston's Post is the Best

[albertan_10]

I study accounting and out of all the articles/posts/blogs/whatevers his hits it right on the money. I was particularly impressed how he explained the amortization/depreciation principle and it only makes sense that it would be included in the teams financial statements. If the Raptors were to buy brand new computers for the entire organization this year, in 2 years that equipment would be absolete and in 4 years it would be uncapable of running new and essential programming. That is a legitimate loss to a company and one that is allowed in a tax return.

People calling for the NBA to release the team statements to the media is a journalists ploy to get some dirt. They want something to write about and not help the lockout come to a conclusion. those are private businesses and they do not need to release their statements to the press. accountants and economists work for both the union and the league; they don't need an outsiders opinion.

sorry about the repeat thread. I just hate to comment in the column section because it's uneducated and sloppy

[Paradigm Shift]

Of course it makes perfect sense in terms of GAAP, but those are written from the perspective of the owners [of capital]. Here's an interesting take from a well known anti-capitalist source, CBS.

"But that isn't really the point. The point is, there have been billions in public costs associated with the NBA running its business -- primarily from the construction and renovation of arenas. Taxpayers do not get to depreciate those costs on their tax returns. Cities that rely on NBA games to generate economic activity and produce tax revenues needed to pay for all their arena debt have no recourse when the industry that demanded those inducements shuts itself down. "

Read the whole article at http://www.cbssports.com/nba/story/1...nd-show-us/rss

[Paradigm Shift]

sorry about the repeat thread. I just hate to comment in the column section because it's uneducated and sloppy

I agree completely. Thanks for starting this one.

[mcHAPPY]

There are a lot of good articles in the "Lockout and Raptors" section. However, Tom's posting on the HomePage is definitely worth its own thread.

[GarbageTime]

There is a significant difference between amortizing a tool of business, and amortizing the cost of the business in order to pass that cost off onto your employees.

[mcHAPPY]

There is a significant difference between amortizing a tool of business, and amortizing the cost of the business in order to pass that cost off onto your employees.

Am I missing something (no sarcasm there either - seriously)? I thought that was covered in the article:

I’ll also offer the response to the Deadspin article from Carol Sawdye, the NBA’s Chief Financial Officer:

We did not include purchase price amortization in the financial data that we gave to the players and all of the net loss numbers we have used both with the players union and disclosed publicly do not include purchase price amortization. Put simply, none of the Nets’ losses or the league losses previously disclosed are related to team purchase accounting. [emphasis added]

Since their are plenty of lawyers involved on both sides watching every word – I’ll take the CFO’s claim at face value.

Also, as alberta pointed out, the amortization and depreciation of such as computers is most definitely a legitimate expense.

[GarbageTime]

Am I missing something (no sarcasm there either - seriously)? I thought that was covered in the article:



Also, as alberta pointed out, the amortization and depreciation of such as computers is most definitely a legitimate expense.

no it is covered by the article... but this is to albertan_10 point (and to your 2nd statement). It is a completely legitimate expense for tax purposes. But if/when the league claims to lose X dollars, and in those dollars is included the cost of the business, and then says to the union so now we need to reduce your salaries... the cost of that business is being passed on to (and paid by) the employee. Thats where the union had issues with the owners initial statements regarding their losses.

[mcHAPPY]

no it is covered by the article... but this is to albertan_10 point (and to your 2nd statement). It is a completely legitimate expense for tax purposes. But if/when the league claims to lose X dollars, and in those dollars is included the cost of the business, and then says to the union so now we need to reduce your salaries... the cost of that business is being passed on to (and paid by) the employee. Thats where the union had issues with the owners initial statements regarding their losses.

I'm following you now.

If the owners were profitable and asking for player's share of revenue to cover operating expenses, I'd be right with you.

However, my thinking is the owners 43% share of revenues are not covering all costs outside of player salaries (57%) required to operate the franchise. Therefore the owners want some of the players revenue share to cover those costs in order to not operate at a loss or, ideally, operate at a profit of their own - and understandably so. I said this somewhere else so excuse me if you have read it before but everyone associated with the NBA made a profit last year with the exception of 22 owners.

The idea of using depreciation on the books only takes a percentage of the overall cost each year and the total amount deducted will never exceed the original cost of the depreciated asset. Furthermore eventually those items will have to be replaced again. A business uses its revenues to pay for all expenses including depreciable assets. I think these are legitimate expenses.

[albertan_10]

no it is covered by the article... but this is to albertan_10 point (and to your 2nd statement). It is a completely legitimate expense for tax purposes. But if/when the league claims to lose X dollars, and in those dollars is included the cost of the business, and then says to the union so now we need to reduce your salaries... the cost of that business is being passed on to (and paid by) the employee. Thats where the union had issues with the owners initial statements regarding their losses.

lots of companies cut payroll as the first method of cutting back on expenses. normally that's the highest expense that a company will pay. It only makes sense that they'd want reductions in players salaries if they're losing money. the other option would be to cut teams down to 12 players but that doesn't work because backups are necessary when dealing with injuries and in an 82 game season that's going to happen. so the only way they can cut costs to their largest expense (57% of revenue) is to cut that back. I don't think that the owners are trying to screw their players over by making such a request.

I agree with the players that owners/gm's make bad decisions when it comes to players salaries (see rip hamilton, tayshaun prince, hedo, gilbert arenas, Joe Johnson, Rashard Lewis, etc.) but based on past performances, these guys looked like they deserved it. Rip was incredible back in the piston hay day, arenas was unstoppable, etc etc but these max contracts are way too long. Joe Johnson is old and he'll be 37 or something when his 5 year max contract is up. the guy was goin to get paid big money and his team wanted to keep him so their hand was forced. I think contracts need to be shorter, 3 years and with a franchise player tag attached to them in some way/shape or form so that a team doesn't have to worry about losing them every 3 years. that way if you sign Hedo and he decides he's going to suck, you aren't screwed for the next half decade cause no one wants him. maybe rookie contracts need to be a bit longer so that teams can enjoy their draft choices in their prime.

It's a big mess the way it is right now and I don't know what the right answer is for both sides. All I know is that their needs to be big changes, especially if the owners want the league to be more competitive. I'm sick of these big 3 teams. but that's another rant that i'll save for another day

[GarbageTime]

I'm following you now.

If the owners were profitable and asking for player's share of revenue to cover operating expenses, I'd be right with you.

However, my thinking is the owners 43% share of revenues are not covering all costs outside of player salaries (57%) required to operate the franchise. Therefore the owners want some of the players revenue share to cover those costs in order to not operate at a loss or, ideally, operate at a profit of their own - and understandably so. I said this somewhere else so excuse me if you have read it before but everyone associated with the NBA made a profit last year with the exception of 22 owners.

The idea of using depreciation on the books only takes a percentage of the overall cost each year and the total amount deducted will never exceed the original cost of the depreciated asset. Furthermore eventually those items will have to be replaced again. A business uses its revenues to pay for all expenses including depreciable assets. I think these are legitimate expenses.

Not to rehash this too many times, but its not so much about whether its a legitimate cost or not. For financial statements and tax purposes it most definetely is. For negotiating practices (specifically with someone like a union) it [I]could[I] be viewed as negotiating in bad faith.

With an asset like computers, its assumed that at the end of their life they'll have zero value. However, an asset like the business itself it will (most likely) still have a value at the end of its amortized life. So if you negotiate with a union for decreased wages and include the depreciation of the business itself (whether the business is losing money with or without the amortized cost) in your costs as evidence as to why you need to decrease wages, they will look at that as if part of the cost of purchasing the business is being passed on to the workers. The reason being the business itself will have value (most likely but not definetely) greater than the remaining depreciated price. So if the business is sold those same workers who had their wages slashed because of the intial cost of the business was depreciated will see none of it.

The tax man won't care because he will get his share of taxes either way (you avoided some taxes by depreciating the value, but you will pay more taxes when you sell the company instead). A worker who is getting his wages slash because of it will most definetely care.

I hope that makes sense. If not, it doesn't really matter as the owners (apparently) haven't done it.

[Kuh]

If the owners were profitable and asking for player's share of revenue to cover operating expenses, I'd be right with you. However, my thinking is the owners 43% share of revenues are not covering all costs outside of player salaries (57%) required to operate the franchise.

In my mind this is the problem right here: as businesspeople, the owners pay 57% for workers salaries, and, some have implied, close to 0% for the building capital costs (city subsidies). That means they have 40% or so of revenue to pay for management salaries, building maintenance, and other miscellaneous costs. Anything that is left is their profit.

According to Nate Silver, hockey, baseball and football all pay their players 54-58% of total costs. Basketball is right in line with that. The issue doesn't seem to be whether the 57% should be cut to 55% ... a request by management I (and probably players) would be sympathetic to.

That's a lot of revenue to pay for pretty reasonable costs: costs which the owners can easily control, should they wish. Their problem appears to be poor control of these non-labour expenses. Only owners can fix this issue.

The issue of losses is simply being used as a negotiating ploy in the larger issue which is "what percent of revenues should go to the athletes".

P.S. There may also be a hidden subtext which is revenue sharing. The real problem may be that the haves (New York) don't want to share with the have nots (Sacramento). So they want to renegotiate the deal with the players so that even the have nots make money ... and the haves can make it hand over fist.