FanPost

The Lockout is Bull, Owners Will Win

How many people believe that the team owners actually lost $300 million last year? That's right, raise your hands. If you raised your hand, slap yourself. Don't be so gullible, McFly.

I read a lot of opinions stating that the players are being greedy and that the lack of a salary cap is killing the league. I read a lot of comments stating that the owners are losing money, at least in terms of annual profits (not in franchise value, just ask Malcolm Gladwell). The thing is, this whole lockout is absolute bull feces.

 

According to common knowledge, every movie made in Hollywood "loses money," even when it makes a profit on box office and DVD sales. It's good for taxes. It saves the studio money on the back end when they've promised a percentage of the profits to a star. Movies lose money every time out and yet studios don't go bankrupt, at least, not very often (cough cough, Heaven's Gate and United Artists).

The thing is, the whole process is legal. A good accountant can make a business appear to be losing money, especially in the short term, quite easily. The accountant essentially will use Generally Accepted Accounting Principles (GAAP) and choose which years and for how many years they will amortize expenses, such as seating upgrades, company cars, etc. (Note: I am not an accountant. I'm a lawyer. I took one class on this in law school. That being said, feel free to correct me.)

For example, let's say a team needs to purchase new team vehicles. They can take the cost of the vehicle and spread it out over a few years (it's useful life) so that the expense is deducted from the revenue for a few years. If this wasn't done and it was all deducted at once, businesses would have a year where they would lose millions followed by a few years of prosperity, repeated each time they needed new equipment. To solve that issue and to reflect that equipment serves the business for a number of years, the cost is usually deducted over a few years so that the company doesn't take the hit on their balance sheet all at once. A good accountant that wants to make his business "lose money" will spread it over a couple years and say that the useful life is only two years. A good accountant that wants to show profits will break that same cost up over four or five years. It matters not whether the car is in service for two or ten years. All that matters is what the accountant puts on the balance sheet.

It is difficult to believe that the NBA has actually been losing money. Television contracts are a massive source of their income and those remained constant or have been renegotiated favorably over the past few years. Ticket sales for some teams have declined, but are we really to believe that reduced ticket and jersey sales have decreased the league revenue enough to make the league go from turning a yearly profit to a $300 million defiticit? However, if you work the books right, you can make it seem like you are losing money, especially when there is a bad economy. Simply choose to upgrade your stadium seats, hand out Joe Johnson contracts, and do other "necessary" things for a few years before the CBA is set to expire, spread the costs of each over the few years before the CBA, and then voila.. the league has "lost" $300 million. It's magic, legal, and likely the truth. And if the league's books were open, this might actually be discoverable. At this point, I believe the individual teams' books are still kept private.

Finally, the league doesn't want a hard cap. The league is controlled by the baller owners, also known as Dr. Buss, the Russian dude, etc. Rich teams are also the teams that haven't been sold lately and those owners have more power and say. The poorer teams are the ones that would want a cap and those are the teams that change hands more often. A hard cap would also ensure that players no longer remain loyal to any one team, as teams with multiple stars, like the fabulous Lakers, would have to jettison players like Odom and Pau for more mediocrity that comes at a cheaper price. In the NFL, such a cap works because there is a 53 man roster and a lot of room to absorb the contracts of a few stars on one team. In the NBA, you have about 13 players, five of which are starters. A hard cap kills your roster as there is little flexibility. The hard cap is simply a negotiating ploy to get a better percentage than 57/43. When the league ends up with a slightly stiffer luxury tax and a 52/48 split, they will start the season. It seems like they are getting closer and closer to this goal. 

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