Jul 5 2011
According to the NBA, 22 of 30 franchises are losing money. According to the NBPA, that assertion is... well, "baloney" would be a polite way of summarizing.
Who's right?
There's an increasingly-large pile of evidence to suggest that the league is guilty of... at the very least... creative accounting.
Exhibit A: Deadspin takes on the New Jersey Nets
Deadspin.com obtained three years' worth of financial data from the New Jersey Nets. It's not hard to imagine why such a team might be losing money; it can be difficult to generate fan interest when everyone knows you're moving. Still, Tommy Craggs' breakdown does a good job of showing how tax lawyers and aggressive accounting can take a slight profit and turn it into a substantial loss.
Exhibit B: Larry Coon Balances the Books
Writing for ESPN.com, noted NBA salary cap-ologist Larry Coon explains how expenses totally unrelated to the day-to-day operations of a team figure into profits and losses. For example:
$41.5 million of the Nets' $49 million operating loss in 2005, and $40.2 million of its $57.4 million in 2006, is there simply to make the books balance. It is part of the purchase price of the team, being expensed each year. This doesn't mean they cooked their books, or that they tried to pull a fast one on the players. It is part of the generally accepted accounting practice to transfer expenses from the acquisition to the profit and loss over a certain time period. However, it's an argument that doesn't hold water in a discussion with (Billy) Hunter and the players association, who would claim that the Nets didn't really "lose" a combined $106.4 million in those two years, but rather that they lost $7.5 million and $17.2 million, respectively.
Exhibit C: Nate Silver's Skepticism
Another respected number-cruncher, Nate Silver of FiveThirtyEight, also raised a skeptical eyebrow at the league's claims of financial woe. Using data from Forbes magazine and other financial publications, Silver estimates that the league as a whole is still profitable - but that high-revenue teams like the Lakers, Knicks and Bulls might be making enough to cover losses elsewhere.
Interestingly, Silver compares the NBA's current financial situation to that of Major League Baseball, just before the 1994 strike. According to Forbes, about one-third of the league was in the red in 1993, and half the league's profits came from just four teams. But instead of implementing a salary cap, baseball came out of that negotiation with an enhanced revenue-sharing structure that seems to be serving the league very well.
I suspect the players union - and quite a few of the owners - would sign up for a similar system right now.
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