Accounting: Ficticious Losses and Shady Practices

Posted by By at 4 July, at 06 : 58 AM Print

Accounting: Ficticious Losses and Shady Practices

While I recently wrote a piece about the contentious labor negotiations between the players and the owners, I forgot to do my homework and realized I overlooked something.  General accounting practices allow for “depreciating assets”, which for a while meant that when pieces of equipments (computers, machinery, etc.) got older, their value decreased.  In accounting, they would show this as an expense and when put on an income statement, it would be listed as a negative value.

Deadspin ran an article showing how the Nets and the Hornets released statements showing losses that were much higher than the losses actually were.  For a while Bill Veeck, an owner of a baseball team was able to convince people that players on his team, when they got older became depreciable assets.  In doing so he could devalue the player, increase his expenses and look like he was actually operating at a loss.  This is a generally accepted accounting practice and it helps sports teams pay less taxes.  There is also the concept of financing.  Many teams take out loans to help finance the team (including the purchase of the team itself).  In the operating expenses, they list the interest expense to again help disguise their profits and have to pay less taxes.  This time it is helping create the perception that the NBA is losing ridiculous amounts of money.

As Billy Hunter noted, a lot of the losses that are reported are mere accounting tricks to ensure teams do not have to pay a lot in taxes.  Mr. Hunter claimed that 250 of the 370 million dollars is just fancy accounting work.  While losing 120 million dollars is still a lot of money, it is the arrogance of which Mr. Stern has shown these numbers that leads me to believe that this lockout is far from over.  The Millionaires against the Billionaires are going to get ugly.  Unlucky for us that we get a front seat.  As a side note I would also suggest that Billy Hunter take heed from Shane Battier and have a $1 Salary during this time.  He currently makes around 2 million dollars a year.  If he is serious about ensuring the integrity of the NBPA, he should make sacrifices just like the players he’s representing are.

If you are interesting in looking at the documents I have the links listed here.

Hornets Link

Nets Link 

Follow me @Gloaminit to get updates on the NBA Lockout and much more.

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