Deadspin has once again got its hands on the financial statements of a NBA team, and as usual they’re a complicated swamp of accounting tricks.But there is one thing to be learned, courtesy of a sports economist who spoke to Deadspin’s Tommy Craggs about the papers and revealed an interesting tax law that most sports fans probably don’t know anything about.
It called “roster depreciation allowance,” and what it does is basically allow an owner to treat players the way a carpenter treats his tools. (Or in Craggs’ metaphor, the way the farmer treats his cattle.)
It allows teams to deduct “loss on players’ contract” as a deprecation expense on their taxes. Which would be fine, except they can also deduct player salaries as a payroll expense at the same time.
In other words, they get to claim players salaries as expense twice when they file taxes. That’s how the Nets claimed a $27 million operations loss, when they actually made about $6 million in operating profit.
It’s perfectly legal and every sports team does it. They’d be foolish not to.
That isn’t the only reason the financials of a sports team are so difficult to dissect. They’re often part of larger organisations, with multiple owners and subsidiaries, that may or may not own real estate or refinance debt or defer obligations, and that can do any of the thousands of things the large corporations can (legally) do to maximise their efficiency and profits.
The reality is that when 20 of the 30 current NBA teams say they’re losing money and the players demand to see the evidence of it, it takes a lot more than a good accountant to know who is lying and who isn’t.
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