NBA loses $400 million, yet salary cap goes up?!

[connerhenry43]

You usually can tell when David Stern is lying; usually happens when his lips are moving. He claimed last year the league was going to lose $400 million.

http://www.reuters.com/article/idUSTRE61D22K20100214

Now I know next to nothing about economics and salary cap, but the nba raised the salary cap for next season. The cap is based on revenue from the previous year. difficult to see how the league could have lost money and at the same time, raised the salary cap.

can someone explain or is there a hole in stern's claims?

[nickagneta]

You usually can tell when David Stern is lying; usually happens when his lips are moving. He claimed last year the league was going to lose $400 million.

http://www.reuters.com/article/idUSTRE61D22K20100214

Now I know next to nothing about economics and salary cap, but the nba raised the salary cap for next season. The cap is based on revenue from the previous year. difficult to see how the league could have lost money and at the same time, raised the salary cap.

can someone explain or is there a hole in stern's claims?

Increased revenues...increased costs.

It's very possible and even likely.

[Evantime34]

I feel like the $400 MM was a projection in order to prepare teams for the possibility that the cap would go down.

I believe the raising of the salary cap would indicate that they did in fact make money.

[Roy Hobbs]

Doing some quick math, the NBA's revenue's last year were around $3.6 billion (which is how the cap is defined), so lossed of $400 million wouldn't be *that* out of the question. 

Well, maybe they are.  What the heck are the teams spending $4 billion on?  Let's say the average team payroll is $80 million.  That's $2.4 billion.  Where's the HUGE deficit coming from?

[Fafnir]

Doing some quick math, the NBA's revenue's last year were around $3.6 billion (which is how the cap is defined), so lossed of $400 million wouldn't be *that* out of the question. 

Well, maybe they are.  What the heck are the teams spending $4 billion on?  Let's say the average team payroll is $80 million.  That's $2.4 billion.  Where's the HUGE deficit coming from?

Is the 3.6 billion after taxes?

[Roy Hobbs]

Doing some quick math, the NBA's revenue's last year were around $3.6 billion (which is how the cap is defined), so lossed of $400 million wouldn't be *that* out of the question. 

Well, maybe they are.  What the heck are the teams spending $4 billion on?  Let's say the average team payroll is $80 million.  That's $2.4 billion.  Where's the HUGE deficit coming from?

Is the 3.6 billion after taxes?

Ah, that could be the issue.  I'm not sure if the league considers "income" before or after taxes (thus, why I'm not an accountant), but if it's before (which would make sense), than the numbers are more plausible.

I'm not sure why ownership would tie it's salary cap to pre-tax numbers, but if that's what they're doing, the math works out a little better.

[nickagneta]

Doing some quick math, the NBA's revenue's last year were around $3.6 billion (which is how the cap is defined), so lossed of $400 million wouldn't be *that* out of the question. 

Well, maybe they are.  What the heck are the teams spending $4 billion on?  Let's say the average team payroll is $80 million.  That's $2.4 billion.  Where's the HUGE deficit coming from?

Insurance
Custom jet upkeep
Team and corporate trave
Hotel accommodations
Scouting and coaching
Administrative and executive salaries
Medical and training personnel
Taxes and upkeep on team owned property and training facilities
Advertisement

I am sure with 30 teams these things add up.

[Fafnir]

Doing some quick math, the NBA's revenue's last year were around $3.6 billion (which is how the cap is defined), so lossed of $400 million wouldn't be *that* out of the question. 

Well, maybe they are.  What the heck are the teams spending $4 billion on?  Let's say the average team payroll is $80 million.  That's $2.4 billion.  Where's the HUGE deficit coming from?

Is the 3.6 billion after taxes?

Ah, that could be the issue.  I'm not sure if the league considers "income" before or after taxes (thus, why I'm not an accountant), but if it's before (which would make sense), than the numbers are more plausible.

I'm not sure why ownership would tie it's salary cap to pre-tax numbers, but if that's what they're doing, the math works out a little better.

Well all player's salaries are pre-tax when they report them. Plus the players would push hard for gross revenues rather than net in any CBA.

I bet taxes, rent, and interest payments make up the majority of NBA team's costs. (well costs other than salary)

[Who]

I am guessing that NBA team's non-basketball expenses are out of control.

I imagine that is why the players don't like the league's figures.

[connerhenry43]

I am guessing that NBA team's non-basketball expenses are out of control.

I imagine that is why the players don't like the league's figures.

"In each of the first four years of the deal. probably losses of a couple of hundred million, at least $200 million a year," Stern said. "At our current level of revenue devoted to players' salaries, it's too high."

[Fafnir]

I am guessing that NBA team's non-basketball expenses are out of control.

I imagine that is why the players don't like the league's figures.

What do you mean by non-basketball expenses?

Marketing, Arena's, stuff like that?

[fairweatherfan]

It's that famous "Hollywood accounting" at work.  Did you know the guy who played Darth Vader (not JEJ, the actual guy in the suit) doesn't get any residuals, because according to the accountants Star Wars never turned a profit? 

Similar idea here.  Wouldn't surprise me if the league had lost some money the last few years, but if they say $400 million rest assured that's the absolute maximum, stretching the truth to the breaking point, figure they could come up with for negotiating purposes. 

[Who]

I am guessing that NBA team's non-basketball expenses are out of control.

I imagine that is why the players don't like the league's figures.

What do you mean by non-basketball expenses?

Marketing, Arena's, stuff like that?

In game entertainment, fireworks before games ... costs that are unnecessary for a basketball team. Plus too many unnecessary jobs for non-playing staff.

No basis for this, just a wild guess.

[Fafnir]

I am guessing that NBA team's non-basketball expenses are out of control.

I imagine that is why the players don't like the league's figures.

What do you mean by non-basketball expenses?

Marketing, Arena's, stuff like that?

In game entertainment, fireworks before games ... costs that are unnecessary for a basketball team.

Ah, question are cushy jobs for LeBron's entourage a basketball expense? 

[bobdelt]

You don't pay taxes if you don't make money. Income taxes at least.

That being said, the teams are responsible for lots of different types of taxes, and the profitable teams are responsible for them too. The NBA has it's own expenses too, the league office, the referees, the D league, etc.

But it sounds like the cap is based on revenue. This includes concessions at games, probably parking and things like that. So include the salaries of those guys, cost of hot dogs, etc when factoring in profit, cost of running the arena, practice facilities, real estate taxes, accountants, cheerleaders, lawyers, coaches, training staff, advertising, ticket sales, etc.

There's so much more to an NBA team than the players payroll.

Also, there's probably more to an NBA than operations. If the team owns the arena, there are depreciation costs, possible impairments on that asset. The mavs are in a deep hole, probably from a lot of other ventures that the team takes on, not from paying dirk..

That revenue also includes merchandise, the nba store, which while profitable includes other expenses.