The league that protests too much

By John McMullen

Philadelphia,  PA - Hidden among all the Casey Anthony hoopla on  Tuesday was  a New York Times  report that called the NBA "fundamentally a healthy and profitable business."

Titled "Calling Foul on NBA's Claims of Financial Distress," the report, which was  based  on estimates  culled from  public records  by Forbes and Financial World  magazines, claimed that the league had an estimated operating income of $183  million by  2009-10, and generated a five to seven percent profit during
the life of the recently expired collective bargaining agreement.

The NBA quickly balked and refuted the report saying the estimates used as the basis of the article "do not reflect reality."

"Precisely  to  avoid this issue, the  NBA and its teams shared their complete league  and team  audited financials  as  well as  our state  and federal  tax returns  with  the players union," the  league said in a statement released on NBA.com. "Those financials demonstrate the substantial and indisputable losses
the league has incurred over the past several years."

The  league  has projected losses at  $300 million last season and claims they have  lost money in  each year of the previous CBA, which was ratified in 1999 and reupped in 2005.

"The  league lost  money  every year  of  the just  expiring  CBA," the  NBA's statement  continued.  "During these years,  the league has never had positive Net  Income,  EBITDA or Operating Income.  Many of the purported losses result from  an unusual accounting treatment related to depreciation and amortization
when a team is sold."

In  fact, according  to the NBA's figures  in 2009-10, 23 teams had net income losses.

"The  losses were in  no way "small" as 11 teams lost more than $20M each on a net income basis. The profits made by the Knicks, Bulls and Lakers alone would be enough to cover the losses of all 17 unprofitable teams."

The NBA Players' Union has yet to issue a response on this latest flap but has questioned  the  league's accounting methods  in the past, agreeing that there certainly were losses but not nearly to the degree that NBA has stated.

"We use the conventional and generally accepted accounting (GAAP) approach and include   in   our  financial  reporting   the  depreciation  of  the  capital expenditures  made in the normal course of business by the teams as they are a substantial and necessary cost of doing business," the league responded.

What  is clear is that certain teams are losing money and that shouldn't be an issue  with  a business that generates  about $4 billion dollars annually. The players,  who  got 57  percent of  the gross  income every  year under the old agreement, will have to give something back. The only question is how much?

The  answer is  compromise and  the  collective bargaining  process, at  least according to labor relations expert Karen Boroff.

"The  cornerstone of  private sector collective bargaining, namely, having the parties  hammer  out their own  agreements, [should  be] allowed to go forth," Boroff  said. "Of  late, we  have  seen far  too much  intervention, from  the courts  and the  NLRB  and  even the  Oval  Office,  and, unfortunately,  this
intervention had ignored market forces."

Boroff,  a  current professor and  the former dean  and associate dean, of the Stillman  School of  Business at  Seton Hall  University, believes  collective bargaining  is far  superior to the legal-based approach that NFL players have used during their lockout.

"Intervention  only serves to diminish the reliance the parties should have on themselves  to  reach  an  agreement,"  Boroff  continues.  "When  others  get involved,  it only  gets murkier  to know  who is  accountable for  bargaining outcomes."

Only  an independent  verification of  the  NBA owners'  books could  possibly settle  this latest accounting flap but that isn't going to happen for obvious reasons.  All  big time companies "cook  the books," perhaps not in an illegal fashion  but  with the intent  on exaggerating losses  in order to cultivate a better deal with labor.

That's  just business  as usual in today's  America, which is mired in a long-term  recession. Still, Boroff believes the players are best left to their own devices  as they battle a league, protesting a little too much in an effort to gain negotiating leverage.

"One  only has to  look at the mess that public sector bargaining is in to see that  multi-lateral bargaining  -- that  is, bargaining  with the  press, with legislators,  with parents,  with administrators, and with judges, as examples --  with no  regard for  'who  is really  going to  pay  for this  deal' is  a disastrous route to follow," Boroff said.