Announcement

Collapse
No announcement yet.

The Lockout & the Raptors: Players approve CBA, Owners too! (1944)

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • leverage is a tool, it can be used strategically and it often is.


    The thing you have to ask yourself Matt52 is what was gained by this 2 page exchange we had? Because I honestly don't know. A lot of your responses were just text for the purpose of saying something, and often you misinterpreted my ideas to serve some novel reply point. Than in 4 or 5 points down you would use another premise unrelated to the first one, because it sounded better in the reply.

    Based on that I took it as confrontational and a tad egotistical.


    First of all we cant discuss accounting without seeing books. I discussed very real scenarios, all of which you had no counter for other than your opinion of 22 of 30 teams loosing money. Which has not be substantiated by any independent audit.

    Comment


    • MyMomLovesMe wrote: View Post
      leverage is a tool, it can be used strategically and it often is.


      The thing you have to ask yourself Matt52 is what was gained by this 2 page exchange we had? Because I honestly don't know. A lot of your responses were just text for the purpose of saying something, and often you misinterpreted my ideas to serve some novel reply point. Than in 4 or 5 points down you would use another premise unrelated to the first one, because it sounded better in the reply.

      Based on that I took it as confrontational and a tad egotistical.


      First of all we cant discuss accounting without seeing books. I discussed very real scenarios, all of which you had no counter for other than your opinion of 22 of 30 teams loosing money. Which has not be substantiated by any independent audit.
      As I said before, we'll have to agree to disagree on the issue of using asset appreciation to overcome operational loss.

      I will not make this a personal exchange as you have attempted on numerous occasions.

      Comment


      • Matt52 wrote: View Post
        As I said before, we'll have to agree to disagree on the issue of using asset appreciation to overcome operational loss.

        I will not make this a personal exchange as you have attempted on numerous occasions.

        Are you kidding me? You can't see a corporation building an extra facility and therefore incurring an operational loss while increasing franchise value? This is not a complicated concept.

        EDIT: I interpret personal culpability in your style of response against me. I feel like you are looking for fault without looking at the big picture. Your argument seems to have too much dissection, and the eventual impulse to fight on has more to do with the fight than the point being expressed.
        Last edited by MyMomLovesMe; Tue Jul 12, 2011, 10:06 AM.

        Comment


        • MyMomLovesMe wrote: View Post
          Are you kidding me? You can't see a corporation building an extra facility and therefore incurring an operational loss while increasing franchise value? This is not a complicated concept.
          Capital expenditures are fine. However, a building is a charge to the expenses at 100%. They can only be depreciated at 4% per year in Canada. If the interest on the expense is contributing to yearly operational losses, you are running a deficit regardless of the facility possible appreciation - but what happens if the building does not appreciate? The proper and healthy use of leverage is to create additional cash flow that pays for the interest on the loan and the extra income is put down on the loan. Rolling profits over in to other ventures - while certainly being able to increase value of the franchise - increases leverage and the risk moving forward in an environment where cash flow is negative.

          My argument has been I believe the owners are taking losses operational costs (i.e. staff, players, trainers, travel, support staff, etc.).

          Comment


          • No they are not. The interest on the money borrowed can be written off as an expense. It's an investment by the business.


            You can't expect the players to pay for the losses you incur on capital expenditures. (when revenues have grown)

            (lets have an audit)
            Last edited by MyMomLovesMe; Tue Jul 12, 2011, 10:21 AM.

            Comment


            • MyMomLovesMe wrote: View Post
              No they are not. The interest on the money borrowed can be written off as an expense. It's an investment by the business.


              You can't expect the players to pay for the losses you incur on capital expenditures.
              Of course interest can be written off as an expense. Unfortunately interest goes against income dollar for dollar. But this is not a net zero result. The dollar in expense is saving the tax on that earned dollar. So you are spending $1 to save $0.25 (or whatever the tax rate is).

              The players aren't paying for losses incurred on capital expenditures - despite the fact any capital expenditures would be the for the direct benefit of the players.

              The owners want the players to decrease their share of the revenues to help pay for operational costs of the franchise and return the franchises to (hopeful) profitability or at the very least reduce the losses.

              Considering all the expenses the owners have in addition to the player salary (all other coaches, scouts, staff, travel, player medical care, etc.) the current starting point of 57/43 split is already questionable - in my opinion. The players share of the revenue goes directly in to their pockets - the owners share of the revenue is then used to cover all other expenses.

              Comment


              • Yah they are expensing out the COST of money against their monolith organizations profits, getting something for 75% instead of 100 is huge. It also helps in that makes you look less profitable than you would have been.

                Meanwhile the asset base is growing due to capital influx.

                (i am not saying this is the way it is, but giving a working possible scenario)


                This is why I keep saying, we need an independent audit.



                EDIT: You are basically putting in 100 units for the price of 75 into your asset base. Assuming you are doing it efficiently. So you never really lose the 75, but it does 100 good.
                Last edited by MyMomLovesMe; Tue Jul 12, 2011, 10:40 AM.

                Comment


                • The 75% is still a huge out of pocket expense which will one day have to be repaid. The only way to pay it back would be through the sale of the franchise (which is a final resolution that many owners may not wish to do) or through the 43% of revenues they receive that also pays for every other expense.

                  The assumption is the asset base continues to grow - what happens if franchises do not continue to appreciate? what happnes if the economy takes another leg down? This is the issue with leverage - a 50% loss on a loan is a 100% loss i.e. you've lost 50% now you have to pay back the 50% to make up the full 100% loan.

                  When people talk about leverage and using debt to keep things operating I think back to Chuck Prince in 2007:

                  In a now infamous interview with the FT back in July, Prince made clear that he was aware of the risks his company was taking:

                  When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing.

                  At the time, blogger Yves Smith warned that timing the end of the song was a really hard thing to do:

                  Prince has in essence said he knows that when the music stops, it won't be one chair that will be removed, but several, perhaps most. He seems supremely confident in his ability to know when to exit, but with everyone planning to stay as late as they can, he is likely to be underestimating how quickly conditions can change.


                  Read more: http://curiouscapitalist.blogs.time....#ixzz1Ru2c67cg
                  If the league was truly profitable for all (even well managed teams), I do not see the owners willing to shut it down. The fact that they are better off losing a season so they will not lose money speaks volumes of the situation in my opinion.

                  Again this comes down to who you believe. Obviously we have a difference of opinion - I'm fine with that.
                  Last edited by mcHAPPY; Tue Jul 12, 2011, 11:18 AM.

                  Comment


                  • MyMomLovesMe wrote: View Post
                    No they are not. The interest on the money borrowed can be written off as an expense. It's an investment by the business.


                    You can't expect the players to pay for the losses you incur on capital expenditures. (when revenues have grown)

                    (lets have an audit)
                    The revenue has to be split in a way that allows amenities to be paid before the employees get paid if they are operating at a loss how can there be money to reinvest into the league to make it grow? The players should be compensated as the league grows but they should not be making more money then what is coming in

                    Comment


                    • I think the players are being counter productive to their own interests. The players are basicly saying why should we pay to fix your problem, you owners fix your own problems and if I was the owners then I would say fine we will reduce the total teams to cut the teams that are not profitable. bring the number of teams down to 20 which puts 1/3 of their player union out of a job, the league is stronger cause their are better players to compete for the remaining roster spots and all the teams left can compete financially...problem solved.

                      Comment


                      • Scott in Santa Barbara, CA:
                        Are teams discussing trades now or does all basketball talk have to wait until after the lockout?
                        Eric Pincus:
                        This will have to do for the week. As always, if I missed your question - you can find me at epincus@hoopsworld.com, on Twitter at http://www.twitter.com/EricPincus or just wait until next week's chat.

                        Scott,

                        There's no basketball activity right now. Not on a player level - not on a GM level.

                        Teams don't have a basic framework to discuss trades. Every single deal is illegal right now.

                        Everything sadly has to just wait in this limbo until the owners and players get their act together. I understand that the owners' aren't profitable on a whole and thus they feel like of the 43% piece of the pie they get of basketball related income - they keep less than zero of it.

                        From their perspective collectively it's a 57% split to players, 43%+ to expenses.

                        The players want to argue how some of those numbers are interpreted and I agree that we're dealing with a worst case presentation of the accounting.

                        Still, the owners are not profiting and they need to lock in some level of positive cash flow in this new deal. I think they're taking it way, way too far but the players are compensated like it's pre-recession and that's not realistic. Who in this economy is getting 8-10.5% raises each year? Income has been flat or declining for some time now.

                        The system needs a reboot and both sides need to compromise. The players think they've given enough. They haven't. The owners are asking for too much and need to step into the middle - but won't until the players give more.

                        It's a mess. Sigh. And worst of all - to me - is that it hits me in my pocket in what I need to support my family.

                        I don't mind it as it is for a couple of months but it actually endangers the season, that's a problem.

                        Hopefully cooler heads will prevail but I waver between hopeful to skeptical that it will be resolved any time soon.


                        Read more NBA news and insight: http://www.hoopsworld.com/chat.asp?c...#ixzz1Rw45rZ3U
                        From HoopsWorld chat today.

                        I said from the beginning that the players were going to lose on this because the owners pushed for radical changes while the players wanted to stay status quo and the owners would not be losing money while players would. Towards the deadline to start the lockout it appeared the players relented giving back 2.7% of revenue (54.3% share - btw I'm going on memory someone can correct me if I am wrong) while the owners relented on a hard cap of $45M and upped it to a flex cap of $62M able to go another $7M or so - effectively putting in a hard cap at $70M.

                        From a business perspective, I can see the owners insistence of capping salaries to not only be able to forecast revenues and expenses but to also ensure a team with deep pockets is unable to have a competitive advantage over teams with shallow pockets.

                        It would seem to me that there will be no agreement until there is an NHL-style system in place whereby the salary cap has a limit and it adjusts annually based on revenues.

                        This is unfortunate for fans but also those who rely on the league for a living - such as Pincus as he mentioned in the above. It is not going to affect my lifestyle financially but there are a lot of people in 30 cities in North America who will be affected by this.

                        Comment


                        • grindhouse wrote: View Post
                          I think the players are being counter productive to their own interests. The players are basicly saying why should we pay to fix your problem, you owners fix your own problems and if I was the owners then I would say fine we will reduce the total teams to cut the teams that are not profitable. bring the number of teams down to 20 which puts 1/3 of their player union out of a job, the league is stronger cause their are better players to compete for the remaining roster spots and all the teams left can compete financially...problem solved.
                          I don't think any owner would be lining up to simply shut down their operations and walk away with nothing but you do raise a good point. If the owners are telling the truth then one potential fate of the league sees the players having less jobs to compete for and thus less money to go around. This is partly why I get a kick out of the PA earlier sending jokers like KG out to speak. The PA wheels them out but they don't represent the majority of the PA. The KG's are always going to get good money. I honestly don't identify with some spoiled player saying "we're not going to let them win". What I care about is the league landing in a place that promotes long term health for all and a system that is fair for all.

                          The economy grows worse every month. Things are going to get a lot worse. This isn't '98, this isn't even 2005. Things are a lot different now. I understand why the owners want to tighten things up. Maybe the players don't realize that America is about to enter it's second economical dip. Things are going to get worse than 2008 for everybody and most of those who got rocked some time in or around 2008 still have yet to recover. This means less money for the league due to reduced spending. This means higher prices for the league due to ever increasing inflation. America has a fair highly and scary chance at seeing hyper inflation if they continue as they are. Please see the Ukraine, 1993 to see what I'm talking about here.

                          Comment


                          • Matt52 wrote: View Post
                            The 75% is still a huge out of pocket expense which will one day have to be repaid. The only way to pay it back would be through the sale of the franchise (which is a final resolution that many owners may not wish to do) or through the 43% of revenues they receive that also pays for every other expense.

                            The assumption is the asset base continues to grow - what happens if franchises do not continue to appreciate? what happnes if the economy takes another leg down? This is the issue with leverage - a 50% loss on a loan is a 100% loss i.e. you've lost 50% now you have to pay back the 50% to make up the full 100% loan.

                            When people talk about leverage and using debt to keep things operating I think back to Chuck Prince in 2007:



                            If the league was truly profitable for all (even well managed teams), I do not see the owners willing to shut it down. The fact that they are better off losing a season so they will not lose money speaks volumes of the situation in my opinion.

                            Again this comes down to who you believe. Obviously we have a difference of opinion - I'm fine with that.

                            How is the 75% an out of pocket expense? Who the hell would add to their business out of pocket? Are you crazy? You don't see the big picture do you? You googled some things but you are still having a problem using the concepts you have learned.

                            What is worse, you are trying to give me a lecture.


                            There is no out of pocket, the cost of money is written off. That is written off against profits which if they are lucky will only amount to 75% of original take. However, if they expense it in the business it stays at 100%.

                            All those expenditures, are $1 for 1$ in to the business.... except that in this case $1 is equal to $1.33 in terms of effectiveness. Due to the fact you are not getting taxed on it by using it as an expenditure.


                            The extra funds diverted to the business STAY In the BUSINESS full + tax you would of paid. They are there! They just changed into assets. You only have to account for them during capital gains. Which you can forestall, until you have some juicy capital loss. In the meanwhile, you can go boo hoo about your operational losses, to the fools.


                            (BTW, they will also write off the lockout, the tax payer will pay for it, they are legally allowed to do so.)


                            .... out of pocket? Are you a rookie? Who does that?
                            Last edited by MyMomLovesMe; Wed Jul 13, 2011, 10:18 AM.

                            Comment


                            • MyMomLovesMe wrote: View Post
                              How is the 75% an out of pocket expense? Who the hell would add to their business out of pocket? Are you crazy? You don't see the big picture do you? You googled some things but you are still having a problem using the concepts you have learned.

                              What is worse, you are trying to give me a lecture.


                              There is no out of pocket, the cost of money is written off. That is written off against profits which if they are lucky will only amount to 75% of original take. However, if they expense it in the business it stays at 100%.

                              All those expenditures, are $1 for 1$ in to the business.... except that in this case $1 is equal to $1.33 in terms of effectiveness. Due to the fact you are not getting taxed on it by using it as an expenditure.


                              The extra funds diverted to the business STAY In the BUSINESS full + tax you would of paid. They are there! You only have to account for them during capital gains. Which you can forestall, until you have some juicy capital loss.




                              .... out of pocket? Are you a rookie? Who does that?
                              The insults do not help discussion.

                              When one puts money in to a business ( i.e. franchise and lets stay with the practice facility as an example), where does the cost come from? The money has to come from somewhere. If it is paid for in cash, then it is an expense. If it is paid for via a loan, the loan still an expense and has to be repaid while adding an extra expense (interest). Furthermore if it is a loan, the loan has to have collateral (the franchise or other assets) therefore we are once again at the issue of leverage. Once the facility is complete, sure it can go against revenues but it would only be depreciated at 4% per year but then the depreciation goes against the adjusted cost base of the franchise increasing their capital gains when they eventually sell the franchise. Either way it is looked at creates an expense that has to be paid, therefore it is out of the owner's pocket.

                              The owners (if you believe their books or more likely believe there is an issue but have the books skewed in their favour) are still not making a profit. Thererfore if they are losing money on operations, how can they put money in to the franchise to increase its value other than through a loan? And how can that be a wise business decision when the company is cash flow negative?

                              I think Eric Pincus at HoopsWorld.com summed it up good in a chat yesterday which I linked above but here it is again:

                              Everything sadly has to just wait in this limbo until the owners and players get their act together. I understand that the owners' aren't profitable on a whole and thus they feel like of the 43% piece of the pie they get of basketball related income - they keep less than zero of it.

                              From their perspective collectively it's a 57% split to players, 43%+ to expenses.

                              The players want to argue how some of those numbers are interpreted and I agree that we're dealing with a worst case presentation of the accounting.

                              Still, the owners are not profiting and they need to lock in some level of positive cash flow in this new deal. I think they're taking it way, way too far but the players are compensated like it's pre-recession and that's not realistic. Who in this economy is getting 8-10.5% raises each year? Income has been flat or declining for some time now.

                              The system needs a reboot and both sides need to compromise. The players think they've given enough. They haven't. The owners are asking for too much and need to step into the middle - but won't until the players give more.

                              Read more NBA news and insight: http://www.hoopsworld.com/chat.asp?c...#ixzz1Rw45rZ3U

                              Comment


                              • Matt52 wrote: View Post
                                The insults do not help discussion.

                                When one puts money in to a business ( i.e. franchise and lets stay with the practice facility as an example), where does the cost come from? The money has to come from somewhere. If it is paid for in cash, then it is an expense. If it is paid for via a loan, the loan still an expense and has to be repaid while adding an extra expense (interest). Furthermore if it is a loan, the loan has to have collateral (the franchise or other assets) therefore we are once again at the issue of leverage. Once the facility is complete, sure it can go against revenues but it would only be depreciated at 4% per year but then the depreciation goes against the adjusted cost base of the franchise increasing their capital gains when they eventually sell the franchise. Either way it is looked at creates an expense that has to be paid, therefore it is out of the owner's pocket.

                                The owners (if you believe their books or more likely believe there is an issue but have the books skewed in their favour) are still not making a profit. Thererfore if they are losing money on operations, how can they put money in to the franchise to increase its value other than through a loan? And how can that be a wise business decision when the company is cash flow negative?

                                I think Eric Pincus at HoopsWorld.com summed it up good in a chat yesterday which I linked above but here it is again:

                                Sorry about the insults, but I am getting frustrated with you because it is apparent that nothing is sinking in. So my response after response feels like just an exercise in futility. IF you really want to debate, than you will acknowledge I caught you multiple times not understanding the concepts.


                                The money comes from a loan against the franchise. The interest is fully deducted, therefore the money cost is zip. Except that it costs you the revenues which would have been profits if you did not add that big ass loan to it (and Risk). So your cost of that money is 75% on the financing. Which means you have a big ass pile of it working in your favour for only 75% of the cost of the financing bill.

                                This is the reason why you do not take money out of a business and than put it back in. It is retarded. You already got dinged on it by the tax man. It is not very smart.


                                So a smart business owner, rather than renting his tools, and keeping his costs down, so that he can make oodles of profits for the tax man, instead buys his tools, buys his building, operates at a loss, including expensing out his own salary, because in the long run he is maximizing his earning potential and asset base, which he only has to account for when he has enough capital losses against the gains.

                                It's just basic strategy.
                                Last edited by MyMomLovesMe; Wed Jul 13, 2011, 10:33 AM.

                                Comment

                                Working...
                                X