One of the biggest mysteries about the Rays is just how much money they are making, or losing, each year. Deadspin.com got a hold of some financial documents that show how the New Jersey Nets turned a profit in reality into a loss on paper.

While this is about an NBA team, it is important to note that the tax benefits apply to anybody that owns a professional sports franchise.

The RDA dates back to 1959, and was maybe Bill Veeck’s biggest hustle in a long lifetime of hustles. Veeck argued to the IRS that professional athletes, once they’ve been paid for, “waste away” like livestock. Therefore a sports team’s roster, like a farmer’s cattle or an office copy machine or a new Volvo, is a depreciable asset…The underlying logic is specious at best. As Fort points out, a team’s roster at any given moment isn’t actually depreciating.

This is especially troublesome for a team like the Rays where the majority of the roster is young and actually improving as they get older and their salaries are not keeping pace. In other words, Rays players tend to become more valuable, at least in the first few years, unlike say Derek Jeter, who is becoming less valuable as he gets older.

This reminds us of another shortcut that highlights how teams can “cook the books.” While not applicable to the Rays, there are many people/groups that own both a pro sports team and the stadium/arena that team plays in.

Those teams will pay rent at those facilities even though both the team and stadium are owned by the same person/group. And even though the money is going from one pocket to another, the team can count the rent as an expense which adds to the team’s “losses.”

Tommy Craggs outlines the biggest problem with the system:

…the real value of [the team] can’t be known without looking at the numbers for [the stadium/arena] and [developments associated with that stadium/arena], and so on. There’s nothing illegal or even wrong with that, but in such a system you can see very quickly why incentives for owners often fall irreparably out of plumb with the wishes of their fans — owners want to maximize revenue (which is their right), and fans want to win (which is their nature)…

And while Stuart Sternberg claims the Rays are losing money “hand over fist,” he is probably ignoring the other benefits to owning a professional sports team…

The other lesson to draw is that there are certain baked-in advantages to owning a team. You have both the relevant labor law and the tax code firmly on your side. You are making money you didn’t exactly earn from the moment you sign the paperwork, and you are making more money for your other businesses — your shopping mall across the street from the arena, your legal practice, your broadcast holdings — and then, come tax time, you are allowed by law, and even encouraged, to pretend you are not making any money at all. Remember this the next time David Stern says the NBA’s economic system is broken. “The bottom line about the bottom line,” Fort says, “is that even if it looks like they’re losing money, it doesn’t mean they’re losing money.”

Now consider that the Rays reap financial benefits through revenue sharing that is unmatched in other sports. And consider that the leadership of the Rays consists of maybe the brightest financial minds in sports. It doesn’t take an MBA to figure out that they taking advantage of every break that is accessible by the owners of a pro sports team.

And hey, there is absolutely nothing wrong with that. And at the end of the day, we understand why they are crying “poor.” But we also understand when Rays fans roll their eyes anytime Sternberg opens his mouth.

There is a certain level of transparency that fans feel they are entitled to, and which the teams don’t want to provide.

So what do we do? As fans we have to understand that owners are allowed to try and maximize profits. Sure we wish they would just “break even” every year and care more about winning. But that is silly.

It is like the guy that says he would play professional baseball for free. Sure he would. Until he saw how much money the owners are making . And until he saw how much other players were making. And then all of a sudden, that guy will want “his cut.”

And that is the conundrum. Both sides are right. And both sides are wrong.

This is where we are jealous of the Yankees. For all his faults, George Steinbrenner was the one owner that cared as much about winning as the average fan.

The rest of the owners are either trying to maximize profits only, or that are trying to balance the maximization of profits and winning.

And it is our belief that the Rays fall squarely in the latter.

 
 

10 Comments

  1. Martin B says:

    Both sides are not “right” when one side wants to extort local governments to have the taxpayers to finance putting money in his pocket.

    • Cork Gaines says:

      But are team’s still doing that? As Mayor Buckhorn said, the Rays aren’t getting a stadium paid for like the Bucs did.

      • Gus says:

        Then we can tell all the utopians to put away the graphics of the Riverside/Channelside stadium plans and get down to the nitty gritty of supporting the team and getting to the existing stadium (hint: on big games, come in via 4th Street or MLK to avoid traffic)? Because there is no way this ownership group is financing a ballpark without public funding of 75% or more of the stadium. And there in NO way that is happening in Hillsborough in the next 15 years (a possibility in Pinellas, but not exactly a great time to be asking).

        We are coming up on the 20th anniversary of the award of the expansion franchises to Miami (who promise of a baseball-only facility will have taken 20 years to complete) and to Denver, where MLB awarded the franchise to mafiosos from Youngstown, Ohio who were indicted before the first pitch and served hard time and Tampa Bay was passed over (unjustly). It is in many ways the screw job that keeps on giving, as 20 years out, this franchise and baseball is almost as tenuous as it was in 1991. All most people in Tampa Bay want is a team to root for, a team to have on the radio in the car while running errands, a team to take your kids to go see. We have that (for now), but all of the “noise in the system” for the last 20 plus years has always made it bittersweet. More than anything, this team needs commitment from ownership that they aren’t leaving, that they want to win and some return of their profits back into the team (I submit that $40M payroll coming off of an AL East title is not getting it done on this front).

        As we approach the 4th year of a Rays team in contention at the trade deadline, are we Charlie Brown going to kick the football, and Stu (we can add payroll) is Lucy, pulling it away again? Qualls, Bradford. Not getting it done.

  2. Don says:

    Private Corp’s are always hard to handle in order to figure what they are “making”… reporting figures are always distorted…Good luck on trying to figure out what Stuie is actually making…

  3. nate says:

    Audits aren’t just for public companies. A large number of private companies require audits to comply with loan convenants from banks, among other reasons. The only thing that requires the Rays to have an audit done is that they have to file their financials with MLB. Every team gets a certified audit that says their statements are in accordance with generally accepted accounting principles. This puts them in the same category of scrutiny as any publically traded company (for the most part….public companies get SOX audits which is a seperate thing, but for purposes of this discussion the financial statements are subject to the same level of scrutiny). So to say that the Rays are cooking the books as you say, is flat out wrong. True, the accrual basis of accounting is not the same thing as the cash basis of accounting. But any right minded analyst can read and interpret these statements accordingly.

    To say that management manipulates accounting rules to show loss is suggesting that their accounting are puppets, and Sternberg is the pupeteer. Now that opens up another argument….auditor indepedance. (Can you really be independant of your client if you earn a fee for your service????). Thats a topic for another blog.

  4. Steve says:

    Fans on both sides of the Bay need to stop griping about location — as long as that continues we give the owners leverage. If we want major league baseball in the area we need to adopt a new message for Stu everytime he complains about the location —RTFL —Read The F’in Lease!

  5. rayalan says:

    Let get something straight from the beginning, Accounting is not a science it is an art form. I can certainly attest to this as having been in the accounting field for over 30 years. In retrospect, I lost a a lot of respect for the accounting profession, due to the myriad of ways
    that there are to portray financial inforamtion.

    I do not fault Stu Sternberg at all. He simply is working within the system. I personally feel we are incredibly fortunate to have such an intelligent owner and front office.

    Trust me folks out there, that are not in the field of accounting, the myriad of way number are shown is accross the board in EVERY INDUSTRY and public funds accounting as well.

    One fellow told me many years ago, it is just like asking four different people who witnessed the same accident to share what they saw. You will get four different versions of the truth. Only when it is malicious intent is it really wrong. That is just the way it is folks.

    The “bean counters” are always at the mercy of those paying their salries to portray what they wish.

    • nate says:

      To add to your science vs art, I’d also say that at the highest level of the accounting firm there are calculated gambles taken. Accounting Firm wins a client. That client pays a fee. Is the fee worth the risk being taken on by the firm? The risk depends on how much you give into the clients desire to portray certain positions in certain ways. In the case of a Major League Baseball team the risks are greatly mitigated by the fact that the audience for the financials are the leauge. The league and the owners want those statements to say the same thing, therefore the partners of these firms signing the opinions have their risk decreased significantly. Now, if these statements are being relied on by someone else who’s interests are different than the leagues, then risk increases.

      In short, yea there is probably a lot of “giving in” to these team’s CFO’s desire when it comes to disclosure and recording of significant positions. But to say that there is something artistic or deceptive about depreciation is lame. Depreciation is accounting 101.

      • rayalan says:

        Yes depreciation is easy, but what about loan loss reserves, capitalized leases and the like. I have seen more abuse in those areas than any others.

  6. Michael says:

    Lost is the basic precept that maybe a professional sports team at the highest level *shouldn’t* make money in and of itself.

    There was a time when sports teams were considered vanity items.

    It is a shame that wallstreet hustlers are trying to turn sports into a stock portfolio, but that’s the hand we were dealt.

    But teams losing money is not news. The Dallas Mavericks are reported to have lost money basically every year since Cuban bought it. But Cuban is a billionaire and doesn’t give a fuck. He’s the Steinbrenner of the NBA, and his expansive business interests all benefit from his platform in the NBA.

    Stu would be pretty dumb if he didn’t have other irons in the fire aligned to make money off of the Rays.

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