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.