Weekend Podcast: Sports Economist Rodney Fort on NBA Lockout and Roster Depreciation Allowance

Posted on November 5, 2011 by

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Sports economist Rodney Fort, an expert on roster depreciation allowance,  joined the weekend podcast to discuss the NBA Lockout and the WoW Network’s analysis of NBA owners using the RDA to hide profits.

Podcast Details

How to listen: Download the MP3, subscribe to the RSS feed or go to the iTunes store.

Podcasters: Mosi K. Platt and Rodney Fort

Recorded: 11/4/11 3:08 PM EDT

Background

In the article “Better Angels”, WoW blogger Arturo Galletti explained his theory that NBA owners were able to turn the profits reported by Forbes into the losses reported by David Stern using a tax advantage called the Roster Depreciation Allowance (RDA). The RDA was created after businessman Bill Veeck purchased a Major League Baseball team in 1946 and convinced the IRS that the roster of players was a depreciable asset that reduced his tax obligation.

Several readers, like A.K.S. and emuhd, took issue with Arturo’s analysis. The WoW network asked Fort, an economics professor from the University of Michigan, to weigh-in on the impact of the RDA on the NBA Lockout and collective bargaining with the National Basketball Players Association. Fort and his co-author Edward Coulson analyzed the RDA in the paper, Tax Revisions of 2004 and Pro Sports Team Ownership.”

Questions

Why does the RDA have “illogical foundations”?
“A possible parallel is the depreciation of livestock that is purchased for work, breeding, or dairy purposes but not kept in an inventory account. Apparently, these types of livestock ‘wear out’ in their relative productive roles and the IRS allows them to be treated as depreciable assets for tax purposes.”
If players are treated like chattel for tax purposes, then was Bryant Gumbel so far off calling David Stern a “plantation owner”?

If pro sports owners and the IRS agreed that 100% of the team’s value comes from the players in the 2004 revision to the RDA, then is 50% of league income a fair split for the players?

Is Arturo’s analysis accurate in Better Angels? Are owners using the RDA to claim operating losses?

Are the 2004 tax revisions to the RDA responsible for the spike in prices of NBA franchises?

The paper Tax Revisions of 2004 and Pro Sports Team Ownership” outlines the impact of the 100/15 rule on hold and sell strategies for team owners. Arturo mentioned that NBA owners are using a blended strategy where they “hold” onto the team by selling it to relatives running shell corporations. Is that the case?

Companion Reading

Fort’s answers to these questions referenced the material linked below.