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
“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 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.
- The NBPA’s NLRB case
- “Responding to the NBA” by David Berri
- “Renowned economist Murphy lends smarts to NBPA’s cause” by Steve Aschburner from nba.com
- Sports Economics, Third Edition by Rodney Fort
- Sports and Monsters Blog by Rodney Fort
Wages of Wins Journal 
Arturo Galletti
November 5, 2011
Mosi,
Great podcast. I wish I’d been on. The whole point on owner behavior was key. A team is worth more now to a new owner if the old owner bought it before the change in the tax law. I would have loved to ask that. We definitely need to do this again.
wiLQ
November 7, 2011
I agree, very informative podcast and I’m pretty sure every reader/listener can learn something from it. Obviously he or she need to be interested in that topic ;-)
mosiplatt
November 7, 2011
@Arturo:
If you email that question to Mr. Fort, there’s a good chance he’ll answer it.
greyv
November 7, 2011
Great podcast. I like that Dr. Fort suggests that there is an underlying (and unknown) economic basis for the continued lockout. Seems to me much more likely than both sides drawing a line in the sand for the 2.5% of BRI narrative provided by the majority of media outlets. Any thoughts as to what that economic reason might be?
mosiplatt
November 12, 2011
@wiLQ:
I agree with you the topic is only interesting to a small group of people. I tried to come up with a title for the post that would have mass appeal before I realized it was a futile effort. You’re either interested in RDA or you aren’t.
mosiplatt
November 12, 2011
@greyv:
I agree that Fort’s suggestion of an unknown reason for the lockout was very interesting. The rumored proposals from the owners seem to indicate they want to limit player movement by limiting the number of teams that can offer players contracts. That, of course, lowers the amount of money the players will get paid.