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Thursday, December 14, 2017

You should be very skeptical of claims the Royals lost over $60 million the last two years - Royals Review

Teams can lose money in specific years. That doesn’t mean an owner loses money over the long term despite some year-to-year loses.

It wouldn’t surprise me if the Royals were losing some money. But $65-68 million over a two-year period doesn’t quite pass the smell test. That isn’t to say I think Dayton Moore is lying, but there are many different ways to interpret “losing money” when it comes to sports teams. For that, let’s turn to Shaun Newkirk, who is much better with his money than I am.

Jim Furtado Posted: December 14, 2017 at 06:51 AM | 25 comment(s) Login to Bookmark
  Tags: royals

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   1. Los Angeles El Hombre of Anaheim Posted: December 14, 2017 at 03:07 PM (#5592770)
Generally Accepted Accounting Principles, the gift that keeps on giving.
   2. Steve Parris, Je t'aime Posted: December 14, 2017 at 03:25 PM (#5592786)
KC may not hit a lot of homers but they have strong GAAP power.
   3. snapper (history's 42nd greatest monster) Posted: December 14, 2017 at 04:41 PM (#5592841)
Generally Accepted Accounting Principles, the gift that keeps on giving.

Yes. I can buy an asset for $100M, say a NYC office building, and have it go up in market value by 15% per year, and I can still take a depreciation "loss" against my income based on the purchase price.

Total scam.
   4. Zach Posted: December 14, 2017 at 06:05 PM (#5592923)
Say I run a mowing service, and I buy a nice tractor for $5,000. I estimate that I’ll get five years of life out of the tractor, so I’ll depreciate it over five years ($1,000 a year). I charge $10 a lawn and I mow 50 lawns one summer. I of course have to pay for gas, and at the end of the summer I paid $100 for gas. My income statement would look like this:

Revenue: +$500 (50 lawns for $10 each)

Operating expense: -$100 (gas)

------------------------------------------------—-—

Operating income: +$400

Depreciation: -$1,000

------------------------------------------------—-—

Net income: -$600

Wow, you mean I lost money this year?


Yes, as he will discover when it's time to buy a new tractor.
   5. Zach Posted: December 14, 2017 at 06:38 PM (#5592937)
The same logic applies to the Royals, for the same reason:

In 2014-2015, they were competitive on a small budget because they controlled the contracts for several good young players.

Later, they were less competitive on a larger budget, because the terms for the contracts they controlled were less favorable, as the players started to get raises and arbitration rights.

Next year, they will be very uncompetitive on a budget somewhat larger than their 2014 budget. The value of the contracts they controlled has gone to zero, and the players involved are free agents.

2018 - 2014 = 4 years, so the timeline is about right. (Most of those players came up in 2013, for what it's worth).

Contracts with ballplayers are depreciating assets.
   6. Pat Rapper's Delight (as quoted on MLB Network) Posted: December 14, 2017 at 07:30 PM (#5592961)
"Anyone who quotes profits of a baseball club is missing the point," Paul Beeston once said (at the time he was a Blue Jays vice president). "Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss and I could get every national accounting firm to agree with me."
   7. Chicago Joe Posted: December 14, 2017 at 07:33 PM (#5592965)
What about contracts with employees?
   8. ptodd Posted: December 14, 2017 at 07:37 PM (#5592966)
So that explains the low operating incomes in MLB as along with salaries depreciation of the players contracts are also included. Its amazing so many teams have a positive operating income with these shenanigans

When the Marlins talk about losses one wonders how much cash is lost and if most of the losses are paper losses
   9. snapper (history's 42nd greatest monster) Posted: December 14, 2017 at 07:46 PM (#5592970)

Contracts with ballplayers are depreciating assets.


No they're not. They're operating expenses. They should be expensed as they are paid. The salaries of your employees are always operating expenses in other contexts.
   10. snapper (history's 42nd greatest monster) Posted: December 14, 2017 at 07:47 PM (#5592971)
So that explains the low operating incomes in MLB as along with salaries depreciation of the players contracts are also included. Its amazing so many teams have a positive operating income with these shenanigans

When the Marlins talk about losses one wonders how much cash is lost and if most of the losses are paper losses


There are no cash losses. Every team makes money on a cash basis. Especially if you count the salaries and expense allowances of owners, and assorted no-show, no-work, relations.

No one would pay $800M for the worst franchise in the league if teams were suffering cash losses.
   11. Zach Posted: December 14, 2017 at 07:54 PM (#5592973)
No they're not. They're operating expenses. They should be expensed as they are paid. The salaries of your employees are always operating expenses in other contexts.

Ok, so then what happened to the Royals? Were they better off in 2014, or today?

Could they have sold those contracts in 2014? Traded them for other valuable contracts? Can they today?

I don't see how you can give a fair description of the Royals in both 2014 and 2018 without ascribing a large value to contracts they controlled in 2014, but do not control today. The disappearance of that value shows up in their expected record keeping payroll constant, or in their payroll keeping expected record constant. They do not have the ability to spend 2014's payroll (ajusted for inflation) to get 2014's results, because the value of the contracts they controlled went to zero, and they didn't replace them with new contracts of equivalent value.
   12. snapper (history's 42nd greatest monster) Posted: December 14, 2017 at 07:57 PM (#5592976)

Ok, so then what happened to the Royals? Were they better off in 2014, or today?

Could they have sold those contracts in 2014? Traded them for other valuable contracts? Can they today?

I don't see how you can give a fair description of the Royals in both 2014 and 2018 without ascribing a large value to contracts they controlled in 2014, but do not control today. The disappearance of that value shows up in their expected record keeping payroll constant, or in their payroll keeping expected record constant. They do not have the ability to spend 2014's payroll (ajusted for inflation) to get 2014's results, because the value of the contracts they controlled went to zero, and they didn't replace them with new contracts of equivalent value.


It's not the value of reserve control players teams depreciate. It's the value of long-term FA contracts.

If you have Mike Trout at the league minimum, it might make sense to treat that as a depreciating asset, but that's not what teams are doing here.
   13. Hank Gillette Posted: December 14, 2017 at 09:53 PM (#5593028)
Ok, so then what happened to the Royals? Were they better off in 2014, or today?


They were better off in 2014, because the monopoly nature of baseball allows teams to pay players (before they become free agents) millions less than they are worth.
   14. Captain Supporter Posted: December 16, 2017 at 11:16 AM (#5593686)
Apparently the fact that the deal was collectively bargained is irrelevant to all of you worker advocates. The greedy owner, poor suffering player narrative seems to resonate deeply here.
   15. bunyon Posted: December 16, 2017 at 12:28 PM (#5593699)
General Principle: If super rich people tell you they're losing money, they're lying.
   16. snapper (history's 42nd greatest monster) Posted: December 16, 2017 at 01:37 PM (#5593722)
General Principle: If super rich people tell you they're losing money, they're lying.

Better general principle: super rich people are always lying. They're crooks. That's how they got super rich in the first place.
   17. Hank Gillette Posted: December 17, 2017 at 05:32 PM (#5594069)
Apparently the fact that the deal was collectively bargained is irrelevant to all of you worker advocates. The greedy owner, poor suffering player narrative seems to resonate deeply here.


Yes it is irrelevant to the fact that before becoming free agents, players are paid less than their free market value.

The Players Union and Marvin Miller threw the younger players under the bus. Perhaps Miller was correct in his belief that limiting the supply of free agents would increase their value, but that came at the cost of screwing players who don’t have a career long enough to reach free agency.
   18. Misirlou doesn't live in the restaurant Posted: December 17, 2017 at 05:50 PM (#5594075)
Say I run a mowing service, and I buy a nice tractor for $5,000. I estimate that I’ll get five years of life out of the tractor, so I’ll depreciate it over five years ($1,000 a year). I charge $10 a lawn and I mow 50 lawns one summer. I of course have to pay for gas, and at the end of the summer I paid $100 for gas. My income statement would look like this:

Revenue: +$500 (50 lawns for $10 each)

Operating expense: -$100 (gas)

------------------------------------------------—-—

Operating income: +$400

Depreciation: -$1,000

------------------------------------------------—-—

Net income: -$600

Wow, you mean I lost money this year?


What a ridiculous example. Anyone who pays $5,000 for a capital asset that will only produce $2500 in gross income during its serviceable life deserves to lose all his money.
   19. Misirlou doesn't live in the restaurant Posted: December 17, 2017 at 05:58 PM (#5594078)
Contracts with ballplayers are depreciating assets.

No they're not. They're operating expenses. They should be expensed as they are paid. The salaries of your employees are always operating expenses in other contexts.


If I am reading the article correctly, and there's a good chance I'm not, it looks like the owners are doing both. Counting both the yearly salary, and depreciating the value of the contrast against income.
   20. dlf Posted: December 17, 2017 at 06:01 PM (#5594079)
Contracts with ballplayers are depreciating assets.

No they're not. They're operating expenses. They should be expensed as they are paid. The salaries of your employees are always operating expenses in other contexts.


Yes, they are. See Roster Depreciation Allowance something that goes back at least to Bill Veeck and allows teams to claim both the depreciation of the asset (the player contract) and the operating expense (the player salary). If I wasn't such a polite person, I'd say this is financial shenanigans whereby the mega-wealthy who own sports clubs were able to get a narrow exemption not available to the merely rich who own businesses, but I'm far to nice to say such things about baseball owners and the legislators who support them.
   21. snapper (history's 42nd greatest monster) Posted: December 17, 2017 at 06:05 PM (#5594080)
If I am reading the article correctly, and there's a good chance I'm not, it looks like the owners are doing both. Counting both the yearly salary, and depreciating the value of the contrast against income.

That's why it's a scam.

Something is either an asset than generates income and depreciates, or it's an expense. They're double dipping.

Yes, they are. See Roster Depreciation Allowance something that goes back at least to Bill Veeck and allows teams to claim both the depreciation of the asset (the player contract) and the operating expense (the player salary). If I wasn't such a polite person, I'd say this is financial shenanigans whereby the mega-wealthy who own sports clubs were able to get a narrow exemption not available to the merely rich who own businesses, but I'm far to nice to say such things about baseball owners and the legislators who support them.

I'm not that nice. See post [16]
   22. cercopithecus aethiops Posted: December 17, 2017 at 06:06 PM (#5594081)
Anyone who pays $5,000 for a capital asset that will only produce $2500 in gross income during its serviceable life deserves to lose all his money.


Well, maybe if he put the asset to use for more than 100 hours each year...
   23. Misirlou doesn't live in the restaurant Posted: December 17, 2017 at 07:08 PM (#5594089)
Well, maybe if he put the asset to use for more than 100 hours each year...


But then his example wouldn't work. The example was of an actual loss, not a bullshit mythical loss MLB teams are allowed to claim.
   24. Rally Posted: December 18, 2017 at 10:03 AM (#5594244)
Say I run a mowing service, and I buy a nice tractor for $5,000. I estimate that I’ll get five years of life out of the tractor, so I’ll depreciate it over five years ($1,000 a year). I charge $10 a lawn and I mow 50 lawns one summer. I of course have to pay for gas, and at the end of the summer I paid $100 for gas. My income statement would look like this:


If you're charging only $10 a lawn, and only mowing one lawn every 2-3 days, you might want to skip the big tractor and just get a used push mower for $100 off Craiglist.
   25. DL from MN Posted: December 18, 2017 at 12:49 PM (#5594418)
I can buy an asset for $100M, say a NYC office building, and have it go up in market value by 15% per year, and I can still take a depreciation "loss" against my income based on the purchase price.


Then die and pass the asset onto your heirs at the appreciated price without paying a capital gain.

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