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Thursday, December 02, 2010

How to cook books in MLB

""Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss, and I can get every national accounting firm to agree with me." -
  • Paul Beeston, MLB chief operating officer when he was Blue Jays president.

Little wonder players doubt owners' claims that teams lose money. Not once in 30 years of collective bargaining has management claimed poverty at the negotiating table; that would force them to open their books. The books owners do show are often (legally) doctored to minimize gains or exaggerate losses.

Economists Andrew Zimbalist and Rodney Fort have pointed out a few ways owners can sandbag their profits:

1. JOINT OWNERSHIP:

Through corporate tie-ins, an owner can transfer profits from one company to another. Tribune Co., owner of the Cubs and WGN, can erase profits with poor WGN TV pact. Zimbalist estimates Cubs underreport TV value by $20 million.

2. SALARIES:

Owners can lower profits by paying themselves - a lot. George Steinbrenner once paid himself a $25 million fee for negotiating Yanks' cable contract. Good perks, too. Ex-Mariners owner Jeff Smulyan, with main biz in Indianapolis, used corporate jet for several Seattle-Indy flights a week - charging costs to ball club.

3. DEPRECIATION:

Neat tax trick: Buy baseball team for $10.8 million. Claim $10.2 million in player value, then depreciate it, just like company car, over several years. Pay no taxes on it. Thank IRS for allowing baseball to depreciate labor. Bud Selig did just that in 1970 (minus the thanks) when he bought Brewers.

4. INTEREST:

Neat tax trick II: Set up partnership to buy team. Then lend partnership money for purchase - and charge high interest. Steinbrenner lent Yankees partnership big money, pocketed interest. These were Yankees profits, but not on the ledger.

5. TIMING:

After late-'80s collusion settlement, each team owed players $12 million in payments. The Pirates, negotiating deal with city, deducted all $12 million from 1989 books, although they made no payment in '89; they paid off settlement over next three years. Deduction showed up when they needed to look poor.

6. CAPITAL GAINS:

Franchise values keep appreciating. Forbes magazine says 25 of 30 MLB teams gained value in 2000; Mets jumped 44% to $454 million.

7. NEW REVENUES:

New stadium-related revenues grow fast, aren't usually shared with players, and don't show up on team-related balance sheet. Owners often exclude income from stadium naming rights and advertising, luxury suites and team merchandise stores, from revenue."

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