NBA in the red due to capital expenditure

In a recent article on TrueHoop, Adam Silver, COO of the NBA, is quoted as saying

“The league will not make money this year,” Silver says. And next year? “Maybe.”

I think there is a little truth and a little fibbing in this statement.  Yes, it’s easy to forget that even with the league’s popularity, and subsequent ticket sales, rising fast due to Jeremy Lin, the league will still take a huge hit to profits because of the lockout.  However, that cost could easily be construed as a capital expenditure.

Ultimately, the league (or owners, depending on your perspective) chose to take the loss in present revenue in hopes for a larger portion of future revenue; that is, by stalemating, the league invested in the chance that the players would accept a deal that allotted them a smaller chunk of BRI.  Even if that money “lost” went towards variable costs (e.g. wages, venue maintenance), it was still spent on a calculated risk for future benefits, which almost certainly qualifies it as a capital expenditure.

So, next time you hear Adam Silver (at a bar?) say that the league is losing money this year, just respond with “technically …”

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I am Director of Data Science at Two Six Capital, Co-Founder of Krossover, Ph.D in Stats from Wharton and a proud Savannah-ian.

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