Does Any Blame Lie With Mazars USA In Trump Organization Financial Statement Mess?
The big news that sent shockwaves through the accounting profession on Monday afternoon was Mazars USA breaking up with longtime client Donald Trump and his company on Valentine’s Day, saying in a letter to the Trump Organization, which was included in a court filing, that “the Statements of Financial Condition for Donald J. Trump for […]
When CEOs and Audit Committee Members Are BFFs, Financial Statements Are Ps of S
Welcome to the latest edition of Accumulated Deprecation, Greg Kyte's monthly column. Go here to read more of Greg's posts. Dutch people are assholes. In the United States, under SarBox, a 100 percent independent audit committee's good enough, but a group of Dutch researchers1 don’t even want CEOs and audit committee members to be friends.2 […]
Let’s Take a Peek at Some of Mitt Romney’s Investments
Earlier today, Gawker's John Cook dumped nearly 1,000 pages of "internal audits, financial statements, and private investor letters for 21 cryptically named entities in which Romney had invested" for all of the Internet's viewing and dissecting pleasure. It's quite a lot to digest and he's looking for help digging through all of it but it's pretty […]
Audited Financial Statements for NFL Ventures, L.P. Are Now Available for Your Viewing Pleasure
Today in leaked sports organization financial statements news, Deadspin’s latest scoop is the audited financial statements of NFL Ventures, L.P. and Subsidiaries. NFL Ventures consists of the following subsidiaries: NFL Enterprises, NFL Properties, NFL Productions and NFL International. These companies perform operations from broadcasting to advertising to the NFL Network to Super Bowl hospitality.
As you can imagine, professional football in the United States is a pretty lucrative business. Forget the mess that is the
Ugh. That’s an ugly one, huh? I managed to get pretty close on the math, however. If you multiply the total expenses by 1.09 and then subtract that total from the gross revenues of $1.7 billion, you get the $1.2 billion (within $15-20 million or so). Craggs writes that this “accounts for the drop in net income” although that doesn’t seem correct (I emailed him to see if he can clarify) but is correct in saying that this remittance is simply “money moving from one pocket to another.”
Other than that, the report, also audited by Deloitte, is fairly lengthy and seems fairly innocuous since the companies as a whole appear to be extremely healthy (e.g. robust working capital, growing operating profit, impressive cash flow). There was a cash distribution FYE ’10 of $136 million to the limited partners, however nothing else really stands out.
Of course if you’re a rabid football fan, this is all quite infuriating because it stands as evidence that the team owners simply want more money for themselves. And Craggs smartly points out that since the G-3 program ran dry in ’07, that left some owners in the lurch:
[T]he case could be made that the real dispute at the heart of the lockout lay between the owners who’d exploited the G-3 program to build bright new revenue-generating stadiums and those who hadn’t and now couldn’t because their peers had burned through the fund. In this light, the lockout looks like something else entirely — less a battle between management and labor and more a proxy war in which the owners, unwilling to fight each other for money, decided to extract it from the players instead.
The full report is on the next page. Enjoy.
Let’s Dig into the NFL League Office’s Audited Financial Statements, Shall We?
Once again, Deadspin has scooped up some audited financial statements of a sports organization and this time it’s a big fish – the National Football League League Office. Audited by Deloitte, these financial statements (in full on page 2) present the Statement of Financial Condition (I’ll call this the balance sheet to keep things easy), Statement of Activities and Changes in Net Liabilities (going with income statement here), and Statement of Cash Flows with the accompanying notes for the years ended March 31, 2010 and 2009. All right, let’s do this.
The presentation for the balance tement is broken out between the NFL League Office, the League’s G-3 Stadium Program with the total of the two making up the third column. Tommy Craggs focuses primarily on the G-3 Stadium Program which he points out is “a matter that lies at the heart of lockout.”
The G-3 Program is interesting because this is how the league has financed the boom of new stadiums in the last year or so. Currently 13 teams are involved in the program for twelve new stadiums (the Jets and the Giants get to share). Here’s the table from Note 5:
It’s pretty amusing to see some of the disparity in this table, most notably the Detroit LionsGreen Bay Packers owing the League a measly $6.9 million while the Jets and Giants owe over $150 million each. The total owed by the two New York teams accounts for over 40% of the total for FYE ’10 (and the principal balance managed to go up for both, the Chiefs being the only other franchise to have this happen). These funds owed to the League compromise for over 80% of their total assets, financed by notes payable that compromise more than three-quarters of the total liabilities. Essentially, the crux of the organization’s balance is in play here. Obviously, the culture of cheap cash in the Aughts was not lost on the ownership and if banks were handing out money left and right, why not take advantage?
Here are the details on the notes payable:
As you can see, the fun ended in 2008, just as things were getting interesting. The League has entered into a half dozen of interest rate swaps to protect themselves with notional amounts of $249 million.
Some other notable items:
• The Game Officials’ Pension Plan (under Note 7) is underfunded by approximately $20 million, although the majority of the benefit payments come between 2016 and 2020.
• Related Parties (Note 8) has plenty to dig through, however one thing that sticks out is under “Other Related Party Transactions” is the $2 million loan made to “a senior executive” in May 2007. As of March 31, 2010 not a cent of this had been paid back and the note states that “In accordance with the terms of an employment agreement” an amendment was made in March 2010.
• The following paragraph under “Other Related Party Transactions” discusses “amended certain terms of an employment agreement with an executive, including certain termination rights.” This executive can request renegotiation “following ratification of a new CBA agreement [repetitive?].” If a new employment deal cannot be reached, the executive can execute termination rights for approximately $19 million which is equivalent to two years compensation. Just spitballin’ here but it wouldn’t be a stretch to conclude that this part of Roger Goodell’s deal.
• Hilariously, under “Litigation” the matter of Richardson et al. v. NFL et al. we find that Drug Program Agents (i.e. guys who collect cups of piss) sued the NFL and several of its affiliates for treating them as independent contractors as opposed to employees. This was filed in 2007 but in 2008, the plaintiffs filed an amended complaint for “typographical errors” but the complaint didn’t change. In other words, the plaintiffs’ lawyers didn’t use spellcheck. Ultimately the claims were dismissed in 2009 against the NFL but a settlement was reached between the NFL Management Council and the piss collectors.
WHEW! Lots of good stuff in there, so enjoy over the weekend. Deadspin is promising more “documents from a different arm of the NFL,” so hopefully we’ll see more pieces of this. Stay tuned!
(UPDATE) Who Wants to Comb Over the New Jersey Nets’ Financial Statements?
Deadspin has gotten its hands on more sports team financial statements, this time those of the NBA’s New Jersey Nets for fiscal years 2004-2006. The NBA owners are set to officially lock out the players tonight at midnight and the strangest piece of information – and some say the cause of the owner/player beef – is highlighted in Tommy Craggs’ post which is known as “roster depreciation allowance.”
UPDATE: Deadspin has updated their post to state that the initial analysis of the RDA was incorrect. That is, the $25.1 million was not RDA but rather the loss the team took on a player contract in that fiscal year (Craggs speculates that it was Dikembe Mutombo). Craggs then writes:
The example is bad, and I apologize for that. I’m leaving the text here for a couple reasons: 1.) The roster depreciation allowance is real, even if we’ve misidentified it here, and it provides owners with a significant tax shelter based on a baroque logic. 2.) The Nets, like all franchises, do use large paper losses to pad their expenses.
I’ve updated the blockquote after the jump to show Deadspin’s note of the correction. They’ve also included some analysis from ESPN and a statement from the NBA’s CFO.
In 2004, the Nets had a $25 million “Loss on players’ contracts” which you can see here on the team’s income statement:
Craggs explains:
The first thing to do is toss out that $25 million loss, says Rodney Fort, a sports economist at the University of Michigan [See correction above.]. That’s not a real loss. That’s house money. The Nets didn’t have to write any checks for $25 million. What that $25 million represents is the amount by which Nets owners reduced their tax obligation under something called a roster depreciation allowance, or RDA.
Bear with me now. The RDA dates back to 1959, and was maybe [sports franchise owner] Bill Veeck’s biggest hustle in a long lifetime of hustles. Veeck argued to the IRS that professional athletes, once they’ve been paid for, “waste away” like livestock. Therefore a sports team’s roster, like a farmer’s cattle or an office copy machine or a new Volvo, is a depreciable asset.
The underlying logic is specious at best. As Fort points out, a team’s roster at any given moment isn’t actually depreciating. While some players are fading with age, others are developing and improving. But the Nets don’t have to pay more taxes when a player becomes more valuable. And in any case, the cost of depreciation is borne by the athletes themselves, when they pass their primes and lose their personal earning power.
As Craggs notes, if that loss, which also saved the team about $9 million in taxes, doesn’t exist, you’ve got a $7 million profit (see update above). But since we’re talking about rich owners with the hands in honeypots all over the place, a profit really doesn’t do them any good on an investment like a sports franchise. Particularly one in New Jersey that was in the process of being sold back in 2004.
Craggs’ whole post is excellent, so check it out. In the meantime, I’ll note some other interesting things from 2004 (financials, in full on page 2) include:
• An enormous working capital deficit of $124 million. This was mostly due to a $95 million term loan the team was guaranteed by a partnership called “YankeeNets” which was created when the then-owners, Lewis Katz and Ray Chambers, bought 37.5% of the New York Yankees Partnership. YankeeNets was 99% owned by Katz and Chambers. It’s all pretty convoluted but I don’t know of any business that wants a huge working capital deficit like that. Even if the term loan was omitted, the negative working capital would be over $29 million, with accrued salaries being nearly double of current assets.
• The enormous members deficit of $81 million, again exacerbated by the phony loss of $27 million.
• Negative net cash flow from operations of $20 million.
• Under Note 5, “Intangible Assets” you can see that players’ contracts were completely amortized for a net value of $0.
Of course when you look at the 2005 and 2006 financial statements (page 3), things look very different.
• For starters the term loan has jumped into long-term liabilities but the team still has a pathetic working capital of negative $16.8 million in ’06 and negative $25.3 million in ’05.
• Note that depreciation and amortization is now itemized on the income statement for $41 million and $42 million in ’06 and ’05 respectively. These make a huge portion of their losses from operations. D&A did not have its own line item in the ’04 financials.
• In the two years presented there were member distributions of over $15 million and large negative balances for cash flows used in operating activities.
As we’ve seen with the New Orleans Hornets, you can own a NBA franchise but that doesn’t mean you have to run it like anything that closely resembles successful business (at least i the traditional sense). For starters, you don’t have to answer to anyone except your co-owners with whom you worked out this strategy. I guess you could consider loyal fans to be stakeholders in your organization but my guess is most owners don’t.
I gave these a real quick and dirty look, so if you’ve got the time (and need to distract yourself until the holiday weekend starts) pour over these and call anything else weird you see. Enjoy.
New Orleans Hornets’ Audited Financial Statements Leaked
While the House of Klynveld is enjoying their town hall circa now, we’ll share you the latest scoop from Deadspin, who has published the audited (courtesy of KPMG) financial statements of the NBA’s New Orleans Hornets.
We’ve skimmed the financials, noting some interesting items here:
• In 2009, the franchise paid $115,000 for their audit, an additional $10,000 for “accounting issues” and $35,000 for tax compliance services.
• The team has a partners’ deficit of over $80 million thanks, in part to $111.5 million in long-term debt at June 30, 2009.
• The team did have operating income of over $5.8 million for the fiscal year ended June 30, 2009, however, paying nearly $9 million in interest (among other things) swung them to a much narrower net income of $1.8 million.
• Net cash from operating activities were a negative $7.4 million for the FYE June 30, 2008 but improved to a negative $1.5 million for FYE June 30, 2009. The team’s cash balance at June 30, 2009 was a mere $650k.
• George Shinn, the team’s owner, owes the franchise approximately $5 million from “various advances” but has also loaned the team over $8.3 million.
• The franchise has various investment associated with the NBA that have negative equity including: NBA Joint Venture; WNBA Holdings, LLC; NBDL Holdings, LLC
• The team has principal payments of approximately $115 million coming due through 2014.
• Guaranteed contracts to players through the 2013-2014 season amount to $247.5 million.
• “Revenue assistance” from the NBA (team is eligible if it has both an actual loss and a pro forma loss) for the FYE June 30, 2009 was $3.4 million.
Whew! So as you can see, the franchise isn’t in the best of shape. Our analysis is just a scratch on the surface so if you’ve got some time, crunch some numbers and share your findings with the group below.