Kevin Murphy, a Univeristy of Chicago professor, MacArthur fellow and National Basketball Players Association economist, did a rare interview with NBA.com's fabulous Steve Aschburner, and it's a doozy. Murphy, who has been heralded as one of the smartest economists in the United States, began working for the players' union in the run-up to the 2005 collective bargaining negotiations. The NBA escaped a lockout that time around as David Stern agreed to a deal containing relatively minor concessions from the players. The league hasn't been so swift to settle this time around.
Perhaps the most head-smacking part of Murphy's conversation with Aschburner revolves around the incentive for owning an NBA team, considering that the league is losing money. Six teams have changed hands in the past two seasons, making observers skeptical that the league is in as bad a position as it claims to be.
Here's Murphy on the tax benefits of franchise ownership, even when the team's losing money.
[H]istorically, you've seen franchises appreciate in value and that appreciation has more than outstripped any cash-flow losses that you've had. And if you're in the right tax position, it's actually pretty good because you've got a tax loss annually on your operating and you've got a capital gain at the end that you accumulate untaxed until you sell it and then pay at a lower rate. So you get a deferred tax treatment on the gains and an immediate tax treatment on the losses, that's not a bad deal.
He goes on to give an example to flesh it out. The entire piece is a must-read.
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