Over on the Center Circle thread in MLS News and Analysis, which was prompted by the claim that the expense structure for an MLS team was about $7 to $10 million per, there was an interesting little side discussion on the issue of "profits" and "losses". I said profits and losses in the context of a sports franchise were meaningless, and then Stan Collins came on with this. quote: -------------------------------------------------------------------------------- Originally posted by Stan Collins . . . if you're Ken Lay, that is. Here in the non-fraudulent business world, the value of your assets is assumed to be a function of the profit they earn on an ongoing basis. -------------------------------------------------------------------------------- Below is my response to him; I changed the numbers only slightly from the previous thread. Thought others might be interested in this. ********************************** A little accounting lesson for you. --I borrow $30 million to build an asset -- say a building, a ship, a bunch of oil wells, or a sports franchise with a stadium infrastructure. --I am a good manager, so the asset, once built, thows off, before expenses, $8 million cash per year. --Cash expenses are $6 million a year. --Net cash is $2 million -- 7% on the the $30 million cost. --Meanwhile, I depreciate my asset over 10 years at $3 million per year; I treat that as a expense, even though there's not a single penny of cash involved in taking such depreciation. --My "profits" -- rather "losses" -- are NEGATIVE $1 million per year. That is, $8 mill, minus $6 mill, minus $3 mill = -$1 million. --Ergo I am netting $2 million in cash, even as I am "losing" $1 million a year. --I take those tax losses. Since I am in the 40% tax bracket, those losses are worth $400k per year on my tax return. --Ten years later, someone buys my asset for, say, $50 million. My "basis" for my asset -- ie. the value for tax purposes -- is $0 ( I have fully depreciated it), and as a result I have a long term capital gain of $50 million. So my tax bill at the long term capital gains rate (25%) is $12.5 million. --Of the $50 million CASH I get at the sale of my asset, $12.5 million goes to Uncle Sam, $30 million goes to the bank to pay off the loan, $7.5 million goes into my pocket. --So for 10 years I have "lost" $10 million, but have netted $20 million in cash, while pocketing $7.5 million after-tax when I exit. THIS, ladies and gentlemen, is Accounting 101 for the a business where cash is king, "profits" are meaningless, and asset appreciation is everything --the game of real estate, shipbuilding, oil and -- ta da! -- sports franchise ownership.
But what happens if in 10 years the franchise is not sellable, but instead the league folds because they do not have enough cash flow? Then does it become a negative loss?
Re: Re: THE Financial Imperative to Own a Sports Franchise Aye, there's the rub. It's all about exit strategy. Suppose, using my example, at the end of 10 years, I can sell my asset, but only at $30 million. I have a long term capital gain of $30 million -- remember I depreciated my asset to $0 -- and I owe Uncle Sam 25% of $30 million --$7.5 million. But remember, I also owe the BANK $30 million. So that means when I sell, I collect $30 million, but owe $37.5 million. This is why the good lord invented Chapter 11 bankruptcy -- or in the case of certain bank loans, the concept of "non-recourse."
You'll forgive me. I was trained in economics rather than accounting, in which one is concerned with what one actually creates rather than what one can write down on a piece of paper. That caveat notwithstanding, allow me to highlight some of the dubious assumptions in Karl's post. 1. Depreciation is a scam. (First of all, a sports franchise is not an "asset", it's stadium is. The franchise is a commodity. You can write off the depreciation on the phsyical assets, like the stadium or the team bus, but not the rest of it, any more than you could depreciate gold bullion. If you could depreciate a whole company, then you could depreciate a stock, and every small-time investor in the country would be pulling this scam.) It is true that the common accounting rules for calculating depreciation are lax and favorable to the owner of assets (my personal theory on that is, accountnts being un comfortable with any kind of cost or benefit one cannot touch, they simply set an arbitrary standard). A stadium that with only moderate upkeep can stil be functional 20 years later (at some point the upkeep involved becomes more than moderate) is considered worthless after only ten. But however lax the accountants are in determining depreciation, I can assure you, the concept is quite real. Just as your car loses some of its value the moment you drive it off the lot, a stadium loses some of its value the moment a game is played in it. This doesn't go in any linear pattern. The hypothetical $3 million depreciation in the first year probably underestimates the actual depreciation that occurs in that year. (But as the value of the asset goes down, so the depreciation goes down faster). What we can say about depreciation is that an asset's value goes down over time, eventually approaching zero. 2. Even if depreciation is a scam, this assumes essentially that the potential investor is almost as 'fooled' as the taxman. That might work on the public (H.L. Mencken once said no one would ever go broke underestimating the American people. I think that's a bit of a stretch, but there does seem to be a sucker born on a pretty regular schedule), but I don't think you'd heave an easy time sneaking the reality -- that you were expecting to sell a franchise for more than you bought it for despite the fact that most of the profits have already been squeezed out of it -- by any multimillionaire who has ever owned a business himself. The investor would never buy something "worth" nothing for $50 million. Why would he, given that the asset is depreciated (and cannot be depreciated again)? You would have to fool the investor into thinking the team was more profitable than it was, while convincing Uncle Sam it was less. Now, you're keeping three sets of books. This is why I claim that in the non-fraudulent world, an asset's value is assumed to be a function of its profitability. You seem to be aware of the fact that accountants can seem to create or destroy profits, but take no account of the phoniness of this gesture at the point of sale. 3. You assume depreciation can can cover up a sizeable profit with a loss, but even your own numbers don't really bear that out. In your example, the investor has made $7.5 million over 10 years on an initial investment of $30 million. Present value that out, assuming only 2% inflation, and it comes out to a none-too-astounding annual return on investment of 2.05 percent. You can do better than that (even after taxes) with a government bond. There are other miscellaneous optimistic assumptions that make even this figure likely too high, such as that a stadium is seldom worth much more than half the assets of a team. (Therefore, you probably paid $50+ million for the whole kit and kaboodle, then inexplicably got $70 million back. And you just about broke even playing the depreciation game.)
Stan, trained in economics eh? The dismal science. The greal nobel prize winner Wassily Leonteif wrote a great article called "Let's take the 'con' out of economics." A beautiful title, because most economists have this peculiar inclination to postulate a set of perfect assumptions about the closed economic systems they evaluate. The real world is much much messier...and more interesting. Meanwhile, I think the term "dubious assumptions" is eminently applicable to much of your post. First, it is a presumption to assert that, with my example, that profits have been "squeezed out." Sports franchises can exist for long long periods of time, and ownership can be transferred numerous times, often at increases in value. Did Branch Rickey squeeze all of the profits out of the Brooklyn Dodgers? Hmmm...didn't think so. Second, in my example, and in the real world, depreciation is in large part an accounting and tax convention. Oh, sure, it has its roots in economic principles -- i.e., that you exhaust the useful life of the asset over time. But, frankly, it may, or it may not -- and more often not -- bear a relation to market reality. Don't assume that it does, or even that it should. Third, who says an asset can't be depreciated again? You bet it can!! If I buy a building from a guy who has depreciated it fully, my NEW basis for depriciation is the purchase price, and the whole glorious process starts all over again. It wouldn't be fair to ME the buyer, if I can't depreciate the same asset as the SELLER did when he owned it, so therefore, I am going to want to depreciate that purchase too. THIS is the real world. Of course, the IRS goes along with this game too, since, sooner or later, they "recapture" the tax benefit by lowering YOUR NEW tax basis as you take your depreciation. Fourth, players ARE depreciated!! They are indeed assets that wear out...not employees. It is common convention to take the present value of their contracts and depreciate that PV over some putative life. The NFL is a master at this game, as they take large tax write offs today, for long-term contracts that they will never have to pay off in the future. Fifth, who said ANYBODY made an investment in my example? That's a dubious assumption tha YOU drew. Nope, the owner of this asset in my example BORROWED all the money to build it. The technical acroymn for this is called OPM -- Other People's Money.-- the fundamental linchpin of any real estate deal, for example (an industry where a lot of these sports moguls cut their teeth). Most likely, of course, there will be SOME equity investment in the deal, but the idea is to put in as little as possible, and extract out as much as possible. So, in fact, if you put these cash flows into your Excel spreadheet -- no investment in, and lots of cash and tax benefits out -- and ran the internal rate of return number. . .well, let's just say THAT number would be WAY higher than the 2% you calculated. Finally, I didn't do a detailed financial analysis of a stadium + team combination in my example -- I was just throwing down some basic numbers to illustrate fundamental tax, market, and acccounting principles behind sports franchise ownership. Each deal has its own set of numbers and contexts -- don't read into it more than I put down. That's why deal makers always talk about "making the numbers work" -- it's about the correct configuration of financing I can get, cash flow from operations, "losses" I can write off, and final exit strategies that tie the whole kit and kaboodle into one nice little neat package.
We weren't talking about the Brooklyn Dodgers, were we? You set up the hypothetical in which an investor made a small rate of profit based largely on a tax loophole and an assumtpion that the team will be valued 60% higher in ten years, not I. You started with a premise of team that wasn't earning anything on a year-by-year basis, remember? I hardly think that applies to the Dodgers. This I don't dispute. I dispute that the difference has any relevance except dodging some taxes. Sure it would. You bought totally depreciated 'salvage.' It's nobody's fault you 'overpaid' for it but you. This is where the rubber meets the road. I'd like to see a reference for this, because if such a thing were true, the opportunities for abuse go way, way beyond sports franchises. You said it yourself. Depreciation has nothing to do with market value (everything I've looked up about it would tend to agree with that conclusion). So why is the depreciated asset revaluated when sold? Unless I see a reference otherwise, I'll still believe it isn't. Interesting, but that only affects what I wrote in the parentheses. And that point was in parentheses because it was parenthetical. Oh, come on. That's still an investment. The fact you borrowed the money is totally immaterial. You pay capital gains tax on it, right? Guess what capital gains tax is: a tax on investment returns. You borrowed the money to invest it. I was using your numbers. You get out with $7.5 million after ten years. Who cares what you can write on a spreadsheet? The $7.5 million is the bottom line. Again, it seems to me you've said "accounting is a phony world." And then used as if it were an indication of what's really going on. I think you tailored them to make the point (a buyer for a 60% higher than what you paid after ten years of making a 2 percent profit? You need to introduce me to that sucker), and they still don't make it very well. What you're striving at seems to be the thesis that even an MLS team, on its surface unprofitable, would be a money-maker if you just borrowed the money for the stadium and used deprecition. Doesn't really look like tht's true to me. Using what looks like the most optimistic of all remotely plausible scenarios, an investor makes less than he would on a guaranteed investment.
Two observations of factors not being discussed. First, depreciation as a tax concept serves two purposes - as a matter of pure accounting, to account for the fact that assets wear out or become obsolete, and as a matter of public policy, to reward some investments with a tax benefit to encourage economy-boosting spending and job creation. I would never argue with somebody who said that politics, rather than evenhanded economics, plays too large a role in the way we choose which investments get which tax treatment. Nevertheless, an office building gets depreciated ("written off against tax") because, unlike goverment or charitable organizations buildings, when they get old, often it makes more economic sense to tear them down than fix them up. When Crew Stadium was being designed it was pointed out that it probably wouldn't physically last more than 30 years. The reply was that almost all 30 year old stadiums for pro teams get torn down and replaced anyway. Contrast that with the almost $200,000,000 rehabilitation of Ohio Stadium (where the Buckeyes play 6 or 7 times a year), a stadium built during the Harding Administration. Second, ownership of a sports franchise is a mixed investment and consumption item. Thinking of rich men (who own nearly all sports franchises) as paying for their team for only one or the other reason distorts reality by oversimplification. Donald Trump got a lot more than a tax loss out of ownership of the New Jersey Generals. Before he bought "his" team, he was just another New York City millionaire rentier, a nameless face in a big crowd.
Stan...player contracts are depreciated. Well, that used to be true, and so far as I know, is still true. From what I understand, up until around 10 years ago when taxpayers started getting raped quite regularly to pay for luxury-box filled palaces, the advantage of owning a pro sports team was the deprectiation. That's why teams change hands on a regular basis. Once you've depreciated everything, it's time to sell. Think about the MLB situation with the Marlins and Red Sox ownerships. Owning a sports team is profitable in part because it's profitable. It's also profitable because of the tax advantages inherent in depreciation, and the opportunities for ancillary benefits. Thing about how many MLB teams are owned by the same entity that owns their broadcast company.
See the following IRS publications. http://www.irs.gov/formspubs/display/0,,i1=50&genericId=12846,00.html http://www.irs.gov/formspubs/display/0,,i1=50&genericId=12885,00.html http://www.irs.gov/formspubs/display/0,,i1=50&genericId=12296,00.html All you have to do is show that the asset your acquiring has a "useful" life -- it doesn't matter what the previous owner did or did not do. It's what YOU do with it that counts. "Opportunities for abuse?" Hate to burst your balloon, but the IRS is not stupid. Again, all the IRS cares about is that it recaptures any tax benefits YOU take over the life of the useful asset YOU own. The "basis" of the asset is the price I PURCHASE it at, not the hypothetical value of the property after a previous set of depreciation deductions. If I depreciate an asset to $0, but in turn can sell it for some sum in excess of that, well, I have a gain, and have to pay taxes on that gain. It's quite logical.
And some assets, of course, NEVER get "torn down" because they wear out; the Empire State Building, for one, has changed ownership hands quite a few times. It's also been renovated, too, and those costs, as well as the overall new purchase price (which tends to be higher than the preceding purchase price) all get figured into the overall "basis" of that asset for a new set of annual depreciation events. I would always make the distinction between "profitable" in a purely accounting sense (numbers which can be manipulated), versus the amount of "free cash" a franchise can generate. These are two distinct concepts. Meanwhile, you hit the nail on the head about "anciallary benefits." Sports franchises, along with their stadiums, are really "programming/venue" assets in the broadest sense. The value of the NY Yankees exist largely in their television/radio rights in the largest media market in the world. The Cubs main value to the Tribune Company is as a piece of programming they can use themselves or rent out. Comiskey Park is the home of the White Sox, but the Rolling Stones will come in and use the facility. Believe me, it's no accident that Phil Anschutz has a media company as part of his empire. The building of SSS will be perfect to leverage that element of his business mix where appropriate. By the way, this model is true in the public non-profit world. The Chicago Park District can't take depreciation on the new Soldier Field it continues to own, but that's OK since (a) financing it through low interest municipal bonds is really cheap and (b) it can employ that asset is a variety of venue events other than Chicago Bears football. In fact, one of the reasons that Daley got deeply involved in nixing the Fire's suburban stadium plans was that the financial projection in the offering statement for the bonds behind the new Soldier Field included $1 million of annual revenue from renting to the MLS franchise. Daley likes to keep the promises he makes, and the Anschutz group, and Peter Wilt, didn't know what hit them.
I just glanced through this really quickly and thought I'd chime in because I do exactly what you guys are talking about for a living. 1-The value of any business is the actual cash flow thrown off by the business (this excludes depreciation but includes the tax benefit of depn) taken at some estimated discount rate relative to the industry the firm operates and specific issues related to the firm. 2-If the adjusted value of the equity exceeds the discounted cash flow of the company, this is the floor value of the asset. If a company generates $0 in cash flow but owns a stadium that could be sold for 30 million (net of any liabilities), the company is worth 30 million. 3-the fixed asset valuation guys i work with perform a function called cost seg. Different types of assets can be depreciated at different rates. Some of 8 years, some 30, etc. A permanent structure can't be depreciated in 10 years. But it's lighting, scoreboard, seats, and other fixtures could possibly. 4-depreciation in accounting can be a bit of a scam, however, the alternative to using statutory tables is to perform a detailed impairment test of the fixed assets every time a new balance sheet comes out. this is really expensive and not at all practical. 5-assume you buy a club for 50 mil and they own net assets worth only 5 million, but their fair market value is higher. the following steps occur on your balance sheet. a-the stadium and other fixed assets are no longer valued at their depreciated cost (5 million), but at their fair market value--30 million. b-the rest of the purchase price is then allocated to intangibles as identified by the new FASB rulings. this could be brand value, training systems in place, territorial rights, etc--this is any identifiable intangible permissible under FASB which directly contributes to the value of the firm. lets say this is 10 million. c-the residual 10 million is goodwill. as an operator of the club, you are then free to depreciate your assets according to what is legally permitted all over again--in other words you get a big depreciation benefit to offset your true earnings in the beginning for separating out the depreciable assets like windows, desks, mechanical and electrical devices etc at the beginning. Assuming you make zero improvements to the facility, once the previously mentioned items are are depreciated, all you can depreciate is the actual building (steel frame, bricks, etc.) over 39 years. the losses owners throw around aren't realistic because the concept of bottom line earnings is a misleading concept.
As someone who does a bit of small company finance, I occasionally do this for a living too. Chicago76, my understanding of the change in accounting rules is that you (a) USED to have to amortize goodwill (that is, take an annual phantom "expense" against revenue and that (b) under new FASB rules, you can't do that anymore. So in the example you gave, you could depreciate $40 million of that $50 million purchase price, with the $40 million including the $10 million allocated to "intangibles." In the case of the Empire State Building changing hands, "fair market value" would likely be the building's replacement cost -- that is, the cost of building an umpteen story office building in mid-town Manhattan. But the sale price of the Empire State Building may be higher than that. Consequently, how much of this purchase price is allocated to the intangible "prestige brand" of the building, and how much to "goodwill?" This is a tough, tough, accounting question. For a long-term sports franchise, like the Yankees or Real Madrid, the value of the "intangible assets" are significant; for, say, the Columbus Crew, well, there's not a whole lot there, at least not yet. However a new MLS franchise, with a new statdium, has some significant depreciation potential. As a result, you need to manage your cash so you cover expenses, and wait for the asset appreciation to kick in. Back to my original "financial imperative."
Thumbs up for the Thread You know, as a corporate attorney for a Top 20 global law firm, I can write long threads detailing the potential legal ramifications of Landon Donovan's three-party contract with MLS and Bayer Lererkusen (just check the Yanks Abroad forum ). This stuff, however, I couldn't come up with in 10 times the time it took you guys to post it. By concentrating really hard, however, I can follow your arguments, and it's well worth the effort. Five Stars for the thread, even if I can't contribute to the economics discussion. This is the kind of analysis that makes Big Soccer worth following. Thanks. Karl, given your fixation on "cash flow" as the basis for measuring success, I thought you might get a kick out of the following link. Guess you and Bezos should go out for a few drinks and compare notes... http://www.business2.com/articles/mag/print/0,1643,42734,FF.html
Correct, under the new FASB rules one does not have to write-off goodwill over a period of time. This has the effect of increasing earnings (but not cash flows). The change in accounting rules now requires the value of the goodwill to be analyzed I believe every year. If the value of the goodwill is found to be "impaired" - the company must write off however much value has been "impaired." Example - If you bought an asset for $50M and it only had a book value of $10M - you record goodwill of $40M. However, a year later that asset is only worth $40M - the company takes a write-off of $10M. The new rule allows companies to take this write-off below the line right now which is why you see so many companies (especially techs) rushing to take the charge this year. After this year the charge will run through your operating expenses and hurt operating profits.
Re: Thumbs up for the Thread Mav, thanks for that link. Very interesting. I don't follow Amazon -- I've stayed away from the dot.com stocks -- but it doesn't surprise me, given that Amazon has stuck around, that Bezos understands this. I would also bet that Amazon, with its extensive investment in hard fixed assets like warehouses and such, is taking a boatload of depreciation. The real issue for these guys -- as it is for a sports franchise -- is can you generate enough cash internally to cover expenses? Most dot coms had to keep going back to the equity and debt markets, raising money from outsiders to cover costs. In this approach, sooner or later, the jig is up. But if you have enough cash coming in from customers -- your cash from operations -- then you can continue to survive. A little bit more cash as time goes on, and THEN you can go get more money (borrow it or sell stock) to make improvements to generate MORE cash. Meanwhile, I found it interesting that Bezos quoted The Intelligent Investor. A great book, though for the longest time on Wall Street, it was considered passe. Its major premise? Buy companies with undervalued assets. One way to determine if a company is undervalued? Cash flow. Graham and his pad Dodd weren't old fogeys, but instead years ahead of their time.
Thanks for that clarification. Now I recall the big stink about this whole subject last year when companies were up in arms about this new FASB principle -- and they're right to be upset. First, it requires hard work to assess the "impairment" , i.e., the decrease in market value every year. FASB would argue that this approach is "fairer" -- in effect, you are "marking to market" the value of your assets each year. But I think FASB is dead wrong to force you to run this expense above the line in the operating profit area. This isn't a "real" expense in the day-to-day operation of your business. Above-the-line is the place where people should see what's happening, short term, in the core business that you are in -- making widgets, or hawking books, or selling game day tickets. Take your goodwill charges FURTHER down. Otherwise, t's really mixing apples and oranges.
Query So, to bring it back to MLS... Leaving aside the financing of MLS-controlled stadiums, once they're built and MLS gets control of the revenue streams, what's the picture look like? Do we need our own stadiums everywhere, or does the occasional Kansas City or New England really hurt (so long as they draw upwards of 15,000 per game on average)? I was under the impression that the new lease in Colorado was substantially friendlier than the old one, resulting in something close to positive cash flow. Everyone agrees that the Metros are screwed something royal by the NJSEA, but is a Harrison stadium the ONLY realistic option? What are the practical ramifications of league-wide positive cash flow? Assuming MLS keeps single-entity (a safe assumption, IMO), are player salaries going to rise immediately? (Probably not.) So where's the upshot -- greater investor interest?
Re: Query Before I begin, keep two things in mind: there are "book" expenses and then their are "cash" expenses. Now, New England and Kansas City are complicated situations, in that ownership there goes across two professional sports teams in the same venue. As a result, Hunt and Kraft probably engage in various forms of "transfer pricing" where they can allocate book expenses between the two teams. Meanwhile, from a cash outlay point of view, they can spread out their cash expenses across both franchises (stuff like ticket sales, groundskeeping, and so forth, where you can leverage the operations elements that are already in place). They must do this carefully, as to not run afoul of GAAP, but from my understanding things are pretty flexible. If you need to lease your facility (and remember, Kraft and Hunt are effectively "leasing" their facility from themselves), as is the case in Colorado, then things are purely in a cash mode (though even there, if you engage in "leasehold improvements" that you benefit from you can depreciate them). Thus its the best deal you can strike. What you're seeing in Colorado, and you will see in Soldier Field if the Fire goes back there, is that the stadium owners WANT MLS to succeed so they are willing to structure better deals. If MLS succeeds, and the deal is attractive enough to keep them in their facility -- and facility use is what they want -- it's win win all around. I hear throught the grapevine the Fire deal in the new Soldier Field is quite good. And you know what? The Fire are getting more and more leverage. You know that Mayor Daley and the Chicago Park District are taking note that the Fire right now are selling out all their home dates in a mediocre facility with a terrible field in a location that is a pain in the butt to get to. So the answer is, no, we don't necessarily need SSS everywhere, but it is probably an overall better business proposition if you can make that work.
Interesting... I agree that cash is king. It would be really interesting to see what operating losses or profits MLS has. Other numbers: EBITA numbers would be interesting too- if they are calculating in good faith, and how much debt is involved to outside lenders. Can general accounting principles can applied to sports? How do you value a team- it's a brand, it's a mostly a local product, and it's also a luxury/prestige product. As for Amazon- I don't know what's the relevance. People seem to believe their pro forma results, and they have lots of revenue.
Another interesting question to ask, coming to it from another direction, is "how much cash infusion do the OOs have to put in every year to cover cash expenses?" In other words, does Phil Anschutz have to write a check, of say, $5 million per franchise every year to meet expenses? My guess is no. Again, it boils down to the key economic issue: are you generating enough cash internally to cover your nut? If you're doing that -- and the league is doing that -- then the league is viable for the forseeable future. You don't have to have "profits" to keep on going. See major league baseball. There's no doubt at all the Amazon is moving a lot of merchandise. Of course, "revenue" can also be a tricky accounting issue too -- you'd think it would be "money that customers give me", though in the case of some pass-through entities like PayPal, that number is astronomically high, but doesn't really reflect what the business REALLY takes in.
Yeah, impairment is tested once a year. And amortization is no longer automatically taken. This new reg essentially guarantees me full employment for as long as I stay in this field. As far as intangibles go: some have indefinite lives, so depreciating them does not necessarily happen. It could really go either way, as long as the analyst creates a coherent argument. While I agree that brand value for the Yankees dwarfs a team like the Columbus Crew, there is still some real brand value there. In your Empire State Building example, what you would do is take another similarly old building with similar creature comforts in midtown Manhattan and inquire about commercial rental rates in this building. You would then do a pro forma valuation of the Empire State Building using its rental rates and the other building's rates. The difference is primarily, if not completely brand. For high rises these days, often times there is actually negative brand value. Understandibly, most people don't want to spend 40+ hours a week in a famous building high off the ground. The Crew's brand value is actually higher than you would think, because their brand is built around three things: the Crew name, the MLS name, and the SSS they play in. If the Crew had the same players and played in a Sunday men's league under the name Mad Hatter FC or even if they were the Cincinnati Riverhawks, how many people would pay to see them or buy merchandise? The team's brand is built on the Crew brand and their reputation of MLS play in a great soccer environment. Cash is most definitely king. From a fundamental standpoint, cash flows mean everything. Another component that must be measured is the likelihood of another investor to coming in and buying the franchise at a later date. If your asset isn't easily transferable, you may not want to enter the investment despite positive cash flows. This is part of the reason the valuations of sports franchises took off in the 80s-90s. It seemed like there was always rich guy B in the wings to buy a team after rich guy A got bored of tinkering with it. I don't think soccer is there yet.
Well, clearly I'm gonna stop speculating on the hard-numbers aspect of accounting. Economists are really philosophers (especially the best ones, from Adam Smith to Karl Marx down to Milton Friedman), and my not so humble opinion on accounting is that it shows how for astray you can go when you divorce philosophy from finances.
Me, I'm into number theory... Anyway, A physicist, an engineer, and an economist are trapped in a room without a ceiling. The room is 15x15 with 20 foot high walls. After a while they start to get hungry and decide they need to work together to get out. The physicist thinks about it and comes up with a plan where two of them would catapult the third to the top of the wall. After several dismal attempts, they realized that it just wouldn't work. The engineer then comes up with a plan that has them form a human ladder, standing on one another's shoulders, with the person on top jumping for the rim of the wall. Luckily nobody was hurt in the attempt. Finally the physicist and engineer turned to the economist and said, "we're all out of ideas, what have you got?" The economist simply smiled and said, "it's simple. Just assume ladder."
Stan, you're absolutely correct about the disconnect between what I would call "economic philosophy" and actual economic activity. The thinkers you listed here are, in some respects, pure geniuses because they distilled key intellectual concepts -- getting them to a kind of pure essence. Yes, even Karl Marx, with his notion of the "surplus value of labor," falls into that category. But in the real world, this simplicity gives way to the endlessly creative methods people have of developing economic "policy" that, in the end, really governs economic activity. Sometimes policy which springs out of that philosophy winds up looking very little like the philosophy that spawned it. See the Soviet Union. Of course, down-in-the-trenches economists truly understand this, and that's why microeconomics (the theory of the firm) is so dominant today (as a B-school professor once told me, all business problems are microeconomic problems). And this also why the Chicago school is walking off with all the Nobel prizes. They look first at what policy IS doing, analyzing its real effects, and creating broad explanatory foundations. As a result, you get great insights like capital markets theory and option pricing models that are powerful tools for understanding the real world.